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How to Estimate ROI When Selecting HCM Software

Posted by Amber Walton on Jul 21, 2020 10:58:14 AM

When your business decides to invest in a new HCM system, you want to know when you will see a return on investment, and the amount returned. However, in the beginning, your ideas of an ROI will likely be vague.

The following are a few suggestions to help your company narrow down how an HCM system can benefit your organization both financially and administratively. From there, you can logically estimate your ROI and utilize your calculations to budget and select the perfect HCM software.

When your company decides to acquire an HCM system, there is a clear expectation that profits/savings increase in some way, preferably quickly. Stakeholders will want proof that this investment was profitable or had measurable savings for the Company. Obviously, actual profits/savings may or may not correctly reflect improvements, making it critical to devise a system supplying you with other ways to present ROI.

Calculate All Costs

A great way to show an ROI is to show the difference between the cost before implementation and after. Sum up all funds put towards software, support, and maintenance. Also, add the actual labor dollars spent on implementing the system or wasted because of downtime to determine the total cost of our HCM software.

Track Labor Hours For Manual/Administrative Burdens

Labor = real money. Once you understand how much time is spent performing tasks such as payroll, onboarding, benefits administration, and updating your employee database, it becomes easy to convert those hours into real dollar amounts and determine how much you could save by switching to an HCM system. The most challenging part about this calculation is tracking how much time is actually spent on the specific tasks that can become automated by our HCM system. Our HCM solution offers fully automated workflows, scheduled reporting, employee self-service, benefits enrollment, ACA management, compliance forms, etc.

Estimate The Benefits

When your company implements an HCM system, many features are prioritized by expected time savings and the expected cost. Use this list of priorities to track your ROI, checking if these areas are as beneficial as predicted. After the implementation, expand this list to newly discovered areas that save time and money and track these new areas. There is also the added benefit of consolidating all of your platforms into one system, making it easier to control, view, and manage your HR processes, while also providing a superior employee experience.

Calculate Improvements in Retention and Job Satisfaction

When your employees control their information with a self-service portal, have time off requests approved quickly, and play an essential role in their professional development and training, it can boost confidence and job satisfaction. Employees that are content stick around, positively impacting retention rates. Current retention rates can be compared with other companies that have also implemented HR software to better calculate retention related savings.

Unquantifiable Returns

There will be returns that cannot be calculated numerically, such as convenience, relief from menial administrative tasks, and improvements in recruiting processes. Instead of trying to determine how to quantify these returns, simply create a separate area of your ROI report that lists these items. Most times, these returns are considered perks of the package during the time between implementation and break even on the investment.Usually, they become a determining factor on whether or not to move forward with the HCM package.

Calculate and Compare Final Results

Compare past reports with new data to determine if time and/or money has been saved in the expected areas. Remembering to figure in labor dollars, calculate your exact ROI to date, and don’t be discouraged if progress is slow or not immediately visible, since HCM software is a long term investment.

An ROI calculation is a tool to track your business’ progress, not a final answer for implementing an HCM system. Progress tracking reveals areas that can and should be improved, and an HCM system will improve upon most, if not all, of these areas for greater efficiency and productivity.


Topics: HCM, HRTech, ROI

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