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1. Cost/Benefit Analysis and Hurdle Rate

 

 

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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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