ADP Releases Study on Payroll and HRIS Total Cost of Ownership; Outsourcing may save 30 percent over in-house systems.

Business Editors

ROSELAND, N.J.--(BUSINESS WIRE)--Oct. 20, 2003

ADP(R) Employer Services (ES) division, a leading provider of integrated outsourced payroll and human resource services, today announced the results of an extensive study on the Total Cost of Ownership (TCO) for payroll and HRIS functions. Commissioned by ADP and independently conducted by PricewaterhouseCoopers (PwC), the study is one of the most comprehensive of its kind and is the first to quantify the hidden costs of conducting payroll and Human Resource Information System (HRIS) functions in-house. While companies are looking to cut costs in the current economic environment, the study reveals that hidden costs such as frequent upgrades drive in-house TCO much higher than most companies realize.

"Successful companies have always understood the need to determine 'real' costs by assessing all expenses that factor into ownership," said Jay C. Rising, President, ADP National Account Services. "The TCO study shines a light on the unexpectedly high TCO for in-house systems, and supports our understanding that outsourcing represents a strategic alternative with the potential for significant savings. In fact, based on the study results, we believe companies choosing to outsource with ADP will see an average 30% decrease in TCO."

Based on online responses from senior financial decision makers at 181 companies, the TCO study is one of the largest and most significant of its kind ever conducted. Survey respondents represented a broad range of industries and in-house systems, and had an average of 6,500 employees. Respondents used a model developed by PwC to input all costs related to their payroll systems and all costs related to maintaining their HRIS.

Significant findings from the study include:

-- The Total Cost of Ownership for an in-house payroll system is

$16 per check

-- The annual cost of ownership for an in-house HR system is $88

per employee.

-- Only 25% of senior financial executives expect to realize any

economic value added (EVA) as a result of upgrading current

in-house systems or installing new systems

-- The useful life of in-house systems has declined to 4-7 years

as firms have opted to replace amortized systems rather than

invest in additional upgrades

-- Across the board, nearly 30% of the functionality that is

initially purchased with HR systems goes unused

-- Larger in-house software solutions appear to redistribute 

costs across budgets, but do not necessarily offer total cost

of ownership advantages.

PricewaterhouseCoopers developed and administered the survey online to uncover the one-time costs (system installation and upgrades), processing costs (labor and non-labor) and maintenance costs (labor and non-labor) for payroll and HRIS. More than 400 e-mails and phone calls were made to survey respondents to clarify data, and corrections were made accordingly.

Among the substantial hidden costs revealed by the study were costs related to ongoing upgrades, which are often overlooked in the analyses of payroll processes. The study shows that major ERP applications do not offer total cost of ownership advantages over other software packages (including all smaller vendors and homegrown systems), with the average TCO per paycheck being roughly the same at $16. Respondents also reported that nearly 30% of the HR functionality owned by their organizations goes unused, essentially becoming "shelf ware."

"ADP commissioned this study because we felt that companies do not have a clear picture of all of the costs associated with keeping payroll and HRIS in-house," said Mr. Rising. "This independent third-party study provides objective insights into the hidden costs and reveals that total cost of ownership is much higher than previous studies showed - and probably much higher than many companies expected when justifying their purchases. Armed with that information, companies can make better, more-informed business decisions going forward."

Additional survey results and a PwC white paper on the TCO study entitled, "The Total Cost of Ownership: Warning Signs of Hidden In-House Systems Costs" are available at http://tco.nas.adp.com.

About ADP

Automatic Data Processing, Inc. (NYSE:ADP) is one of the largest independent computing services firms in the world, with over $7 billion in revenues and approximately 500,000 clients. ADP Employer Services (ES), a division of ADP, Inc., is a leading provider of integrated business administrative solutions that help its over 460,000 clients efficiently manage their internal processes, allowing them to focus on core competencies. ADP Employer Services' offerings include both traditional and Internet-based outsourcing products and services, giving clients the ability to select from ADP's comprehensive range of World Class Service solutions. Services include: payroll, tax regulatory management, HRMS, benefits administration, time and labor management, retirement plan services, online recruiting, PEO services, and employment screening and selection.

For more information about ADP Employer Services, or to contact a local ADP sales office, reach us at 1.800.225.5237 or visit the company's Web site at www.adp.com.