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?
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