Human Resource Management

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Human Resource Management

Human Resource Management

Your company is considering buying a new Human Resource Management Information System( HRIS), to be implemented from January, 2019. During the presentation, the software company salesperson pointed out that the new system will save man hours by eliminating one data entry position from January, 2019 itself, eliminating an additional data entry position after two years (in January, 2021) and doing away with one data-entry supervisor’s position after 4 years (from January, 2023).
Each data entry position is salaried at $35,000 p.a. and data entry supervisor’s pay is $50,000 p.a. In addition, each employee is entitled to 20% of their salary as benefits. Further, the company has announced that it will implement an across the board salary hike by 5% from January 2020.
You are tempted to buy the software with the prospect of saving on payroll costs. But the program is not cheap. The software license is priced at $400,000 for a period of 6 years. You will need to pay this amount upfront (on 1.1.2019) and can use the software for six years (till 12.31.2024). After 2024, the license can be renewed for a further period of six years by paying another $400,000 on 1.1.2024 (to be valid till 12.31.2030).
The current interest rate is 9% which is expected to be stable for the next 7 years but may go down to 6% from 8th year (January, 2026)
Q.1 Create a chart with the costs and savings (nominal as well as PVs) for the next 12 years (2019 through 2030).
Q.2 Based on your analysis of cash flows and NPV, would you recommend your CEO to buy the HRIS program for 6 years or 12 years? Why? (8 points).
Q.3 Calculate the ROI of your recommended option. (3 points)
Q.4 If you were to sign a contract for only 5 years, what is the maximum you would be willing to pay for this program? Why? (3 points)
Q.5 If the Interest rate were 2% for the next 12 years, would that increase or decrease the break even duration of the project? Give reason. (3 points)
Q.6 What would be some of the non-financial reasons in favor of a short-term Vs long-term contract in such a situation? (3 points)

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