- Human Resource Technology Solutions 1. Cost/Benefit Analysis and Hurdle Rate A
ID: 2493393 • Letter: #
Question
- Human Resource Technology Solutions 1. Cost/Benefit Analysis and Hurdle Rate Add: Service Staff $1,000,000 Management and Administration $500,000 Technology - Employee Service Center $300,000 Technology - Web $250,000 Technology - HRIS/Payroll Core Application $500,000 Subtotal $2,550,000 Less: FTE removal through reengineering $4,500,000 Add: Incremental operating expenses $175,000 Net annual savings -$1,775,000 One Time Investments Web Technology $1,000,000 HRIS/Payroll upgrade $700,000 Internal project labor $650,000 External conversion and consulting expense $400,000 Total one-time investment of capital $2,750,000 a. Explain the net annual savings of $1,775,000. b. If management sets the hurdle rate at 2 years, will this project be approved based on time? The hurdle rate is the one time investment in capital divided by net annual savings. c. In this exercise, CBA is the measure of the productivity of the investment in the HR technology project without accounting for interest expense, inflation, and opportunity costs. It is the annual savings divided by the one time investment in capital. What is the estimated Cost Benefit Analysis (CBA) as a percent?
Explanation / Answer
Answer
Answer a
Explain the net annual savings of $1,775,000.
If company makes one time investment of capital in web technology, HRIS/Payroll upgrade and its related expenses of $2,750,000, There will be net annual saving of $ 17,75,000 on FTE removal through reengineering after deducting all expenses like Service Staff , Management and Administration , Technology - Employee Service Center , Technology - Web , Technology - HRIS/Payroll Core Application and Incremental operating expenses.
Answer b
If management sets the hurdle rate at 2 years, will this project be approved based on time? The hurdle rate is the one time investment in capital divided by net annual savings.
Figures in $
Particulars
Amount
Service Staff
-10,00,000
Management and Administration
-5,00,000
Technology - Employee Service Center
-3,00,000
Technology - Web
-2,50,000
Technology - HRIS/Payroll Core Application
-5,00,000
FTE removal through reengineering
45,00,000
Incremental operating expenses
-1,75,000
Net annual savings
a
17,75,000
One Time Investments Web Technology
10,00,000
HRIS/Payroll upgrade
7,00,000
Internal project labor
6,50,000
External conversion and consulting expense
4,00,000
Total one-time investment of capital
b
27,50,000
Hurdle Rate (in years)
(b/a)
1.55
Answer : Actual hurdle rate is 1.55 years which is less than hurdle rate of 2 years set by management. So this project will be approved based on time.
Answer c
In this exercise, CBA is the measure of the productivity of the investment in the HR technology project without accounting for interest expense, inflation, and opportunity costs. It is the annual savings divided by the one time investment in capital. What is the estimated Cost Benefit Analysis (CBA) as a percent?
Figures in $
Particulars
Amount
Service Staff
-10,00,000
Management and Administration
-5,00,000
Technology - Employee Service Center
-3,00,000
Technology - Web
-2,50,000
Technology - HRIS/Payroll Core Application
-5,00,000
FTE removal through reengineering
45,00,000
Incremental operating expenses
-1,75,000
Net annual savings
a
17,75,000
One Time Investments Web Technology
10,00,000
HRIS/Payroll upgrade
7,00,000
Internal project labor
6,50,000
External conversion and consulting expense
4,00,000
Total one-time investment of capital
b
27,50,000
The estimated Cost Benefit Analysis (CBA) as a percent
(a/b)
64.55%
Answer : The estimated Cost Benefit Analysis (CBA) as a percent is 64.55%
Figures in $
Particulars
Amount
Service Staff
-10,00,000
Management and Administration
-5,00,000
Technology - Employee Service Center
-3,00,000
Technology - Web
-2,50,000
Technology - HRIS/Payroll Core Application
-5,00,000
FTE removal through reengineering
45,00,000
Incremental operating expenses
-1,75,000
Net annual savings
a
17,75,000
One Time Investments Web Technology
10,00,000
HRIS/Payroll upgrade
7,00,000
Internal project labor
6,50,000
External conversion and consulting expense
4,00,000
Total one-time investment of capital
b
27,50,000
Hurdle Rate (in years)
(b/a)
1.55
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