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ROI Analysis
This is a cost analysis for updating to an automated time and attendance system from Tracy. The results from this analysis may be used to cost justify an automated system as well as calculate the pay back period. A correctly designed automated time and attendance system will quickly pay for itself by eliminating repetitive manual calculations and procedures. This will significantly reduce labor hours and eliminate the errors inherent to a manual system. A. ELIMINATE MANUAL PROCEDURES PAYROLL DEPARTMENT
(450 employees)(9.50 min./employee)(52 weeks/year) Yearly Time Savings = 3705 hours (60 mins. per hour) Yearly Cost Savings (A) = (3705 hours/year)($8.25/hour)(1.5 overhead) = $45,849.38 Note: 1) The American Payroll Association (APA) claims that the average time to manually add and audit a timecard is 5 minutes per employee. Additional timesaving are derived from the elimination of timecard preparation, distribution and keypunch entry. 2) The overhead factor determines the actual cost to pay an employee for one hour of work. Overhead includes insurance costs, social security costs and benefits. Actual overhead rates vary from 1.5 to 3.0 depending on the company. B. REDUCE CALCULATION AND KEY ENTRY ERRORS General industry guidelines depict a one to eight percent error rate from manually calculating timecards and key entering the payroll information. If an automated system reduces the error rate by only one percent of the payroll dollars, this can save a company thousands of dollars a year. Eliminating these errors also reduces the time spent correcting improperly paid employees. This is a direct saving in labor hours for employees, supervisors and the payroll department. The average total time saved by not having to correct an improperly paid employee, including all personnel involved, is approximately eighteen minutes. Total average cost savings are hard to determine, because employees typically only complain when they have been underpaid, not when they have been overpaid. Example: The following example is based on 450 employees with an average pay rate of $8.25 per hour and an average error rate of one percent. At an error reduction of one percent, two employees per week would no longer need to be corrected. Error Savings = (450 emp.)(40 hrs/emp.)($8.25/hour)(.01 error rate)(52 weeks/year)= $77,220.00 (2 emp)(18.00 min./emp)($8.25/hr)(1.5 overhead)(52 wks/yr) Correction Savings = $386.10 (60 mins. per hour) Yearly Savings (B) = 77,220.00 + 386.10 = $77,606.10 per Year C. ELIMINATE CONSUMABLE COSTS The consumables that will no longer be required include timecards and ribbons for the mechanical time recorders. These savings are partially offset by the computer printer paper that replaces the timecards. Example: The following example is based on 450 employees, a weekly pay period, two time recorders and a single ribbon change per year. Time Card Savings = (52 weeks/year)(450 timecards/week)($35.00/1000 timecards) = $819.00 Ribbon Savings = (2 time recorders)($17.95 per ribbon) = $35.90 Cost of Printer Paper = (52 weeks/year)(500 sheets/week)($26.00/2700 sheets) = $250.37 Yearly Savings (C) = 819.00 + 35.90 - 250.37 = $604.53 per Year Total Yearly Savings - Example For 450 Employees The following summary is based on the savings from the previous examples. These savings normally produce a pay back period of under one year. Total Yearly Savings = 45,849.38 (A) + 77,606.10 (B) + 604.53 (C) = $124,060.00 |
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