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"All of our services focus on improving
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Source : People ROA
How to Create a Business Case for Your Human Resources System
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Often times when HR requires an investment it is put on the back shelf because HR is not considered a profit center. Don’t let that discourage
you from going after a new HR system. When looking to purchase a new software System, you should go to your CFO or CEO with a
business case in hand. In order to get the HR, payroll, training or recruiting system you are looking for, you will probably have to justify it.
My goal is to introduce you to the basics of creating a business case so that you can gain management buy-in to the project. Depending on
how sophisticated your organization is around budget and finance, it will determine how complex your business case will need to be. Even
if your organization is more informal about spending, you’ll still want to put together a business case so your project does not get put on
hold. consider:
The Key Components of a Business Case
The business case contains a few key components - the reason for change, the benefits of changing, the cost of changing (and the cost of
not changing), risks, success factors, and a financial analysis.
Reason
identify in summary why you are changing, especially if the project supports achieving strategic goals.
- Objective – a detailed statement of what you are trying to do. Ex: The objective is to implement a core HR system with recruiting
and training administration capabilities.
- Current HR issues – describe the problems and create a sense of urgency for change\
Ex: Our current process causes inaccurate data and requires a lot of non-value added time performing routine tasks
- Limited functionality available with spreadsheets.
- History difficult to maintain resulting in inaccurate reports or additional time trying to represent reality
- Integrity & Redundancy of data - time wasted entering data in multiple locations.
- Reports created manually each time.
- Difficult to share data with colleagues without resulting in overwriting one another’s efforts.
- Goals - State your goals with respect to the company’s strategic plan
Ex: One call center had so many turnovers that payroll was not getting the information in a timely manner and they
found that the company was continuing to pay 600 employees that should have been terminated. In this case, the
goal was to realize cost savings by accurately paying people.
- Accurately pay salaries
- Reduce billing errors for benefits
- Spend more time on strategic activities
- Alternatives - State the options considered and discuss why they are not being pursued.Ex:
- Status Quo- Continue with spreadsheets and paper files
- Develop an in-house system
- Procure a new system
- Outsource
Benefits
this is the section where you’ll put all of the reasons supporting your business case, even if you can’t quantify them.
- Reduce expenditures – this represents savings resulting in saving hard dollar costs
Ex: By reducing benefits errors, we will save 3-4% of our benefits costs per year.
- Increase productivity (soft dollars) – this represents the time spent performing your job.
Ex: Productivity savings from HR administration will result in a 30% reduction in time spent.
- Increase effectiveness – state how processes will improve with this initiative
Ex. by automating performance appraisals we expect to ensure all employees are receiving reviews on a timely manner.
Or more efficient decision making with regards to budgeting by accurately knowing the headcount, etc...
- Increased morale – describe how this
system will increase morale
- Increased data or decision quality –
state how data will be more accurate
Ex: We will be able to produce a headcount report in one day rather than the 3 days it currently takes with the use of a
common system.
- Increased process compliance – state what processes you will be able to improve upon
Ex: We will be able to better track I-9 compliance.
Costs
- Initial project/solution search – This accounts for the time spent researching, reviewing proposals, etc…You will want to use
an average burden rate for those involved in the decision making.
- Project management (internal selling) - the time spent getting support for the project as well as managing the project implementation.
- Software – be sure to include the license and support costs or the monthly cost of using software as a service. If you are
doing a multi-year analysis, don’t forget to account for price increases.
- Hardware – the cost of servers, network equipment, if you don’t know the costs yet, leave the line item in with a placeholder.
- Implementation & Installation – the cost of implementing and training on usage of the software and hardware
- Maintenance – cost of maintenance and support (internal and external)
Risks
Identify those items that might present problems for your organization.
Ex:
- Lack of resources/priorities to complete the project on-time
- Technological risk for complex processes
- Lack of response from benefit carriers may delay our implementation schedule.
Critical Success Factors
When embarking on any project, it is important to understand what the critical success factors are for your
project.
Ex: For example, by removing some of the responsibilities from your HR manager will allow them to participate in the meetings
for the project.
Financial Analysis
lastly you’ll need to put together the financial data. The methods vary in sophistication, but this paper is only going
to cover the most basic approach.
- Simple Analysis: First subtract the costs from the benefits to derive the total. Second determine when the investment
will pay for itself.
- Cost of doing nothing vs. cost of making an investment – This is a critical step if you want approval in a timely
manner. There has to be a compelling reason to make a change. Too many HR directors have their projects put on
hold indefinitely because they simply did not quantify the costs of staying with the status quo. If you can show the
status quo is more costly, then it provides a compelling reason to change.
- ROI Calculations – Return on Investment (ROI) Calculations serve as a basic decision making tool by determining
the return on your investment compared to not spending the money at all. Most vendors can provide you with an
ROI calculator, which will determine the payback period, the internal rate of return (IRR), the net present value
(NPV).
- Advanced Analysis - Sometimes, the cash flow statement will be used as well as value added (EVA).
- Total Cost of Ownership (TCO) Analysis – TCO is an approach to calculate the lifetime costs of acquiring, operating
and changing something. Good TCO analysis brings out the ‘hidden’ or non-obvious ownership costs that might
be overlooked in making purchase decisions or planning budgets. With ERP level systems that require a significant
investment in infrastructure, this is a key factor.
By spending the time to create a business case, you will not only have a tool to help you gain support for your imitative but also have improved
your CFO and CEO’s perception of your business acumen. Hopefully, this article will assist you in getting the HR system your organization
needs!
By Lisa Palermo. Lisa Palermo is Managing Partner of People ROA. People ROA offers HR Technology and Outsourcing
Solutions for all size companies. Some of their software solutions include Oracle HCM, PeopleSoft HCM, Sage Abra HRMS,
HR Office, Staff Files Pro. An ROI calculator is available upon request, by sending an email toinfo@peopleroa.com.