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Investment Associates
Identify three ways that the HR metrics can be used to justify the purchase on an HRIS.
In the contemporary business environment, many organizations have identified that an effective Human Resources (HR) management enhances organizational effeciencies. To enhnace the functions of HR department, firms have realized that the integration of Human Resources Information System (HRIS) provides primary infrastrutures by which HR department performs effectively. Despite the benefits that an organization could accrue from the integration of HRIS investment, effective cost-benefit analysis (CBA) is critical to make an investment decision. Without a comprehensive CBA on HRIS investment, the HRIS project may be disatratrous and a firm may not enjoy the benefits from such investment. One of the effective methods that a firm could employ for the justification of HRIS investment is the use of human resources metrics. The HR metrics reveal the number of factors human resources contribute to the business advantages. By using HR metrics, an organization will be able to measure whether there is a need to invest on HRIS. While there are several methods HR metrics can be used to justify HRIS investment, this paper considers three of them.
One of the most effective HR metrics to justify HRIS investment is the use of Human Capital ROI (Return on Investment). A Human Capital ROI measures the "return on investment ratio for employees" (.( Calson. & Kavanagh P. 124). The decision to continue with the HRIS investment will depend on the ratio of rate of returns that an organization is getting from employees. A formula to calculate the Human Capital ROI is as follows:
Revenue - (Operating Expense - {Compensation Cost + Benefit cost})
(Compensation cost + Benefit cost)
Using the formula will assist a firm to make an HRIS investment decision. Typically, a firm will proceed with the HRIS investment if it revealed that HRIS project will increase the company's the ratio of return on Human Capital investment.
Human Capital Value Added (HCVA) is another HR metrics to justify the HRIS investment. Human Capital Value Added is used to measure the level an employee add values to an organization. The workforce knowledge is very important...
An organization with large pool of highly skilled employee will consider investing in HR department than an organization with high percentage of unskilled or semi-skilled labor. A formula to calculate the Human Capital Value Added is as follows:
Revenue - (Operating Expense - {Compensation Cost + Benefit cost})
Total Number of FTE
The formula is to measure the profitability of firm's employee. For example, $100,000,000 - $70, 000,000 - $34,000,000
HCVA =
$500
HCVA = $44, 000, 000
$500
HCVA = $88,000
The result of HCVA will influence management decision to proceed with the HRIS investment.
An annual employee turnover rate is another metrics that could be used to determine the HRIS investment. Employee turnover measures the rate employee leave an organization for other organization. In the United States, many employees prefer to work in an environment that would improve their IT skills. Where this is lacking, there would high rate of employee turnover. The formula to measure the annual employee turnover rate is as follows:
# of employees existing the job
Avg actual # of Employees during the period
X 12
+ # mos. In period
With the formula, an organization will determine if the rate employees are leaving the company is over the national average. A company may invest in HRIS to improve employees' working environment and minimize the rate employees are leaving the company if there is high rate of annual employee turnover. .( Calson. & Kavanagh)
2. In preparing a Cost-Benefit Analysis for the project, discuss some of the costs and benefits involved in this investment in HRIS
A Cost-Benefit analysis is simply the comparison of the projected costs with the benefits that will be accrued from an investment. Making Cost-Benefit Analysis before making investment decision is very important to avoid project failing to meet the user's requirements.Typically, the cost of an investment is an outlay costs required for the purchase, implementation and maintenance of an investment. On the other hand, benefits are the financial gain in the investment life cycle.…
Reference
Kavanagh, M., & Thite, M. (2009). Human resource information systems: Basics, applications and future directions. Thousand Oaks, CA: SAGE Publication, Inc.
Calson, K.D. & Kavanagh, M.J. Cost Justifying HRIS Investment: Chapter 6
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