This blog post is courtesy of HRMS World.
Unless you bought your HRMS for purely ornamental purposes, you’ll be looking for a return on your investment. You’ve invested time, money, and probably a great deal of effort so you expect to see some benefits from that expense. Those benefits might be reduced costs, headcount savings, freeing up people and resources for higher priority work, and of course, better management of your HR processes. All returns worth having – the question is, how to measure those returns.
The importance of measuring HRMS ROI
Measuring or calculating potential ROI takes time and effort but it is an important part of justifying the expense to your executive team. Other key benefits of measuring the ROI of your HRMS purchase are:
- You gain insight into the efficiency of your HR processes.
- The results can help guide your future HRMS strategy (e.g. Do you need additional modules? More user training?).
- You get feedback on the quality of the vendor you selected and the implementation process.
- You know – and can prove – you got your money’s worth (or not).
Estimating ROI before implementation
Presumably, you have a business case. That is a good place to start your ROI exercise. That document (even if it’s on the back of a used envelope) promised improvements in terms of cost, efficiency or resources. While the business case points you in the direction of what to measure, you need to decide on the right metrics – what data will you use to determine the improvements? That choice of metric may be restricted, depending on what historical data you have available, but data sources might include:
- Calls or inquiries to HR for specific types of information or help now available via HRMS self-service
- Engagement – comparing data from before-and-after staff opinion surveys
- The proportion of your business’s total operating costs allocated to your workforce
- Or, specific process metrics, such as recruitment metrics (e.g. time to hire, source of hire, and offer acceptance rate).
Depending on your organization, and what benefits you hope to get from your HRMS, your data sources may vary.
Measuring actual ROI
Once you have an idea of where to find the data, you can start measuring: first, what it cost you to get the system up and running; second, what value you have gained from it.
What did it cost?
The total cost of your HRMS consists of a number of expenses, including:
- Ticket price – What the vendor charged you for the software.
- Installation – Includes staff time (project teams, meetings, user groups, etc.), user training, consultancy fees (if any), storage space in the cloud or servers/hardware if on-site.
- System maintenance – Includes staffing costs (anybody involved in keeping the HRMS running), the vendor’s maintenance and support service, and any other ‘extra’ expenses contracted for.
- System upgrades – Not usually a frequent expense, upgrades may nevertheless be an additional cost point.
What value have you gained from it?
- HR productivity KPIs.
- Time savings due to HRMS self-service transactions.
- Improved employee retention (e.g. as shown by the impact of the HRMS on your recruitment metrics).
- Reduced employee turnover (how many recruitment campaigns have you NOT run due to the better retention?).
- A reduction in time-per-transaction for common HR processes.
- Better attendance for training activities and therefore better value for money.
- Fewer sanctions or penalties for compliance issues.
How to determine whether the project was worth it
In a nutshell, did you save more than you spent? That’s the bottom line, but within that single conclusion, there are nuances, and you can drill down for a closer insight. For example:
If the balance is on the side of the savings, was it enough to make the investment of time, money, and effort worth it?
If the system cost more than it returned, what happened? Where were the contributing factors or pitfalls? Maybe the chosen HRMS was not fit for purpose, or insufficient user training led to a low adoption rate, or people simply didn’t know about the change of system (check your communication strategy!)
The final question is practical: what next? How do the results of this ROI exercise shape your future? How will you drive adoption and use of the system? When will you add further HRMS functionality? What lessons have you learned about implementing HR technology? And so on.
Measuring HRMS ROI is an exercise in learning. And learning is only of use if you apply it.
About the Author: Dave Foxall is a regular contributor to HRMS World, and has worked as HR Manager for the Ministry of Justice for a number of years. He now writes on a broad range of topics including jazz music, and, of course, the HRMS software market.
Trying to justify the cost of new HR technology and struggling to build a business case? Download our eBook on The Business Value of HR Technology.