Dollars and Sense: How You Can Begin to Quantify the ROI of HCM Technology

A pen marks a number on a multiple choice answer form.

It is possible to measure ROI on HCM technology — if you know what to look for.

What's the ROI of HCM technology? This is often a tricky question because, unlike marketing or sales, it can be hard to quantify the effect of successful HR strategies. How can you score the lifetime value of a good hire, for instance, or something seemingly vague like employee morale?

The C-suite has a right to know if HCM technology is worth the price of purchase and implementation. Similarly, if HR ever wants to improve upon its current technology, it needs to make the business case that such an expenditure is worthwhile.

In a broad sense, determining ROI for HCM applications should take into account direct and indirect costs.

Hard ROI

Some arguments for HCM technology are straightforward. James Ford, chief strategic architect at ADP, notes that even small changes to tech functionality can have a big effect. If apps are deployed dynamically in the cloud, for instance, then it will be a better user experience. Ford points to research showing that the longer someone waits for a page to load or with a busy cursor, the more the organization spends. "The HR folks would at least in theory be more productive if their applications were snappier and more responsive," Ford says. "We've all seen it. We all get impatient with our iPhones and iPads." Tallying such savings requires comparing performance before and after and then looking at the boost in productivity.

Similarly, as HR technology becomes less clunky and more like consumer technologies, Ford says HR can expect to see fewer calls. "As we make the ability to do it yourself easier, the load on the HR professional should be diminished," he says.

Digging deeper, such savings can be quantified by metrics like reduced IT costs, reduced time spent scheduling, savings per request, other time saved and productivity gains for the HR department. For instance, the average error rate for payroll is between 1 and 8 percent, according to the American Payroll Association. Improving that rate by even a percentage point can save thousands or millions of dollars, depending on the size of the organization.

Soft ROI

So-called soft ROI is more difficult to prove and might include improved employee morale and satisfaction, better collaboration and increased employee accountability. Historically, this has been because data related to HR performance has been poor. Deloitte reports that just 8 percent of businesses say they have usable HR data, and just 9 percent say they have a good understanding of which domains of talent boosted performance.

Thanks to a new focus on data, that situation may be improving for most organizations. There will always be cases, though (such as compliance), in which HR's argument is more about dodging bullets than saving money.

It's Not All Numbers

The reality for HR departments is that some investments and outcomes will never be 100 percent quantifiable. Dealing with human capital is a complex endeavor that draws as much on "what if" scenarios and intangible attributes like momentum and morale as it does on hard numbers. That said, showing improvement is possible if you know what to look for.