Justifying the cost of a new HRMS

First demonstrate the expense of not having an efficient system.

A recent headline in a local newspaper read: “KGH Nurse Shortage”. This announcement was hardly a surprise, especially considering that enrolment in health-care education programs has been dropping by five per cent per year for some time. With more than 70 per cent of the health-care budget allocated to staffing costs, the success of health-care enterprises depends on the qualified staff. With the nurse workforce aging and not enough new nurses being trained, how will health care cope with the growing human resource crisis?

The broader demographic trends in the North American workforce suggest an overall shortage of qualified staff in several professions. To meet their HR needs, companies and organizations are going to unprecedented lengths to recruit new workers.

In the past, it was professional sports employees who received substantial signing bonuses. Now it is the rank-and-file workers, with $5,000 incentive packages not at all uncommon for an employee joining a company facing a staff shortage. All of this in the context of increasingly complex government rules for managing employees, has fundamentally changed the focus of human resource management.

In such an environment, the cost benefits of an HR management system (HRMS) are suddenly much easier to justify. For example, Northwest Airlines, with 48,000 employees in 23 countries, calculated potential savings in excess of $1 billion as the benefit of a new HRMS, when it factored in everything from reduced union-overtime charges to streamlined management reporting.

So what can an HRMS do for an organization?
An HRMS may significantly improve the efficiency of a company’s operations if it:
•allocates a major portion of its budget to staffing costs;
•requires a high proportion of skilled workers for production or service; and
•has a complex labour environment with multiple unions, contract workers, shift work and multiple facilities.

In this kind of work environment, it can be very difficult to efficiently utilize the labour pool. Even a small productivity gain can have a tremendous impact on the bottom line. Add together many incremental improvements, the benefits begin to really add up.

The most important benefit of a well-designed HRMS may well be the management information that can be extracted from the wealth of data in a company’s databanks. Using an HRMS to track and analyze areas such as overtime trends or changing staff levels, would make it possible to make better management decisions. An HRMS should help move these critical management decisions from the backroom to the boardroom, giving managers an opportunity to proactively manage problems rather than merely react to crises.

For example, the Worker’s Compensation Board in British Columbia reports two per cent of the workforce accounts for seven per cent of financial claims, and 12 per cent of lost days. Using an HRMS, a company potentially could analyze the relationship between sick days and shift schedules and use its findings to reduce the occurrence of sick days.

Compliance with labour laws is another area in which HRMS can help to reduce costs.

Some employers fail to call back employees on disability leave because of inefficiency in existing systems. In effect, employees gain extra days or weeks of paid leave because employers do not use “Gradual Return to Work” programs or they call back employees long after the due date. A well-designed HRMS can help companies comply with labour law to reduce costs.

Examples abound of organizations successfully applying employee information to substantially reduce operating costs. The following are documented in, Making a Difference in the Workplace, National Institute of Disability Management & Research, 1997, Norman C. Hursh:

“In 1995, MacMillian Bloedel implemented a disability management program as a joint initiative between labour and management. The mills’ STD and LTD premium rates were significantly reduced. In one year, the mill realized a $1.25 million dollar savings over prior costs.”

“Gibraltar Mines Ltd. spent about $1 million per year in lost time accidents and workers’ compensation assessments for its labour force of about 300. The results of its disability management program were significant, showing the number of lost days dropping from 666 in 1991 to 37 in 1995…and WCB payments were reduced from $450,270 in 1992 to $66,326 in 1995.”

Disability management programs are just one example of how access to accurate employee information can substantially reduce costs. Without this information, organizations do not have the tools to manage their employees as efficiently as needed to remain competitive.

Then there are areas such as succession planning and career development.

Mergers and acquisitions will affect a larger number of organizations in the coming years. HR managers should determine if they were to merge with or acquire a new organization:
•What critical skills are needed in the new organization?
•Which employees should be retained to ensure that the strategy driving the merger or acquisition is a success?
•With the growing labour shortage, it is crucial to work with existing staff rather than attempting to find better workers on the open market?

Tools for tracking information about each worker will ensure that each receives required training to maintain certifications and to develop new skills and qualifications. Considering lost productivity, recruitment, relocation and re-training costs, the benchmark today for replacing a skilled worker in many organizations is $50,000. An automated HRMS gives better control over the development and utilization of staff.

HRMS effect
The effects companies can anticipate from an HRMS include:
•improved employee morale;
•reduced staff turnover / improved employee retention;
•improved new staff recruitment;
•reduced overtime costs;
•reduced sick leave and resulting insurance rates;
•increased worker productivity;
•cost-savings on training;
•fewer union grievances and reduced legal costs;
•streamlined payroll processing;
•automated manual processes; and
•increased efficiency of administration processes (i.e.: performance and competency tracking, forms handling).

The benefits applied across a workforce of a few hundred or a few thousand would realize significant cost savings — far outweighing the cost of a system installation.

Of course, the success of an HRMS requires more than just a cost-benefit analysis. It is essential that the system integrates with other aspects of the company’s information system, from time and attendance, benefits administration, GL, etc.

The implementation phase is also of great importance. The program’s success depends on effecting change within the organization, so that both managers and workers learn the new system and effectively use the tools.
When the right system is selected, and the right steps taken, an organization can begin to expect the right worker with the right skills doing the right job at the right time and the right cost.

In the years to come, the new battle for competitive edge will not be fought in the marketplace — it will be fought inside each organization. Those who gain access to employee information, and apply that information to increase efficiencies and reduce costs, will flourish substantially more than those who don’t.

Tim Draper is president of New Horizon Technologies Inc. He can be reached at (250) 712-9515.

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