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HR Needs Analysis and Cost Estimation

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Sharing one of the HRIS lectures designed by our Unit Coordinator and Lecturer: Dr Shah Miah from what we have learned through our Master Program. Greatly appreciated of our teachers guidance and support.
"Hopefully, the readers can use this resource for educational purposes and in a good way"

Published in: Data & Analytics
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HR Needs Analysis and Cost Estimation

  1. 1. HRIS Needs Analysis and cost estimations
  2. 2.  “Failing to plan is planning to fail.” (Alge & Upright 2009, p.80)  “Use the right tool for the job,” the old saying goes, “and to use the right tool you have to know what job you’re trying to do.” (Meade 2003, p.84) 2 Do you need one?
  3. 3. 3
  4. 4.  Australian Defence Force  ADF some time ago flagged its intention to replace the HR systems with a wider solution. In December 2009, chief information officer Greg Farr told ZDNet.com.au that the department expected to ditch the "far from perfect" HR systems in 2009 in a tender worth around $400 million. (LeMay 2009)  http://www.abc.net.au/pm/content/2010/s2815919.h tm 4 Payroll implementation
  5. 5. “Behind every successful HRMS implementation, there was a thorough needs analysis". You can quote me on that! I cannot back that statement up statistically, however, after over 25 years in the business and 10 years of listening to IHRIM (International Association for Human Resources Information Management) members share "war stories", I am totally convinced that the amount of time spent on a thorough needs analysis before purchasing and implementing a new HRMS is the best barometer for predicting the success or failure of the project.” (Doran 2010) 5
  6. 6. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. 6 SYSTEMS DEVELOPMENT LIFE CYCLE (SDLC) Continuous and iterative nature of planning and analysis! Figure 4.1
  7. 7. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc.  Planning  Long-range  Short-range  Analysis  Needs Analysis  Gap Analysis 7 SDLC: Overview
  8. 8. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc.  Design  “Blue print” for the system  Vendor selection  Implementation  Build, test and readied to “go live”  Maintenance  Corrective, adaptive, perfective & preventative 8 SDLC OVERVIEW
  9. 9. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc.  Needs: long-range planning  Strategic  “Big picture”  Phase containment  Needs: short range planning  Operational  Specific projects and programs 9 SDLC: Planning
  10. 10. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc.  Where are we now?  Where are we going?  How are we going to get there? Revise and revisit these questions On a regular basis! 10 THE BIG 3
  11. 11. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc.  Dissect and document current capabilities  Identify and prioritize needs  Conduct A gap analysis  Review the feasibility analysis  Determine usefulness of gap analysis in developing RFP for vendors 11 ANALYSIS
  12. 12. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc.  Current analysis  Use combination of methods:  Interviews  Focus groups  Surveys and online tools  Organizational archives 12 ANALYSIS: WHERE ARE WE NOW?
  13. 13. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc.  Who to ask:  HR functional experts  Job experts  Technical experts  End users  Top management  Consultants and other business partners 13 ANALYSIS: WHERE ARE WE NOW?
