Does Your Time and Attendance ROI add up?
Tuesday March 10th, 2015
Estimated time to read: 1 minute, 30 seconds
To ROI or not ROI? That is the question.
Although return on investment (ROI) is frequently quoted and even the deciding factor in some issues, ROI is poorly understood and often misused. Most ROI calculators ignore the difference between hard and soft dollars and almost none provide a Net Present Value (NPV) calculation. Finally, ROI dollars are often left on the table and not taken advantage of when discussing payback of investment dollars.
One of the biggest pet peeves of time and attendance ROI is treating soft dollars the same as hard savings. What’s the difference you ask?
A product, process or operation that results in the company spending less money can be categorized as generating hard savings - saving real, hard cash. For example, if your TimeForce time system eliminates calculation errors and reduces payroll, then it’s generating hard savings.
A product, process or operation that results in the company or an employee spending less time is likely soft savings. For example, after installing TimeForce, the payroll supervisor now spends one hour getting the time cards ready for payroll vs. eight hours under the manual system. Just because the payroll supervisor spends less time calculating timecards doesn’t necessarily save the company real dollars. They will still be paying the payroll supervisor for 40 hours of work. The soft savings of newly found free time might be used on other projects that might save the company money.
From a financial perspective, including soft dollars do not equal hard dollars. However, sometimes CFOs will include soft dollars if they have been factored in correctly (e.g., $1 of soft savings = $0.25 of hard savings).
Examples of hard vs. soft savings
|Soft savings||Hard savings|
|Supervisors spend less time on time cards and can focus on their real jobs||Better employee scheduling reduces overtime|
|Automatic accruals and improved record keeping ensure employee receives only the PTO days they have earned||More consistent enforcement of pay policies results in fewer grievances|
The most frequently quoted statistic in time and attendance ROI calculations is the error rate when manually preparing time cards. The American Payroll Association (APA) and other studies estimate the error rate averages .5% to 2.0%. Even a small company can have an annual payroll of $5 million. Reducing the error by 0.5% can save a company $50,000 in hard dollars!
In our next installment on time and attendance ROI, we will examine other savings a properly configured time and attendance system can produce. You just might be surprised.
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