Thinking about investing in a (new) HRM system? By calculating the ROI (Return on Investment), you can easily demonstrate potential cost savings and build a solid business case. Here’s how to do it!
Are you considering investing in your first HRM system – or upgrading from an older one to a more modern solution that better meets your company’s needs? You’ve already seen the potential: sleek design, smart features, stronger IT security, and user-friendly interfaces that employees will actually enjoy using. The thought of smoother workflows and less tedious administration is certainly tempting.
On the other hand, investing in an HRM system is a big decision. And when it comes to convincing senior management, it’s the hard numbers that count. That’s where ROI becomes crucial. Demonstrating clear, measurable savings can be the key to getting everyone on board and building a persuasive business case for your new HRM system.
And beyond that: running the numbers is simply a smart way to make an informed decision and ensure that the system truly delivers on your expectations.
So, how do you actually calculate ROI – and what factors should you include? Let’s take a closer look.
What Is ROI and How Do I Calculate It?
The logic is simple. To calculate ROI, you need to know two things:
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The total cost of your HRM system, and
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The total savings and other benefits you expect to achieve.
You then compare these figures to determine whether the system will pay for itself. Multiply the result by 100 to express ROI as a percentage.
The formula looks like this:
ROI = (cost savings / total cost of the system) × 100
Let’s say an HRM system saves your company SEK 100,000 per year in administrative costs, while the total cost of the system is SEK 500,000.
In this example, the ROI is 20%:
ROI = (100,000 / 500,000) × 100 = 20
In other words: for every krona invested in the HRM system, the company gets a 20% return through reduced administrative work.
Did you know?
According to consulting firm McKinsey & Company, companies that automate their HR processes can free up to 30% of the time otherwise spent on manual tasks.
Step One: Understand the True Cost of a New HRM System
When calculating ROI, it’s easy to focus only on the purchase price. But to get the full picture, it’s important to include all related costs – both initial and ongoing. Here are some key areas to consider:
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Initial investment costs: software, hardware, installation
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Ongoing costs: maintenance, licensing fees, and support
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Additional fees: for extra users, third-party integrations, or add-on security features
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User training
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System customization to fit your company’s needs
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Consulting services for implementation and advice
Step Two: Calculate the Benefits
Now that we’ve mapped out the costs, it’s time to look at the benefits. In short: how can a (new) HRM system help your organization save time, money, and resources?
Not all parameters are easy to measure in monetary terms – at least not right away. Every organization is different, but as a guide, here are seven key areas where an HRM system can deliver real impact.
Seven Ways an HRM System Boosts ROI and Reduces Costs
1. Reduces Manual Work and Frees Up Time
Are HR and payroll tasks bogged down by inefficiency? Are hours wasted entering the same data in multiple places – or digging through spreadsheets and folders for information before each salary review?
By automating repetitive processes, an HRM system helps free up valuable time and resources. To calculate savings, multiply the time saved by the average hourly cost of the employees performing the tasks. This gives a good starting point for understanding the financial benefit of streamlined processes.
For example: if the system saves 10 hours per week on payroll and scheduling, and the average hourly cost is SEK 400, that’s SEK 4,000 per week – or SEK 208,000 per year – in reduced manual work alone.
2. Reduces the Risk of Errors
Scheduling conflicts, incorrect pay, or missing vacation days – all of these mistakes take time and money to fix. With an HRM system, you can minimize such errors. When calculating savings, consider the costs these errors would incur – both in time and money – and how your new HRM system can help prevent them.
3. Ensures Better Compliance and IT Security
Keeping track of labor laws and regulations can be challenging. A modern HRM system simplifies compliance by automating much of the process – ensuring you meet rules around working hours, overtime, and rest periods. It also helps manage contracts and probationary periods according to local employment laws.
Systems built with GDPR compliance and strong cybersecurity reduce the risk of data breaches or costly legal penalties. Here’s how to include this in your ROI calculation:
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Estimate the potential costs of errors or legal penalties.
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Add the time and resources required to fix scheduling or compliance issues.
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Factor in administrative time saved through automation.
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Compare these savings with the total system cost.
4. Improves Time Tracking and Billing
Keeping tabs on time usage and ensuring no billable hours slip through the cracks is key to profitability. With improved time and project reporting, your team can identify inefficiencies and boost productivity.
If your team misses reporting just 10 billable hours per week, that could mean SEK 40,000 per month – or around half a million per year – in lost revenue. A robust HRM system helps ensure every hour counts.
Read more: Embrace Time Reporting: Here's Why!
5. Makes Labor Cost Tracking Easy
Overtime surges or inefficient scheduling can quickly drive up costs. A well-integrated HRM system gives you real-time visibility into staffing and hours worked, helping you optimize planning and prevent both over- and understaffing.
With real-time data and built-in controls, you can adjust staffing before costs spiral – improving both efficiency and employee satisfaction.
Read more: Manual or Digital Scheduling? Eight Advantages of a Staffing System
6. Tracks Absence and Employee Turnover
Each case of long-term sick leave can cost an employer around SEK 100,000 in lost productivity and sick pay. High turnover adds further costs – recruitment, onboarding, lost output, and reduced morale.
An HRM system with dashboards and analytics helps managers and HR teams monitor key metrics like absence, engagement, and turnover – spotting patterns early and taking the right actions. The result: less administrative work and lower costs for absence, recruitment, and training.
And don’t forget – digital, structured HR processes can significantly improve employee engagement and satisfaction in the long run, from smoother onboarding to smarter career development planning.
Read more: Decreasing Absenteeism – Eight Tips for Managers and HR
7. Creates a Smoother, Less Stressful Workday – for Everyone
Some benefits are harder to quantify – but no less important. One of the greatest advantages of an HRM system is the improved work environment it enables.
For employees, it means faster answers and smoother communication about pay, vacation, and more. For managers and administrators, it means less stress, fewer administrative distractions, and more time to focus on what truly drives people and business growth.
Ready to Take the Next Step Toward a More Efficient, Profitable Workday?
Fantastic! We’re here to help you explore how Flex HRM can streamline your operations, reduce costs, and boost profitability – tailored to your company’s needs. Contact us today!