  14. 14. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc.  Heart of the needs analysis  Business requirements definition  Point at which organization determines and documents its current and future needs  Often used interchangeably with needs analysis  Prioritize business and system needs 14 ANALYSIS: WHERE WE NEED TO GO
  15. 15.  Where are we going?  Strategic vision:  To transform the University’s way of doing business into a flexible and user-centric portfolio of applications that integrates all Purdue enterprise data, information and processes  Helped identify needs in detail and select best system  Resulted in SAP-HCM 15 Purdue University
  16. 16. 16 Who, what, where and when at Purdue (Alge & Upright 2009, p.88)
  17. 17. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc.  http://www.erp.com/attachments/4074_Accelerated% 20SAP%20Implementations.pdf 17
  18. 18. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc.  Culmination of the needs analysis.  Compares current state of hris with desired state of hris  What important needs are not being met  What important needs are being met  Important decision making tool for HRIS project leaders. 18 GAP ANALYSIS
  19. 19. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. 19 HYPOTHETICAL GAP ANALYSIS REPORT Figure 4.6
  20. 20. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. 20 THE BIG 3 NEEDS TRIANGLE Figure 4.7
  21. 21. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc.  Who should determine what our needs are going forward?  How can we ensure that all of our needs are identified?  How do we limit the scope to the things we truly need?  Is it feasible at this point to implement a system that can meet our critical needs? 21 NEEDS ANALYSIS: CRITICAL QUESTIONS
  22. 22.  Basically a Project Management activity  Stipulate objectives, activities, time-frame, costs, required resources and staff, information collection methodology  Will help encourage management of project viability 22 Develop a NA Plan
  23. 23.  Typically, 2 reports emerge from the NA process  Long, technical, operational document, to guide system development or selection/purchase  Summary version, to trigger action from top management 23 Develop the HRIS Strategy
  24. 24. Finally, a critical review of the whole process  As a guideline for any future modifications, or for a new purchase in future years  an analysis of which activities worked well and which didn’t  a phase possibly ignored by many organisations (many don’t even do NA’s!)  Discuss alternatives 24 Evaluate the NA Effort
  25. 25.  There’s no one right way for NA. Every organization is unique.  Even a token attempt at NA can save a lot of time, money, effort and heartache. 25 Conclusion
  26. 26. Lect part 2 Cost Justifying HRIS Investments
  27. 27. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. CUSTOMER-ORIENTED PERSPECTIVE OF THE HRM FUNCTION Customers •Line managers •Strategic partners •employees HRM Function Technology •Staffing •Performance Management •Rewards •Training & Development Customer Needs • committed employees •competent employees All can be measured Benchmarking & Best Practices 27
  28. 28. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. MEASURING HUMAN RESOURCE EFFECTIVENESS: WHY DO IT?  Market the function  Provides accountability  Demonstrate contribution to bottom line  Cost justify HRM programs  Tie to strategic planning 28
  29. 29. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. IDENTIFYING HRIS VALUE  HR moving from being a cost center to profit center (Cascio, 2000)  Traditional financial measures not sufficient – Many HR outcomes are intangible, eg. Employee engagement  Direct (hard) & Indirect (soft) benefits  Implementation costs: Direct (h/w, s/w, customization); Indirect (lost productivity)  Timing of benefits (short & long term) 29
  30. 30. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. EVALUATING HUMAN RESOURCE PRACTICES: APPROACHES  Audit approach – Key Indicators  reviews outcomes of HR functions  benchmarking  Analytic approaches – best practices  determines whether program had intended effect/impact: Fitz-Enz  estimates costs / benefits of program utility analysis: (CBA) 30
  31. 31. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. BEHAVIOR COSTING APPROACH: VALUE CHAIN (FITZ-ENZ) PROCESS Change recruiting source OUTCOME IMPACT VALUE ADDED Shorten time to fill jobs Less need for overtime or temporary employees Cost Savings 31
  32. 32. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. HRIS COST BENEFIT ANALYSIS  Language of business is dollars & HR should learn this language  HRIS CBA: Comparison of projected costs & benefits  Covers full suit of HRIS functionality (transactional/ traditional/ transformational)  HR Metrics: (Table 6.1, Ch.6) Absence rate/ Cost per hire/ Healthcare costs/ HR Expense factor/ Human capital ROI & value added/ training costs/ turnover costs/ OHS costs…  Compare costs/ value within & outside 32
  33. 33. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. JUSTIFYING HRIS COSTS  Risk Avoidance strategies (Y2K)  Organization Enhancement Strategies: Increased revenue or reduced costs due to new/ improved HRIS  Evolution: Manual to automation; web applications; further improvements will have incremental not radical benefits; Value add is seen as more important than cost reduction but how to measure it? 33
