How to demonstrate the ROI of your HR software

HR software ROI – where do the figures come from?

When calculating HR software ROI, the figures will mainly come from internal sources including:

• Payroll management solutions
• Internal HR analytics and reporting tools
• Learning management systems
• Workforce management software
• Talent management software
• In-house recruitment software

Those with an integrated HR system will likely have more of the data required to calculate ROI readily available at their fingertips.

HR software can add tangible monetary value by contributing to increased employee performance, engagement and productivity. When establishing the figures, ensure you use calculations or estimates that are accepted across the organisation. In general though, HR departments are not profit centres responsible for their own income streams, so most ROI calculations will centre on cost savings rather than added value – this is a much simpler calculation.

Bear in mind that ROI is a financial calculation based on the ratio between net income and investment, so anything you include will need to be based on numbers. Any additional benefits from HR software, such as greater visibility of employee performance, are good to note but should be accounted for separately to ROI and laid out clearly as the intangible benefits of your HR system. How you decide to approach this will all depend on the purpose of measuring the return on investment; is it to evidence success, justify additional spend or project future returns for example.

How to calculate the ROI of your HR software

Demonstrating the ROI of your HR software ultimately requires one single calculation:

Money saved/gained divided by software cost, multiplied by 100.

For accuracy, ensure that calculations include all HR software costs so they are truly representative of the investment. This means accounting for upgrades, maintenance, account fees and any other expenses associated with the software.

The real challenge comes in identifying the cost savings and revenue boosts that can be linked to your software, so we’ve broken it down into simple steps.

Key metrics for your HR software ROI calculation

Time savings for HR employees

The biggest saving from HR software is likely to be the direct impact on your people’s time. To calculate time savings, you will need to know how long tasks take to perform manually vs using HR software. Alternatively, to help build the business case for a new HR system, it will be necessary to calculate how long specific tasks take with the legacy system vs KPIs set between your organisation and your new provider after implementation. Then you multiply the number of hours saved (usually this is done on a monthly basis) by the hourly cost of an employee performing the task currently.

As an example, one of Access People’s customers, Cineworld, calculated that their new HR system PeopleXD was saving senior managers five hours each week in time saved to write a roster.

Some of the biggest time saving efficiencies for HR departments are likely tied to process automation and streamlining. These might include:

• Rostering, scheduling and absence management.
  HR software can automate scheduling to reduce HR involvement in manual rostering. Automatic notifications and alerts can also be generated when under-staffing occurs or validation is needed.
• Payroll.
  Time-saving features include self-service online payslip access, automatic backups and automated salary payments, but also reduction in queries to payroll teams. For example, PeopleXD customer The Cooperative Bank managed to reduce their average monthly employee payroll queries from around 750-800 to typically zero.
• Improved employee onboarding.
  End-to-end HR software will include automated onboarding features that help free up HR time, such as workflows that let new employees know where to find things and what mandatory induction training they need to complete. Automated onboarding processes can ensure employees are efficiently set up to hit the ground running, and that new starters get a consistent onboarding experience.

Consider and account for all these automations when calculating the time-saving abilities of your HR software.

Improved employee retention

Reports have found that it can cost around 50% of an employee’s salary to replace them, so improved employee retention is an essential metric to include in HR software ROI. It’s not a simple sum, though, and you will need to be able to correlate improved retention with the use of your software. Overall, if your software improves employee experience and you see an uptick in retention once it’s introduced, you should be able to work out some averages to include in your ROI but this will depend on how your organisation operates.

Reduced recruitment costs and attraction of top candidates

In-house recruitment software can streamline and automate processes, helping you to attract top talent and cut down admin time spent on pre-employment checks, tracking applications and more. It also reduces time to hire, a key metric to include when calculating cost savings. The average length of a job interview process in the UK is 27.5 days – cutting down this time can give you a competitive edge, get new starters up and running faster,as well as saving you money.

In addition, if you can link your processes and software to the hiring of higher-quality candidates who are more productive, you can also build in the added value they bring.

