Calculating the ROI

of a Human Resource
Management System

(HRMS)

SUCCESS

TECHNOLOGY

LESS PAPER
WORK

REDUCED
ADMIN COSTS

IMPROVED
PRODUCTIVITY

LESS PAPER
WORK

VALUE

ANALYZE

STRATEGY

Most organizations realize that to be successful in

todays highly competitive business environment,

they need to embrace technology. The question
becomes, what does that look like? Companies have
to make strategic decisions about whether or not to
have a cloud-based solution, which applications are
compatible, and how long a system should last
before upgrading.

The place to start is with the human resource management system (HRMS). As a
refresher, this is a single system that allows companies to manage employee, job and
organizational data. Typically, this basic employee information is used for payroll and
benefits purposes. An HRMS also offers scheduling, time and attendance, and absence
management functions. Lastly, an HRMS has reporting functionality so information can
be analyzed to make business decisions.
HRMS solutions are compatible with modules such as performance management,
learning management, applicant tracking, and onboarding. These modules can be
phased in to expand HR department capabilities as the business grows and needs
change.
Even as a stand-alone system, HRMS solutions bring a tremendous value to the business.
They organize one of the biggest expenses in the operation: payroll. In this paper,
well focus on the tangible results you can expect by leveraging a human resource
management system.

Fast Fact

The largest expense item in many

organizations is payroll, which
exceeds even the cost of materials.
Steven M. Bragg, The Ultimate Accountants Reference

Calculating the ROI of a Human Resource Management System (HRMS)

Less Paperwork
Obviously, a technology solution allows companies to have
less paper. But youd be surprised how much money can be
saved by operating with fewer pieces of paper. According to
The Paperless Project (www.thepaperlessproject.com), the
average office worker uses 10,000 sheets of paper per year.
Add to that figure lost documents. The Paperless Project
says that every 12 seconds a document is lost. It takes
approximately 18 minutes and $350 to search for the misfiled
document. This doesnt take into account whether the
document is legally required in order to do business.

HDC

HDN

CF

Calculating the savings from reduced paperwork

100 employees x 5 documents =

500 documents @ $20 each = $10,000
HRD = human resources docment costs
HDN = number of HR documents generatedi.e. new hire
paperwork, job changes, time o requests, etc. (500 annually)
CF = cost to le and maintain paperwork ($20 per document)

Reducing paper always raises questions about electronic

storage. Cloud storage capabilities have advanced
significantly over the years and data storage using a cloudbased HRMS is secure. Of course, organizations must create
appropriate data storage protocols, regardless of the system
theyre using.
In addition to cloud storage, its important to note that using
an HRMS provides a historical record. The system can track
who enters data as well as who changes data, so theres an
audit trail.

Fast Fact

HRMS is eective in protecting

sensitive data (72%) and
increasing productivity (67%).

RC

(ST

EC

OH)

DC

Calculating the estimated cost of employee record-keeping

RC = ($77,500 + $5,400 + $4,000 + $2,400) /$200,000 =

$89,300/$200,000 = 44%
RC = record-keeping costs
ST = sta time including salary and benets ($50,000 salary + 40% benets = $77,500)
EC = equipment costs including desks, ling cabinets, etc. ($5,400)
S = supplies ($4,000)
OH = overhead ($2,400)
DC = total department expense ($200,000)

Reduced administration costs

Weve already established that an HRMS reduces paperwork
and that, in turn, would reduce administration time/cost
associated with maintaining the paper. In the book How to
Measure Human Resource Management, author Jac Fitzenz shares the calculation for record-keeping costs. This is
depicted as a percentage of total department expense.
Example: A company has 100 employees. Every business day,
at least one employee has a request for human resources,
payroll, or their manager about vacation/time off/data
change. Its estimated that each position spends one-third of
their time handling employee requests. The average salary of
the three (HR, payroll, department manager) is $50,000.
Research from Bersin & Associates and Human Resource
Executive magazine indicates the average human resources
spend ranges from $1,200-$1,500 per employee. This spend
includes payroll, talent systems, and HR services. Realistically,
not all of those expenses are eliminated with an HRMS, but a
significant percentage can be reduced.

Calculating the ROI of a Human Resource Management System (HRMS)

This calculation can be tailored for a specific program or

benefit. For example, an organization wants to know their
benefits record-keeping costs. Instead of using total
administration costs in the calculation, the calculation would
be made using benefits staff time, benefits equipment, etc.
In addition, the company can begin to look at benefits
administration costs as a percentage of total administration
expenses. This can shed light on specifically what aspect
of administration needs attention and where a technology
solution can have the greatest impact.
Organizations need to use their resources wisely.
Administration is a part of every business but organizations
want keep their administrative costs low.

Improved productivity
And thats where an HRMS comes in. With an HRMS, reporting
data is maintained in the system instead of manually. It takes
less time to produce reports, giving senior management
faster access to the data they need to make good
business decisions.

Naturally, reductions in paper reduces expenses through

less filing and less administration. As a result, reductions in
paper also frees up time. This new found time previously
spent on filling out paperwork and filing documents can
now be allocated for projects that increase revenue to the
organization. Basically, increasing productivity.

In his book, Fitz-enz also shares the calculation for cost per
report. This allows human resources to monitor the cost of
sharing relevant business information.

There are many factors that contribute to company

productivity: worker capabilities, safety, company policies,
pay, and working conditions, just to name a few. Each
organization will have their own unique factors that
determine productivity. However, it does seem logical that
organizations that are efficient in producing their product or
service will reap the reward of that in profits and
market share.

Example: The human resources coordinator spends 5 hours

per week on reports. The coordinators annual salary
is $35,000.
Successful businesses today take advantage of all available
data. Being able to quickly and cost-effectively obtain
information that helps the operation translates into
bottom-line results.

For a company to monitor their productivity, they need

data. This information can be used to solve challenges and
make better business decisions. One way an HRMS can help
the organization realize ROI when it comes to productivity,
is by providing reports that share data and information
about the workforce. This means that the cost of getting this
information needs to be low.

RC

EM

Calculating the estimated cost per report

RC = 240 x $24 + $180 + $150 = $6,090

RC = report cost
H= employee hours for the person responsible for report preparation (20 per month/240 annually)
P = employee rate for the person responsible for report preparation ($35,000 x 40% benets = $24/hour)
E = equipment and materials cost ($150)
O = overhead ($150)

The Bottom line

The advantages to an HRMS are in the value they add to the organization.
Spending less time on paperwork, allows companies to spend more time in the
business doing things that directly contribute to the bottom-line: innovating
new products/services, taking care of customers, and developing employees.
Reduced spending on administration translates into more resources for the
organization in other areas such as research and development and employee
training. And improved productivity means delivering the companys products
and services in the most effective and efficient way possible.
Taking a strategic approach to delivering human resources management not
only results in time and expenses saved, but increases the value of the HR
services being provided to the organization.

Calculating the ROI of a Human Resource Management System (HRMS)

SilkRoad is a leading global provider of cloud-based, end-to-end talent management solutions that enable customers to find, attract, develop, and retain the best talent. The
award-winning SilkRoad Life Suite includes Talent Acquisition, Talent Development, and HRMS solutions that are delivered through a tablet-friendly Talent Portal. The suite is
easy to deploy and use a single platform to rapidly boost employee engagement and business performance. Visit www.silkroad.com, follow on Twitter @SilkRoadTweets or
call 866-329-3363 (U.S. toll free) or +1-312-574-3700.
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