Studies show that around 40% of the HRMS users are looking to replace the system. Before actually replacing the system or buying an actual HRMS system, the cost factor should be considered. Each vendor offers their own complex model and based on their complexity their pricing also varies. There are several hidden costs that are associated with the system.
Factors Affecting the HRMS Budget:
These factors make it hard to create a budget. While framing a budget, there are several factors that can be helpful. They are
- Cost Justification: Usually, the value and the benefits of the HRMS system outweigh the cost of the HRMS system. This means that, apart from the obvious costs, hidden costs of the HRMS system should also be evaluated. By clearly defining the benefits that the new system will bring and the value that it will add to the system, it is possible to appeal to senior management to implement the HRMS System. Make sure that in an attempt to reduce the cost, you do not end up with a system that is not up to the mark and functions below par. Usually, facts and statistics have been known to be effective against CXO.
- Pricing Models: Based on the system that is used, the pricing model varies. The system that is commonly used can either be cloud or license mode.
- Cloud Model: The cloud model is based on subscription where it is based on the amount paid, the number of users and the number of employees in the organization. There are no hardware costs, and there is a white range available. Cost is less upfront and maintenance and upgrade is done based on the vendor’s schedule.
- License Model: This type of model is more of a purchase system rather than the rental It has a one-time fee that should be paid, which has additional costs for maintenance and support. Once it is paid for, the software belongs entirely to you and has control over hardware and the upgrades and hardware.
- Deciding the features of the System: Cost of the system is based on the features that are included in the system. Once the user and stakeholder requirements are gathered, the business needs are analyzed and the price tag is analyzed.
- Installation Cost: The cost of installation is the same as setting the system up and getting it running. Some of the costs include system testing, migration and cleansing of data, user training, consultancy fee, internal communication cost, internal change management costs, staff time and hardware costs. There could even be hidden costs involved which could be overlooked when it is planned.
- TCO (Total Cost of Ownership): The payment done at the time of purchase is considered only as the first installment and the total cost is the cost incurred during the entire period. Some of the basic ingredients which are covered by the total cost are the cost of labor, which includes both internal staffs as well as an external supplier; the License fee or the monthly subscription fee should also be factored. Costs for migrating and cleansing data and updates and maintenance cost should also be considered. The cost increases as the duration for which you use cloud software also increases. Licensing, however, is considered as a one-time expense. Experts show that an organization should use an HRMS for 10 years to be optimally used. The license model is proven to be cheaper in this case, where the two prices merge on the 7th year.
- Compiling the HRMS Budget: A crucial step involved is the compilation of the HRMS budget. Not only is an approximate figure determined based on research and assumptions, but the functions and features that are offered are considered along with costs related to deployment. The cost involved in customization of the same, along with consultation fee should also be factored. User training and updates and maintenance also have costs to be borne. It is also wise to practice to fix the budge 10% above the calculated budget. It makes allowances for price increases and unexpected expenses.
- ROI (Return on Investment): The top-level management is bound to invest in something new only when they can see a quantifiable return on investment. Some of the metrics that are commonly used to measure the ROI are employee engagement, reduction in the queries raised to the HR, operation costs and efficient recruiting. Data collected should be relevant and a rough estimate of the return on investment should also be done with improvements from the current statistic to each metric. This helps to make a suitable impact on the existing system and helps take a well-informed decision.
While these are only estimates and assumptions that help in framing a budget, there are other factors which could blow these costs disproportionately.
Details to watch out for before framing the Budget:
There are some cases where the labor costs are neglected. This will result in a low-budget total which will be approved by the management for its low cost but will cause a lot of issues later. The second issue that commonly arises is that you forget that it is an IT project. While it meant for Human Resources, the project is based on Information Technology. This involves the IT Team that is in-house. The third issue is that, just because there are so many features available, it does not mean they have to be implemented. Rather, only the features opted for can be implemented. This way, the cost can be cut down and the system can be efficiently used. Finally, the project must be well planned. Details and specifications should be amenable, especially in the HRMS budget.
Cost of an HRMS is not just simply the monthly fee that the vendors advertise. They are a culmination of a range of factors which are associated with the HRMS. Before making a choice, make sure you do extensive research and in-depth analysis. Frame the budget being realistic, sharp and intuitive.
Hansica Kh. is a content strategist with a proven track record for editorial innovation and a passionate marketer with over 6 years of experience. Holds a Master's degree in Human Resources Management.
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