Enhanced employee engagement and productivity

Employee engagement and productivity can be boosted by the right HR software with features such as:

• Self-service via apps on personal devices
• Automated onboarding
• Engaging and interactive training
• Better goal setting and performance review processes

All in all, the cumulative effect of an engaged workforce is lower turnover and higher productivity. If you have an effective way of tracking these metrics and linking them to your HR software’s capabilities, take it a step further to establish the benefits to your bottom line. From there, those benefits can easily be incorporated into your ROI calculation.

With more automated processes, employees also get time back to focus on their day jobs rather than manually sending and chasing holiday requests or finding a colleague to swap shifts with, preventing frustration and improving their productivity.

Penalties and fines avoided

HR software can put processes in place that keep you compliant. If non-compliance is detected, software can trigger an alert so this can be addressed. Previous charges or fines that are avoidable following the implementation of HR software can be taken into account for the purpose of ROI calculations.

OpEx vs CapEx HR software

An on-premise HR system is a CapEx cost than many organisations are now generally avoiding. This is likely due to their levels of depreciation over time and the necessity for manual and potentially costly upgrades and support costs to maintain.

With HR digital transformation comes far more emphasis on the cloud and its full capabilities. Using a cloud-based OpExSaaS product for HR management is a flexible, cost-effective solution that is likely to cut costs considerably versus owning, managing and maintaining systems in house.

Demonstrating ROI of HR software for small businesses

If you are a small business with limited resource, you may need to see ROI quickly for your investment in HR and software to be financially viable.

In this instance, a straightforward ‘out-of-the-box’ HR system like Access PeopleHR should be a consideration.

This type of software often comes with free implementation and a monthly cost per user and is fast to implement, so you can start seeing ROI straight away.

Whilst this approach may not provide the long-term ROI that larger and more complex organisations will require from a more powerful end-to-end HR and payroll system, it does provide smaller businesses with more agility to make short-term financial decisions.

What about the risks?

HR software revolutionises processes and makes significant cost savings but risks do need to be factored in as well. These might include:

• Security breaches. Cloud-based software is highly secure but security breaches are not impossible. Train employees in potential risks to look out for and remain vigilant with data.
• Incorrect use. This reduces effectiveness and can have organisational implications, pushing up costs and reducing ROI. Good training and support from your software provider helps to mitigate this risk, though opting for an easy-to-use intuitive HR and payroll system reduces the learning curve.
• Quality data. To gain quality insights and maximum ROI from your software, you will need quality data. Quality control should be implemented as soon as you onboard new software. Having an integrated HR and payroll system that seamlessly shares data between functions such as recruitment, payroll, onboarding, learning and performance for example, helps with this data accuracy.

Totalling the benefits of your HR software

Once you know your cost savings and additional profits, you’re ready to work out the ROI of your HR software. This provides a concrete datapoint to present to colleagues and the wider organisation. Your HR software ROI is a single snapshot of its value in one easy-to-understand figure, and with all the functionality available, achieving excellent ROI is well within your reach.

How to ensure your HR software will generate ROI 

Make sure you get the most out of your HR software and explore its full capabilities so you can achieve maximum ROI. If you’re considering new software, you should:

Choose integrated HR and payroll software that fully meets your needs

Request a personalised demo to understand all available features and how they would work for your HR team, employees and organisation as a whole

Request information on all the customer support options available to make sure you can get what you need from your provider during implementation and in the future

Collate all costs (including maintenance and ongoing costs) to ensure the figures add up and you can accurately compare providers and work out ROI targets

Our software delivers exceptional ROI for our customers:

• The Co-Operative Bank made cost savings in excess of £1 million per annum
• Cineworld saved 20 hours per month on rostering
• The Doctors Laboratory saved 25,000 hours of time in the first year alone

Make the right choice for your business

Choose the best HR software to achieve ROI for your business. Understand the different types of HR software available, work out the features your business needs and start achieving great ROI from implementation. Access offers fully integrated SaaS HR software that can make significant time and cost savings, plus it’s flexible enough to meet your bespoke needs and scalable so you’re unlikely to outgrow it.