Assessing the ROI of a HCM suite

HR leaders are constantly attempting to balance two things: delivery of business benefits, and cost optimisation. For many, it’s technology that can help on both fronts. It’s telling that, despite economic uncertainty, research from Gartner suggests that 89% of HR leaders plan to increase or maintain HR tech budgets in 2024, making it the top area of investment for a third year in a row.

However, just like any investment, a decision to purchase a human capital management (HCM) suite can only be made once due diligence has been done – and a big part of that due diligence is establishing what the expected return on investment (ROI) might be. That due diligence forms a key part of any business case and can be used to persuade stakeholders such as the executive team to make that investment.

This article provides tips on how to assess the ROI of a HCM suite.

What is a HCM suite?

First things first: a quick definition. A HCM suite is used by HR professionals and business leaders to automate, manage, and analyse HR functions and people-related processes. Although the functionality and scope of the various HCM suites on the market vary, the end goal is to help organisations attract, develop, engage, retain and manage their workers – all while improving compliance and overall business performance.

Any combination of the following are typical in HCM suites: recruitment, onboarding, talent management, employee engagement, training and development, performance management, skills/qualification/training management, workforce management (including time and attendance, rostering and scheduling), payroll/benefits administration, reporting and analytics.

At its most simple, a HCM suite helps HR leaders digitise, streamline, and automate HR and people processes to save time and money. At its best, the right suite becomes your secure source of people and business data that empowers you to transform not only your foundational HR tasks but also your workplace culture.

Technology ROI: One key disclaimer

When assessing potential ROI, it’s important to consider a mix of qualitative and quantitative benefits. We’ll cover both in this article. However, like many technologies, the ROI of a HCM platform comes with this disclaimer: “It depends…”

It depends on how your organisation:

1. Implements the software

2. Adopts the software

3. Optimises the software

Investing in new technology is one thing; having it deliver expected ROI is another – and a lot of that comes down to effective change management. Researchfrom Boston Consulting Group shows that only about 30% of companies navigate digital transformation successfully.

So, keep those three points above in mind as you assess potential ROI and build your business case and think about the change management and ongoing support that’s required to implement new technology.

In addition, be clear on what your main objective(s) are for implementing a HCM suite. From there, appropriate performance-related metrics can be identified and tracked. All of these add to the ROI discussion. Perhaps your key objective is to:

• Improve HR processes and service delivery

• Reduce costs relating to employee management

• Increase productivity by allowing employees and managers to focus on what matters most (i.e. not administrative tasks)

• Improve employee autonomy and satisfaction through self-service functionality, such as requesting leave, checking pay slips, or bidding on shifts

• Reduce the number of compliance breaches by ensuring people are being paid correctly, and are rostered in the most cost-effective ways that meet regulatory requirements

Assessing ROI: The financial elements to consider

When we think of ROI, we immediately gravitate to financial benefits, simply because they are easier to quantify. Measuring a HCM system’s ROI relies on understanding three key elements:

1.      Accounting for cost savings & revenue gains

It’s important to understand the cost savings that come with automation and increased efficiency. Examples of tangible (and measurable) cost savings might include:

• Lower frontline hours required

• Decreased overtime

• Reduced headcount for back-office functions

• Reduced legal costs

• Reduced recruitment costs and contractor/agency costs

• Time saving for both managers and staff

Slightly more intangible benefits should also be considered, such as the impact of an improvement to employee engagement (more on that later). However, don’t fall into the trap of simply replicating processes the same way they were handled by old technology or manual processes. Avoid focusing only on the ‘how’ things have been done in the past and assume the tech will magically create improvements. Instead, analyse ‘why’ things are done as they are, so that the ‘how’ can then be reimagined.

2.     Understanding how the tech will impact HR service delivery

Metrics help HR teams evaluate the effectiveness of their operations. They help ensure HR strategies are on track and aligned with organisational strategy. There are countless potential HR metrics to track – and it’s no coincidence that all of them can improved by technology. Below are just three examples that can be traced directly back to the implementation of HR technology.

