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Every time an organization’s financial leader makes a decision on where to allocate budget, the head of human resources faces a dilemma: Often, the company’s technology for human capital management is complicated and inelegant. The need for something new can be pressing, yet the challenge to build a compelling case for its replacement is tall. Problems with overly integrated, typically premise-based solutions for HCM are clearly evident, yes, and the superiority of modern HCM technology, based in the cloud and delivered via software-as-a-service (SaaS), is readily apparent. But a chief financial officer might see the return on investment as unclear or uncompelling. HR leaders need a better way to build the financial case for investments in HCM technology. Fortunately, there’s a methodology for that.

A Kaleidescope of Challenges for HCM and its Technology
During a recent webinar on this very topic, Ceridian polled attendees to determine which types of HCM technology they were trying to develop a business case for. Nearly 65 percent said core HR and payroll. Another 41.4 percent pointed to benefits management and enrollment. Almost the same percentage answered with workforce management, and about 23 percent indicated talent management. Their responses represented the three categories of HCM—workforce acquisition, workforce management and workforce optimization. That’s the entire employee lifecycle.

An array of challenges bears down on any organization going about managing its workforce. Payroll, time and attendance present a weekly or biweekly challenge to reconcile and get right so the paychecks are right. (Sometimes, it’s an ordeal.) Additional processes native to core HR present challenges, too—e.g., benefits administration and the employee self-service designed to help staff handle a portion of this on their own. Then there’s the rest of HCM, which comprises a kaleidescope of activities, much of which falls under the umbrellas of workforce management and talent management.

That’s a lot of workforce-related activity in need of better technology. Plus, regulatory complexity is increasing around several elements of employment facilitated and managed by that same technology. For instance, though delayed for one year, the Employer Mandate, part and parcel of the Affordable Care Act (ACA) in the United States, will call for highly prescribed, complicated tracking of employees’ hours to determine workers’ eligibility for legally-required healthcare benefits. Increases in the minimum wage, too, occurring regionally across the United States, come with attendant increases that depend on the accuracy and efficiency of HCM technology.

Where Does ROI Come From?
ROI comes from three different buckets:

1)    How much is it costing the company to run the current system and process?

2)    How many people are affected by the solution?

3)    How often is the system used?

Boston-based Nucleus Research recently found that for every dollar spent on automating workforce management, time and attendance and scheduling, a company gets back $7.88. In addition to the efficiencies saved administratively for payroll managers and operational supervisors, automating workforce management minimizes clock rounding, virtually eliminates timesheet errors, and helps reduce labor costs by setting parameters on when an employee can clock in. For instance, in a typical 8-hour shift, employees clock in at shift start, clock out for their first break, clock back in, clock out for lunch, clock back in, clock out for their second break, clock back in, and then clock out to go home at shift’s end. That’s a total of 8 events. Let’s assume in a manual time and attendance tracking environment that for 8 clock-in/clock-out event, a manager rounded just 2 minutes. That’s 16 minutes for an 8-hour (i.e., 480-minute) shift, or 3.33 percent. For a mid-sized company with 250 hourly employees each making an average of $40,000 dollars per year, 10 million for total payroll, these savings equate to $333,000 annually. That’s an undeniable benefit.

Indirect vs. Direct Costs—Speaking the CFO’s Language
Direct vs. indirect costs are akin to hard vs. soft costs. Direct costs’ detriments or benefits jump off the page, whereas indirect costs’ consequences require, typically, inference and leaps of faith. That’s because indirect savings are associated with efficiency, productivity, and compliance risk, whereas direct cost savings include, for instance, reductions in overtime and current spending on existing systems.

While indirect savings are important, CFOs prefer direct savings. Why? Direct cost savings are far easier to quantify. Direct cost savings spare CFOs from guesswork—e.g., how much revenue is generated by taking a manager out of the back office and having him or her spend more time on store floor? Or, how would making the payroll department more efficient result in headcount reduction? In most cases staff is reallocated to spend more time on other areas within payroll or HR such as reporting, onboarding, or looking for ways to add strategic value to the business.

Any effort HR leadership undertakes to build the case for investment in better HCM technology must speak CFOs’ language. Nearly three-fifths of respondents to Ceridian’s webinar poll indicated that CFOs are the most difficult stakeholders to convince that investments in HCM technology are worthwhile. That may be because CFOs respond best to discussions about direct costs, whereas many of the go-to arguments for investing in HCM technology improvements relate to indirect costs.

But that’s only on the surface. The workforce is–in most cases–the organization’s largest asset and most controllable expense. The CFO has a responsibility to help maximize the productivity of the company’s assets and control expenses. This extends to investing in the tools and programs to develop and manage human capital assets.

Defining HCM’s Footprint, Applying a Sound Methodology, Persuading the CFO
Think about all the variables affected by HCM technology and costs associated with it: hardware, IT resources, courier and postage fees, turnover and attendant fees for recruiting staff, maintenance (time and fees), check stock, bank fees, consulting fees, multivendor support. The list is immense. HCM and its technology occupy a large footprint within the organization, and examples of direct costs lurk everywhere. Identify and highlight them.

Realizing the challenges HR leaders face in building a financial business case for investment in new technology, Ceridian partnered with Nucleus to develop a tool that helps our customers build the financial business case by justifying their investments in cloud-based HCM applications. Cloud-based, SaaS-delivered HCM technology like Ceridian’s, which resides in one application running one rule engine and requiring zero interfaces, can have a profound, positive effect on HCM’s organizational footprint. Everywhere, there is a direct cost to be underscored and presented to the CFO for his or her consideration as a factor making the case for an investment in better HCM technology.

Again, take payroll. Companies experience an error rate of up to 8 percent in their payroll, according to data published by the American Payroll Association. An error rate as little as 1 percent would find an organization losing upward of $100,000 for every $10 million of payroll processed industry-wide. When investigating Ceridian customers, however, Nucleus found that automating time and pay with Dayforce HCM, a single application for both eliminated upwards of 90 percent of payroll errors. For these customers, Dayforce HCM simplifies payroll processing, reduce payroll errors, and increase productivity for managers and employees. The first two of those are direct costs, just the kind that speak to CFOs’ penchant for hard numbers.

Going for Credibility
HCM is full of opportunities to bring about direct cost savings, just what the CFO likes to see. When building a financial case for investing in HCM technology, focus on three to four key benefits. And the more direct they are, the more credible the business case becomes—which underscores this last point: It’s not always the biggest ROI number that will sway a CFO to allocate budget for improvements in HCM technology. Often, it’s the most credible number, instead.