Technology Solution 1. Cost/Benefit Analysis and Hurdle Rate Add: Service Staff
ID: 458686 • Letter: T
Question
Technology Solution 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? 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. FTE removal through reengineering resulted in net annual savings of $ 1,775,000
Net Annual Savings = FTE removal through reengineering - Subtotal of expenses including incremental operating expenses
b.
Hurdle rate of the project = 2,750,000 / 1,775,000 = 1.549.
As clear from the above calculation, this project can be approved, as the hurdle rate is than the hurdel rate set by the management, which is 2 years.
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