Metrics relating to compliance include:

• Number and cost of payroll errors over a set period

• Employee complaints about pay

• Accuracy of tax withholding calculations

• Fines and penalties given by regulatory bodies

Metrics relating to efficiency of workforce planning and labour costs might include:

• Workers’ compensation claims

• Absenteeism rate (can be linked to fatigue/burnout)

• Overtime hours and pay

• Agency staff usage (especially if they are required to fill in for absent staff)

• Scheduling match. To help determine if the number of hours worked is in line with the number of hours scheduled, this metric provides a measurement that relates to overstaffing and understaffing

Metrics relating to overwhelmed HR and payroll teams might include:

• Department headcounts – are these higher than necessary due to manual or inefficient processes?

• Cost of producing each payslip

• Time taken to process payroll

• Voluntary and involuntary turnover in these teams

• New hire turnover

• Overall employee turnover

You might also want to ensure you have baseline figures to compare back to after implementation i.e., hours saved by your HR team, enhanced employee productivity, increased retention, etc.

A quality HCM solution not only provides deep, actionable insights to help you continuously improve your processes, but it also automates all aspects of HR operations – which can, in turn, enhance HR service delivery. This table illustrates possible process improvements:

3.     Calculating the total cost of a HCM system

You’ll also need to know the total financial outlay for a new system. When implementing a HCM system, costs can vary significantly depending on diverse factors. Price per employee (PEPM) is the most common fee schedule for HCM systems, and this will vary between vendors. Cost may be influenced by elements such as: 

• Your organisation's size

• The complexity of your HR processes

• Customisation requirements

• Any different modules or integrations needed to meet your specific business needs

Beyond initial set-up fees and costs associated with training and data migration, ongoing expenses like upgrades also need to be considered when calculating ROI. Ongoing costs may include:

• Software updates (e.g. any employee downtime required to facilitate those updates)

• User license renewal charges

• Support services subscriptions

• Storage/data costs

How do you calculate ROI for technology?

ROI for technology is typically calculated using this equation: [(Financial gain - Investment cost)/Investment Cost] x 100. It measures the efficiency of an investment and helps determine if it's worth pursuing.

It’s critical not to underestimate the time commitments and resources needed to effectively plan and execute a successful selection, implementation and roll-out of a new, fully optimised HCM system. Poor planning leads to poor vendor selection, which leads to poor implementation, which in turn leads to unhappy employees and poor results.

Other ROI considerations

While it’s true that executive teams will be drawn to anything that will help reduce costs and drive revenue, the benefits of HR technology extend well beyond the financial. Below we outline two of the most compelling areas that should be considered in any ROI discussion: employee engagement and risk mitigation.

Employee engagement

High engagement is one of the outcomes of an exceptional employee experience (EX), so outlining how technology can improve the EX – and by extension engagement – should be included in any ROI assessment. The best leaders care about their employees' happiness and want to see them thrive. They're also aware that staff engagement can impact the bottom line. Research from Gallup suggests that highly engaged business units can achieve:

• A 41% reduction in absenteeism

• A 17% increase in productivity

• A 10% increase in customer ratings

• A 20% increase in sales

That’s not to mention improvements to employee safety, health, loyalty… the list goes on. Alongside your financial data, the ROI of a HCM suite should draw from non-financial data that touches on engagement, including:

1.      Staff retention and turnover

Dig into your employee turnover and retention figures to identify a baseline of how many leavers you have annually. Then compare this data to industry averages to show how your business is performing against its competitors.

2.     Leaver's feedback

Look at the data from your exit interviews to uncover re-occurring issues that HCM software could solve. For example, double-booking staff due to manual rostering and missing hours from pay due to misprocessed paper timesheets. Break down your findings into percentages to highlight high-friction areas in an easily digestible format.

