In constructing a Business Case for an HRM initiative, discuss the importance of cost-benefit analysis, Return on Investment (ROI) and short/long term evaluation. You may use examples from your own experience.
3. Return on Investment (ROI)
6. Critical Reflective Analysis
Introduction of an Information System to Save Time and Boost Productivity
A Human Resource Information System refers to the link between human resource and information technology at the workplace. The Human Resource Department deals with a lot of data including employee information and operations in the business that is linked to human resource (Maier et al. 2013). For this reason, it is important to develop a system that centralizes all this information saves the company a lot of time and ensures efficiency in operations. The introduction of an information system to Bright Construction Company saves the management team a lot of time through automation which enables them to focus on improving the performance of the construction employees. This is done through easier management of performance appraisals and aligning their goals at work (DiBernardino 2011). It also gives them a chance to create development strategies based on the staff performance. Employees can be more productive when dealing with an efficient system.
Information on hours worked, and payroll records for the construction workers done manually involves a lot of paperwork and chances for errors are high which may cause the company to lose a lot of many through transactions with corrupt data (Storey 2007). There is also a need in Bright Construction Company for a system where the construction workers can communicate and share relevant information easily with management. Frustration from poor communication among employees makes them less productive. The HRM initiative in this situation is therefore to introduce software that keeps online records of employee information, employee operations and performance (Teotia 2012). The software also eases access to this information to both the human resource and staff and ensures accuracy and speed. There would be training on the new system to the HR management and all construction workers as well as monitored adjustment from the manual system.
The cost-benefit analysis compares the benefits of the introduction of the information system vis-a-vis the costs involved in making this decision (Nagendra and Deshpande 2014). This review ensures that the decisions made about this information are optimal and that the process of making the decision is well understood and communicated to the interested parties. The benefits of a decision or investment presented by a business should be more than the cost incurred through the implementation of the initiative. The cost-benefit analysis, therefore, involves quantifying the benefits and the cost in the form of money and making the appropriate comparisons (Boardman and Boardman 2008). Analysis of the positive and negative outcomes makes sure a company makes the right investment and that this investment is worth taking even in the long run.
Importance of Efficient Communication Among Employees
Most data regarding costs and benefits in human resource is qualitative and this makes Cost-Benefit analysis less common in the field. Benefits and cost will, therefore, have to be quantified to dollar value for proper comparisons to be made. Decision makers will use the results of this comparisons to makes sure an investment such as an introduction of a human resource information system gives a return on investment (Troshani, Jerram and Rao Hill 2011). The process of cost-benefit analysis at Bright Construction Company for the development of human resource information system would involve quantifying benefits and costs. The benefits are the reduced number of human resource staff required, and this advantage will be quantified using the salary and allowances of the laid off staff. The predicted productivity of the construction workers due to better management is also quantified and measured concerning the expected profits. The benefits resulting from accurate data and efficient payroll system reduces the expenditure of extra payments that might have occurred from poor data management and payment tracking. Proper tracking of absenteeism, leaves and holidays using the new system and less HR staff also contribute to savings in the payment expenditure (Al-Dmour and Zu’bi 2014). The total quantifiable benefits add up to $500,000 calculated for a year.
The adverse outcomes incurred from the system are the cost that will be required for regular maintenance of the system, the purchasing cost of the selected software, expenditure from the training of the software and the fees paid to new employees, hires to introduce and maintain the system (Armstrong and Taylor 2014). The total cost is calculated to be $250,000 per year. The cost of purchasing the software, its introduction process and maintaining the system over time has to be less than the savings to realize a return on investment in the company. A calculation will involve getting the benefit-cost ratio described in Appendix 2. Given the company realizes the total savings after a year to be $500,000 and the corresponding cost $250,000 then BCR=500,000/250,000=2. This interprets to 2:1 where every $1 invested returns a benefit of $2.
Return on investment (ROI) refers to the losses or gains resulting from the decision of an investment in comparison to the money used in investment (Hussain, Wallace and Cornelius 2007). The benefits at Bright Construction Company have been identified to be salary and benefits from the reduced number of human resource staff required. Others are profits from predicted increased productivity of the construction workers due to better management, and the money saved through accurate data and efficient payroll system that might have been lost from poor data management and payment tracking (Iwu and Benedict 2013). These benefits when quantified are found to be $500,000 yearly.
Cost-Benefit Analysis for Calculating Return on Investment
The cost of introducing the information system is the cost required for regular maintenance of the system, the purchasing cost of the selected software, expenditure from the training of the software and the fees paid to new employees, hires to introduce and maintain the system. This is quantified to be a possible $250,000 for a year resulting from the introduction of a human resource information system.
