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Cost Benefit Analysis

The document discusses guidelines for conducting a successful cost benefit analysis for an HRIS project. It explains that a CBA analyzes whether the benefits of a project will outweigh the costs. Direct benefits and costs are easier to measure, like time and money savings. Indirect benefits, like increased employee productivity, are harder to estimate. A good CBA identifies all sources of costs and benefits, assigns them monetary values, and considers when costs and benefits will occur over time. This allows organizations to determine if an HRIS investment will improve performance enough to justify the total costs.

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Sangita Poudel
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173 views

Cost Benefit Analysis

The document discusses guidelines for conducting a successful cost benefit analysis for an HRIS project. It explains that a CBA analyzes whether the benefits of a project will outweigh the costs. Direct benefits and costs are easier to measure, like time and money savings. Indirect benefits, like increased employee productivity, are harder to estimate. A good CBA identifies all sources of costs and benefits, assigns them monetary values, and considers when costs and benefits will occur over time. This allows organizations to determine if an HRIS investment will improve performance enough to justify the total costs.

Uploaded by

Sangita Poudel
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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Cost Benefit Analysis (Direct, Indirect cost and benefit)

Cost Benefit Analysis


Many of the time the HRIS project fail which might be because the cost benefit analysis is not
done properly. In the past Cost Benefit analysis was only used for the investment purpose. The
analysis done in the pass was whether the system had the functions required by the company or
not and if the system could be installed within time. Therefore the return on investment from
HRIS can only be possible through cost benefit analysis which is to analyze whether the benefit
will surpass the cost or not. There is no need to know about financial basics for doing cost
benefit analysis.
Here are some of the guidelines for the successful CBA:
 The objective must be to improve the organizational performance or the effectiveness but
not purchase a new hardware. The system should fit the organizational strategy.
 The focus should on how the product will help to function your business or how will it
improve the process. Therefore the focus should be the function not the product.
 Cost is important but more than that organization’s benefit obtained from HRIS important
 Understanding the business process is more important first than only make decision after
you find a potential for improvement if installing a certain HRIS brings.
 Make a proper estimation from the facts and the data’s.
 Cost benefit analysis should be the last part of the process after identifying the packages
that will reap maximum benefit or after examining how each system will improve your
organizational performance.
CBA’s are based on three basic information:
1. Sources of benefit and cost: HRIS is usually perceived as a source of cost rather than a
benefit to the organization. But, the cost incurred can be an indirect benefit in the overall
performance. Therefore it is important to identify benefits and cost. For example training
employees by hiring a trainer to use HRIS could be a cost but if it increases the efficiency
that can be considered a benefit as well.
2. An estimated dollar value for each cost and benefit item
3. The time when the organization will incur each cost and receive each benefit: 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.
Direct benefits
Here, the example of the direct benefit could be outsourcing the HRIS function to
professional to make it more effective. The direct benefit of it would be the low maintenance
cost and time saved on maintain the system. Therefore, direct benefit also means
Cost
It is important to analyze source of cost along with the benefits. Installing a new HRIS
system is a tedious process. The greater the change in HRIS is required it will cost more to
the company. Therefore the company should analyze whether spending that amount the new
HRIS system will exceed the cost or not. The total cost of the organization will be
determined by:
 The scope or size of the HRIS implementation
 The amount of customization required
 The maturity of the HRIS functionality being considered—the less mature the
functionality, the greater the costs of implementation and upgrades are likely to be
 The experience levels of the implementers.

Indirect Benefit
Their occurrence is less certain. The example of indirect benefit could be training the
employees to use HRIS to increase the process efficiency. Therefore the cost of training by
hiring a professional could be an indirect benefit. The other example could be improving
employee capacity to take HR related decisions. The other important example is installing an
HRIS which could position the organization to be able to increase revenue. Therefore
installing a HRIS is a direct cost but the increase revenue is an indirect benefit.
 Estimating the value of indirect benefit
The most difficult task in HRIS CBA is estimating the indirect benefit. Ignoring this benefit
in the CBA could show a misleading analysis.
Indirect Cost
The indirect cost are the cost which occurs while implementing the system. The example of
the indirect cost include:
 The loss of productivity after implementation

Direct cost
Direct cost are easy to measure because the cost information is readily available. Therefore
most of the implementation cost are the direct cost. Some of the examples include:
 Purchase of software
 License required to implement software
 Cost of professional to provide training
 Cost required to maintain the system

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