3.     Customer feedback

Use data from your customer feedback channels to show how engaged employees can positively impact the customer experience compared to disengaged staff.

4.     New staff referrals

Sift through your insights to determine where your candidate leads are coming from. Specifically, watch out for staff advocacy rates to know how many new hires came from staff recommendations. If referrals are low, it could be argued that software is essential to make your organisation a great place to work and will increase staff endorsements.

The cost savings possible when existing staff recommend others in their network to join your organisation is worth considering from the ROI perspective.

Mitigating risk: The ‘golden ticket’ for your business case

Risk is another factor that is tricky to quantify but worth highlighting when considering ROI. Compliance can incorporate everything from a lack of documentation or processes relating to key areas like work health and safety, through to adherence to entitlements in relevant industrial instruments and underpaying employees. Non-compliance can have serious financial repercussions and can also damage your brand.

An intelligent HCM suite gives you the flexibility to run your unique business but also give you the bumper bars to remain compliant in today’s complicated world.

The formula many businesses use to determine costs associated with these types of risk is:

Cost probability formula = Fines ($) x possibility of negative scenario happening (%).

Combine your calculations with real-life examples.

You can illustrate this point in many ways. Let's break a couple of these down:

High-reward / Low-reward scenarios (using the cost probability formula):

1. Low-reward scenario - i.e., a business avoids being fined for not having its staff working with the appropriate credentials such as childcare protection or vaccinations in aged care.

2. High-reward scenario - i.e., a company avoids being sued for breaking laws on maximum working hours using workforce management software.

For best results, focus on the high-reward scenario and use the formula to build a strong case for software investment. Demonstrate that despite the chance of such an event occurring being slim, the possible penalties and negative reputational impact are significant enough to warrant proactive prevention.

ROI questions to ask a potential HCM vendor

Taking the financial and non-financial benefits outlined above into consideration, your software provider should be able to provide baseline examples of what similar companies in the same industry as yours have seen in terms of ROI.

Also, as mentioned above, price is a key element in determining ROI. Price may not be everything but it’s always a key consideration. Budgets are always finite, and you’ll want to get the most value for money. Fortunately, cloud solutions allow for scalable pricing and negate the need to spend heavily on infrastructure.

Questions to ask:

• What pricing structure is used by the vendor? Do they charge a flat per-employee, per-month (PEPM) fee? If so, how are users classified? Some vendors charge based on a company’s total number of employees while others charge for the HR staff who’ll use the system.

• Are volume discounts offered? Some vendors provide an enterprise rate for customers with more than a specific number of employees or users.

• Are tiered packages offered? Some vendors offer tiered features and pricing. They may start as a fixed price/low-touch model and increase to custom-scoped tailored packages depending on customer size and complexity.

• Are there any hidden subscription costs?

• Will there be additional costs relating to data interface development and support – especially if your new HR system will be integrated with and share data with existing business systems?

• Will training be offered by the vendor once the new system is implemented or is this an extra cost?

Final thoughts

From the outset, the costs associated with the purchase of a HCM suite may seem daunting. However, a deep dive into the savings and productivity gains make it clear that these outlays end up being well worth the cost.

The benefits of implementing a HCM suite have the potential to impact the ROI of that investment. Whether your primary objective is cost savings, improving risk management and compliance, obtaining better data-driven insights across the organisation, or any number of other objectives, these come with clear, measurable metrics that can and should be added to the business case.

About Humanforce

Humanforce is the best-in-one platform for frontline and flexible workforces, offering a truly employee centred, intelligent and compliant human capital management (HCM) suite – without compromise. Founded in 2002, Humanforce has a 2300+ customer base and over half a million users worldwide. Today, we have offices across Australia, New Zealand, and the UK.

Our vision is to make work easier and life better by focusing on the needs and fulfilment of frontline workers, and the efficiency and optimisation of businesses.

Contact us today to learn more about the potential ROI of adopting a HCM suite and discover how Humanforce can automate and simplify all aspects of people management in your organisation.