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How Does Effective Performance of HRM Functions Reduce Cost of Organization?

This essay will focus on human resources management as an essential department in any business and organization to reduce costs. The department acts as the gatekeeper for all expenditures to maximize profit. The essay will mention the various costs a human resource department deals with daily. It will further explain how the human resource department can optimize these costs to attain their full benefits instead of losing as a business. Finally, the essay will highlight strategies that a company can adopt to keep the Human resources department as cost-efficient as possible.

The most important parameter used to measure the effectiveness of a human resource department is the amount of money it saves an organization annually. Human resource management is an expensive component for every organization with employees; the procedures of hiring, training, and keeping employees all have related costs that business owners must budget for as part of their human resources budget (Momin, 2018). Furthermore, there may be several unforeseeable human resource costs that businesses must consider (Mahapatro,2022). This increases the need to manage human resource costs across the organization successfully; successfully is critical for a developing business or organization to optimize costs to achieve the ultimate cost-productivity balance.

The costs associated with human resources encompass all of the day-to-day, necessary administrative duties that keep your company running smoothly (Mahapatro,2022). The day-to-day activities include employment contracts, staff training and professional development, Human Resource Administration, daily office running costs, legal checks, recruitment, funds for office equipment, employee attendance, and managing turnover. While all these expenses are necessary for a successful business, the expenditures connected with these responsibilities can quickly build to considerable sums. Therefore, developing an HR cost reduction strategy will help optimize Human resource spending and help improve the cash flow situation when the firm wants to cut costs (Saleh, 2020).

According to Saleh (2020), the expenditure for every human resource department in a company is different. The recruitment cost, employee retention, employee training and development, employee benefits, and the cost of human resource administration can all be optimized to generate maximum profit for a company. For instance, firms can access various alternative recruitment tactics to locate and hire new workers. In addition, numerous businesses are implementing applicant tracking systems (ATS) to reduce the amount of administrative work associated with recruitment (Holmn, 2020).

Retention is profitable in the long run when optimized correctly. Retention is vital in reducing staff turnover rates (Fahim, 2018). A human resource manager does not have to go wild with incentives when maintaining good personnel. According to Singh (2019 ), ensuring the company benefits and wages are competitive but having a strong, pleasant corporate culture is critical to retaining outstanding employees. They can also provide directives that maintain a firm policy and process approach to significant concerns such as psychological health, diversity, well-being, and bullying (Saleh, 2020).

Training and other types of employee development are critical for retaining personnel and developing the firm with in-house expertise and abilities (Rakhra,2018). However, as with other retention techniques, training and development can be highly costly if not appropriately managed. The wrong training or an overly complex training style may cost the company more than the learning would help them make.

Conducting a capacity needs analysis determines what areas of the company lack the abilities that retraining and other coaching and mentoring techniques can address (Greer, 2021). This will assist you in choosing the appropriate degree of expenditure for training projects that will increase profitability by fostering employee engagement and the development of staff members’ mission-critical abilities. In addition to training, it is beneficial for staff to meet one-on-one with line managers to receive constructive criticism regularly. Structured annual reviews and setting objectives with simple, measurable, attainable, realistic timebound goals also help staff members feel like they can advance within the organization (Saleh, 2020).

Employee benefit is a significant human resource expenditure. When properly handled, incentives can also help a company save money by lowering staff turnover and luring highly skilled applicants (Sign, 2020). The company can optimize employee benefits by weighing the upfront expenditures of employee perks against recruiting, productivity, and retention results. A human resource manager has determined how effective the benefits packages are by measuring the human resource data. To gain a clear picture of the company and spending, it is also essential to track your pay and benefits information using pay and benefits software.

Administrative procedures frequently occur in the background when lowering a company’s human resource expenditures and may go unnoticed (Hamadamin & Atan, 2019). However, if your systems are inefficient, the time and effort required to collect and keep employee data current could add to a significant expense. Administrative work takes up time that could be spent on more essential activities, slowing down business operations and demoralizing workers (Srivastava et al., 2022). Over the years, administrative work is getting paperless.

Paper files and spreadsheets no longer cut it for many firms; too much effort is spent keeping things up to date, completing calculations, or finding relevant documents. Putting in place a human resource software system is the next obvious step in establishing a business (Srivastava et al., 2022). The correct software solution can assist managers and Human resource personnel with various employee management activities, including holiday and absence management, appraisals, and disciplinary actions.