  34. 34. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. GUIDELINES TO SUCCESSFUL CBA Table 7.1  Objective is improving organisational effectiveness  Be honest with yourself – open mind  Focus on functionality not products  Estimate benefits first & costs later  Know your business  Develop the best estimate possible  Separate CBA from justifying final decision 34
  35. 35. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. HRIS CBA INVESTMENT ANALYSIS  Requires three basic pieces of information  (1) sources of costs and benefits,  (2) an estimated dollar value for each cost and benefit item, and  (3) the time when the organization will incur each cost and receive each benefit. 35
  36. 36. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. HRIS COST BENEFIT ANALYSIS MATRIX: FIG. 7.1 Direct (Hard) Indirect (Soft) Benefits Revenue Enhancement 1 New Revenue (new sales) 2 Improvement Potential (better decision making) Cost Reduction 3 Direct Costs (cancelled vendor contracts) 4 Potential Costs (saved staff time) Costs New Implementation Costs 5 Out of Pocket Costs (software, service agreements) 6 Indirect Costs (increased technical support needs) 36
  37. 37. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. EXAMPLE OF AN E-LEARNING CBA MATRIX: TABLE 7.2  Direct (Hard)  Revenue enhancement - Outsourcing e-learning  Cost reductions - Reduced travel expenses  Costs of implementation - Software fee/license  Indirect/Contingent (Soft)  Revenue enhancement - Better customer service  Cost reductions - less lost productivity while waiting for training  Costs of implementation - Courseware redevelopment 37
  38. 38. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. ESTIMATING INDIRECT BENEFITS 1. Estimating benefit magnitude 2. Mapping benefits to cost or revenue changes 3. Converting magnitude estimates to $s  Eg., Estimating the value of ‘exit interviews’ in reducing turnover 39
  39. 39. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. APPROACHES TO ESTIMATING BENEFITS: TABLE 7.3  Direct Estimation  Most appropriate for risk avoidance (eg., costs reduced by employee self-service )  Benchmarking  Build on others’ experience (eg., PeopleSoft implementation costs in other organizations)  Internal Assessment  Analysis based on specific internal assessments of actual costs and likely benefits (e.g., activity-based costing)  Mix and match  Using combinations of these approaches 40
  40. 40. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. GENERAL CATEGORIES OF COSTS OF HUMAN BEHAVIOR IN ORGANIZATIONS  Turnover  Absenteeism and sick leave  Effects of Smoking in Work Place  EAP & Wellness programs  Employee attitudes  Labor contract costing  Recruiting  Selection  Job Performance  Training  Career Development 41
  41. 41. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. COSTING THE EFFECTS OF SMOKING  Incremental absenteeism  Incremental medical care  Incremental morbidity and premature morbidity  Incremental insurance  Incremental on-the-job time lost  Property damage and depreciation: burns & odors  Reduced maintenance  Involuntary smoking – 2nd hand smoke 42
  42. 42. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. COSTING EMPLOYEE TURNOVER  3 components of costing employee turnover  Separation costs  Replacement costs  Training costs 43
  43. 43. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. SEPARATION COSTS  The four components of separation costs are as follows:  Exit Interview  Interviewers time  Termination time  Administrative Functions Related to Termination  Removal of employee from payroll  Termination of employee benefits  Turn-in of company equipment  Separation Pay  Severance packages 44
  44. 44. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. REPLACEMENT COSTS  Replacement costs consist of eight components as follows:  Communication of job availability  Pre-employment administrative functions  Entrance interviews  Testing  Staff meetings  Travel and moving expenses  Post employement acquisition and dissemination of information  Medical examination 45
  45. 45. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. METHODS FOR ESTIMATING THE VALUE OF INDIRECT BENEFITS: EMPLOYEE TIME SAVED  Average Employee Contribution (AEC)  baseline contribution value by jobs that is consistent with the actual financial performance of the organization.  AEC = (Net revenues – Cost of goods sold)/No. of employees  Individual employee differences (variance) in work outcomes  variance differences are produced by a large number of individuals holding equivalent positions  basis for utility analyses for developing contrasting cost-benefit ratios 46
  46. 46. Michael J. Kavanagh, Mohan Thite, and Richard D. Johnson - Human Resource Information Systems: Basics, Applications, and Future Directions, 2e © 2012 SAGE Publications, Inc. THREE COMMON PROBLEMS IN DEVELOPING AN HRIS CBA  it ignores HR’s more strategic role in improving organizational effectiveness  in many instances items listed as direct cost reductions are actually indirect cost reductions  be sure that value estimates assigned to time saved are reasonable 47

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