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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