HRIS: An Evaluation of its Cost and Benefits

Human Resource Information System (HRIS) often described as Human Resource Management System, in the present scenario can serve as a crucial tool in providing a competitive advantage to the organizations. It involves measurability, better management of data and information, equally provide scope for measurement of key HR practices and its outcomes on employee productivity as well as organizational performance. HRIS is usually adopted as well as implemented for attaining the following goals:

  • Improving Efficiencies: Automation in HR, reduces dependence on hard copy form of data and information related with the employee details, facilitates saving of time and resources by way of using online applications/forms created in a user friendly interface. This improves the overall efficiency of the HR department and the HR professionals may focus more on strategic decision making and developmental functions of HR.

  • Mutually Beneficial for both the Management and the Employees: Automation of HR or HRIS, facilitate transparency in the system, thereby result in improved employee satisfaction from his job and convenience for the management in proactively responding to people related affairs.

  • HR as a Strategic Partner: With the implementation of HRIS in the organization, the role of HR expands from merely being a support system or an administrator to a strategic partner. HR functions in alignment with the corporate strategy and today plays a strategic role in driving business objectives through effective management of human resources and implementation of HR best practices/interventions for improved employee performance.

An evaluation of HR costs involves calculation of ROI (Return on Investment) on Human Capital, which generally encompasses an assessment of the benefits or the positive outcomes and also the costs or the negative outcomes of HR led initiatives/practices. The evaluation of costs and benefits of HRIS can be performed with the help of various techniques:

  • Identification of sources of value for costs and benefits of HR led initiatives: This would be involving an assessment of the business environment, changing trends and an evaluation of the strategic course of alternatives.

  • Estimating the Timing of Benefits and costs: This essentially involves comparing the HR costs and benefits in various periods or measuring the costs-benefits of various programs led in different timings. This plays a crucial role during the policy making process.

  • Calculating the value of Indirect Benefits: Indirect benefits are the secondary benefits. This step helps in understanding the influence of various factors on the probability of success of HRIS projects. By estimating the magnitude, one can perform better evaluation of the planning process. For estimation, at first the proper metric is chosen and then direct estimation, benchmarking and internal assessment are done. Benchmarking is widely available, as it has several advantages to offer. It results in better risk management for large scale projects which are in progress. Internal assessment involves an assessment of the firm’s own internal metrics. Here data transfers are much easier and relatively cost effective as well.

    Methods for estimating the value of indirect benefits: These are typically estimated in dollars. It involves a calculation of the Average Employee Contributions (AEC). AEC is derived by calculating the difference between the net revenue of an organization and the cost of goods sold divided by the total number of employees. In short, AEC = (Net Revenues – Cost of Goods Sold)/number of employees.

    AEC is the average employee contribution to the organization. This is a profitable technique for the organization. It helps the HR professionals to estimate their contribution towards the organization. It also contributes towards the assessment of employees’ individual differences and production rate.

Avoiding Common Problems

The HRIS Cost Benefit Analysis process lot of times ignore an assessment of the HR policies and its influence on organizational effectiveness. Calculation of direct and indirect costs sometimes is confused, as a result of which direct costs are calculated as direct costs. Since more emphasis is given on time saving, decision makers fail to analyze the outcomes or the end results of the HR led initiatives.

Packaging the analysis for decision makers

The Cost Benefit Analysis is done by analyzing the overall organizational goals and the objectives which have been planned to be achieved over a period of time in measurable terms. Until and unless, a proper Cost Benefit Analysis is done, decision-makers will not be able to estimate the expenditures on investment. The process enhances the strategies for a firms’ effectiveness. Extensive analysis should be done by the decision-maker through proper identification of direct and indirect cost and benefits.

Variance Analysis: Variance Analysis is one of the methods for assessing the indirect benefits and can equally be used as a measure in the evaluation process. This involves an assessment of the financial and operational data for identifying and ascertaining the cause of the variance which is identified. In project management, this technique can be very useful for evaluating and review the progress in a project, maintaining budgetary control by assessing the planned as well as the actual costs incurred in a project.

HRIS Benefits

According to the opinion of Kovach (2002), HRIS implementation has the following advantages:

  • Improving the organizational competitiveness by way of improved human resource functioning.

  • Provides the opportunity for shifting the focus from day to day operational issues of HR to much more strategic objectives.

  • Employees play an active part in the HRIS implementation and its usage in day to day functioning.

  • Results in reengineering or restructuring of the entire HRD.

Broadly HRIS Benefits can be classified into the following:

  • Advantages for the management in terms of improving the decision making capability of management, effective cost control, clarity of vision and transparency in its operations and more concentration on the strategic objectives of HR.

  • Advantages for the Human Resource Department in terms of improving the efficiency of the HR department, reduced dependence on paper work and manual management of employee data/information, brings standardization in the key processes and reduces redundancy and transforms the HR department into a proactive department.

  • Provides added advantages for the employees as it saves time, facilitates convenience in usage and administration, improves decision making, etc.

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