Calculating the Return on investment is done using the formula in appendix 2. Therefore, using the previous example of a construction company making savings of $500,000 after a year and $250,000 cost, Net benefits=$500,000-$250,000=$250,000 so ROI= ($250,000/$250,000)*100=100%
This shows that every $1 investment returns $1 in profits after covering costs
It is important to keep track of how effective a human resource information system is immediately after implementation and after a period to make sure it still has a return on investment (Khrishna and Bhaskar 2011). Short term evaluation at Bright Construction Company will be done through the issuance of questionnaires which collect qualitative data on the experience of the construction workers with the new system. Tracking of the hours and expenditure linked to either the ease or inconvenience caused by the introduction of the information system is also another method through which short time evaluation will be calculated (Wilson-Evered and Hartel 2009). This will identify any immediate changes in productivity by dollar hours and also keep track of the cost of adjusting to the system.
Long-term evaluation is important because it shows the validity of an individual project even under various situations and changes after time. Long-term evaluation of the success of the human resource information system at Bright Construction Company will be done after a year. One factor to consider when choosing indicators to measure success would be the objectives of implementing the information system in the first place (Thite, Kavanagh and Johnson 2009). The company introduced the human resource information system to reduce the load of the human resource staff and give them time to focus on more pressing issues. Evaluation of this process after a year will be done where information on levels of productivity and hours saved by the HR by using the system will be collected from records on the system and compared with the resulting information from before the information system was implemented. Interviews with regular employees seeking to find out whether they have experienced any changes in the efficiency of HR since the introduction of the information system will also be carried out and all the results analyzed.
Short-Term and Long-Term Evaluation for Ensuring Success
It is also important to make a note of the problems implementation and adjustment may cause in the process. Lack of familiarity with the system can disorient employees at all levels and paralyze operations. Training and monitoring both staff and managers are therefore imperative to make sure this does not happen. Employees may also tend to resist the new change, particularly as it may involve training. This slows down the adjustment period, and the negative creates an unsuitable work environment. The motivation of the employees should, therefore, be incorporated in training. Expert help is also needed to make sure the company gets the most return on investment possible by optimizing the function of the system (Franco 2016).
Assessing whether a new system gives the desired level of quality and accuracy can be challenging and could warrant the involvement of policy analyst. Failure to understand how to integrate the company’s legal requirements with the new system could lead the company to hefty fines and possible audits. For this reason, engaging an expert at the system to identify the compliance regulations required by the enterprise using the system will be done. Failure to ensure the security of data used and stored in the system could compromise the information and operations of the company. Bright Construction Company will, therefore, make sure the system is secure and implement ways to evaluate security over time.
Developing an HR information system at Bright Construction Company will be done with the aim of upgrading from a manual system and the inconveniencing compilations that it involves, better communication at the workplace, more efficient management of performance and even the benefit of self-service which makes operations easier for everyone. The determination of this objective is followed by an investigation into the possible advantages and costs to find out whether the project will have a return on investment, which is the desirable outcome. The benefits identified are increased productivity, saving time and better engagement in HR and among employees. These returns are found, to sum up to a total of $500,000 per year while the costs add up to $250,000 yearly.
Return on investment and cost-benefit analysis, the tools for analysis used in this business case, indicate that the benefits of the integration of an information system in human resource outweigh the cost of purchase, time taken and maintenance (Smolcic, Thomas and Contacos-Sawyer 2014). Evaluation is done immediately after implementation and a year after the implementation from examples from similar companies still indicates greater benefits than cost. This ensures a return on investment as seen in both long term and short term examples, and the introduction of a human resource information system is, therefore, recommended for a more efficient working environment. The performance of the company also improves through the human resource information system (Bhuiyan, Rahman and Gani 2015)
Challenges in Implementation and How to Manage Them
Critical Reflective Analysis
Writing a business case for the development of a human resource information system for Bright Construction Company has made me realize that the return on investment of a proposed decision is equally as important as the objective of the decision. Quantifying all the costs and benefits expected from the proposal can be hard since some of them are qualitative. Conversion of some of these to billable hours helps when applied to some of them.
Trying my best to lower expected expenditure in a business case and at same quality seemed to help me to justify the proposal in the business case better. The process of writing a business case requires proper descriptions of how the project will benefit the company and the points presented should be convincing. I have also learned the benefits of developing a human resource information system in the business. It was evident from the business case that consistency and commitment in the implementation of the human resource information system are are necessary to gain the full benefits of the system and return on investment.
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