Human Resource Technology Solutions 1. Cost/Benefit Analysis and Hurdle Rate Add
ID: 458689 • Letter: H
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
a. Net annual savings is the amount saved after taking into consideration all expenses like service staff, management and administration, technology expenses and incremental operating expenses. From these expenses, savings in the form of FTE removal is deducted giving us the net annual savings amount of $1,775,000
b. Hurdle rate = one time investment in capital/net annual savings
= 2,750,000/1,775,000
= 1.55 years. As this figure is less than the hurdle rate of 2 years, the project will be approved on time. (Note that lower this ratio is, better it will be for the organization).
c. CBA = annual savings/one time investment
= 1,775,000/2,750,000
= 64.55%
Service staff 1,000,000 Management 500,000 Service center 300,000 Web 250,000 HRIS 500,000 Subtotal 2,550,000 less: FTE removal -4,500,000 Add: Incremental expenses 175,000 Net annual savings -1,775,000Related Questions
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