Human resource management Cost Reduction Strategies.

Reduce unnecessary expenditure

A budget guides a company on ways to reduce non-essential expenditures (Greer, 2021). Implementing a stringent procurement approval system can determine whether a cost is necessary. For instance, is the business upgrading office furniture only because it has become outdated when the existing style can still be appropriate in a year when they can reassess the need? Also, be able to confidently spend money where necessary to maintain the business operating efficiently if there is a strict procurement system in place.


Every Human Resource Manager must always think long-term (Saleh,2020). Some functions could be cheaper in the long run if they sought outside vendors instead of having in-house personnel take care of them (Fita, 2018). Payroll creation and employee benefits are not done on a day-to-day basis. Therefore, a company or business can source the services every time they are required instead of employing in-house permanent employees to handle a task that takes a day in a whole month.

Increase employee Retention

Any company’s finances might significantly suffer from a high personnel turnover rate (Fahim, 2018). There is a need to pay for training new employees and any other associated costs that come with a new hire, in addition to the costs associated with recruitment and the fees paid to a placement agency. Retaining the talent already existing in the company should be an element of a cost-cutting human resource strategy (Singh,2019). Ensuring staff members receive fair compensation, incentives, and benefits will help them feel appreciated. Equally, organizations that invest in training and give employees the chance to advance in their careers are more likely to keep top talent than those that do not.

Although the activities towards employee retention may seem like expensive operations, an organization will pay more in the long term if it replaces the same job role three times within a financial year or half a decade. Any human resource cost-reduction approach must prioritize investing in the right people.

When new personnel is hired each fiscal year, a company’s finances are stressed. However, you should routinely reevaluate and talk with the important members of your organization about which positions are essential to your company’s success so that these positions can be reopened and filled as needed.

Please keep track of all the planned costs and review them from time to time.

A business, whether big or small, relies on professional services from time to time. The packages could be monthly or annual. The professional services could include communication packages, cloud storage services, accounting, legal support, and Customer Relationship Management (Shahriari et al., 2019). As part of the business human resource cost reduction plan, at the very least, assess these expenditures once a year to see if they adequately satisfy your needs. A closer look at the spending could discover that the business is not making the most of service in some areas, which may lead to a scale back, cancellation, or looking for alternatives.

On the other hand, the business might be exceeding the account restrictions on other programs and paying too much for specific things. Compared to any additional fees, upgrading the professional package to one that meets your consumption could save you money over time (Shahriari et al., 2019).

Implement Remote Working

The Covid 19 pandemic revolutionized Remote working and opened up the world of new opportunities (Saxena et al., 2021). The traditional work model of having all the employees in the office is slowly changing. While it is not practicable in all industries and positions, there have been significant Human resource cost savings as a result (Popovici & Popovici, 2020). According to Vafin ( 2021), practical effects of remote working that act as cost reduction strategies include: having fewer employees in the office reduces expenses. It may be time to shrink the workplace and reap the benefits of decreased utility bills and rent. Remote working means cutting down on cleaning services. The company cleaning fee will drop significantly due to having few personnel on-site; lastly, there is a reduction in employees’ travel-related expenses.

Consider freelance workers in place of permanent employees.

Freelancers can select the projects and the hours they want to devote to their employment. They are easy to hire in addition to being cheaper, which is beneficial when considering the costs associated with Human Resources (Burke & Cowling, (2020). Offering employee perks, retirement programs, or pensions to the workforce is not necessary. A company only needs to hire them for the project and pay the associated charge. According to Saleh (2020), it is highly likely that it will be beneficial for you to hire a group of core employees to handle the day-to-day operational tasks of your company. However, freelancers can be a good alternative for non-core services such as content writing, accountancy, or legal assistance.

In conclusion, Human resource management remains the most vital department in any organization. The success or failure of a business is determined by how effective this particular department is in running the day-to-day operations of a business. Regardless of the strategies for lowering Human resource costs that you decide to put into place, it would help if you prioritized ensuring that your staff is satisfied and involved in their work. This will help you achieve the ideal balance between lowering HR costs as much as possible while retaining staff loyalty and giving them the sense that they are a part of your company.


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