You want to spend how much?
The six words no one wants to hear after asking for permission to buy something. The reality is that often many a bright idea is shot down before it even takes off because the request for funding wasn't coupled with a clear articulation of the business case itself.
Unfortunately, not everyone in a business is a finance expert and often in small to medium businesses lack of processes and templates to assist the creation of a business case results in a poorly documented funding request.
Recently we've helped a few of our clients create simple straightforward HR transformation business cases and all of the presentations have been successful. I typically recommend keeping it simple and to focus on four main areas:
- The compelling need
- Current costs
- Future/planned costs (recurring)
- One-time transition/restructuring costs
The assumption going into the exercise is that an HR transformation roadmap has already been designed and the underlying case is based on an implementation of an HR and payroll solution that allows an organisation to reduce transactional costs and refocus their team on strategic initiatives. We also recommend that at least a five-year period is used during the analysis of costs.
Let's look at the four main areas.
The Compelling Need
Ultimately, there needs to be a compelling need. Without a compelling need, there isn't a catalyst or a reason to justify the expense at the outset. This is the number one thing I ask my team when they say we have an opportunity with a client, what is the compelling need? Having said this, a compelling need does not need to be hard to identify and articulate. A few examples are:
- The current processes are manual and can no longer support the company
- The current system will not scale and either has not or cannot keep up with the company growth
- Major industry specific disruption such as regulatory changes that requires a change in People strategy
- A shift in company strategy has resulted in a change in People strategy
- Legal Changes introduced with regards to tax or pension that the current system cannot handle effectively
Whatever the compelling need is defined as, it is key that the major stakeholders who would need to approve the business case agree with the compelling need. If they do not share the same view on the compelling need, alignment is needed before the business case is ultimately presented for approval.
Understanding costs of delivering the current processes and solutions is extremely important. This is the only way to establish a baseline to compare the business case too. When identifying current costs, the mistake often made is to only document direct people related costs that are being incurred. Whilst this likely will be an area where you can identify some, if not significant cost takeout, it does not guarantee the case will stack up. What if your current structure is lean and you can't afford to rationalise headcount in this area, or the mix of resources may change but the actual costs stay the same overall? I typically break the as-is costs over three broad-stroke categories:
- Direct resource costs
- Indirect / external resource costs
- Technology/ material costs
Direct Resource Costs: Resource costs plus all associated on costs (i.e. fully loaded costs) of resources that are ‘owned’ or paid for by the HR or Payroll department(s).
Indirect/ External Resource Costs: Resource costs plus all associated on costs for any resources that are involved in the delivery of HR or Payroll services to the organisation. Examples of these resources could be IT or Finance Support. This is also the section that we recommend documenting any external people costs (e.g. consulting costs or external support costs).
Technology/ Material Costs: Any costs that are incurred related to technology needed to deliver current services and any material costs incurred in delivering current services. Examples of technology costs include current system costs, hardware, subscription, licences etc., and examples of material costs include payslip production costs, postage fees etc.
Once you have documented current costs, you can focus on documenting the future/planned costs. You are not limited to only documenting one group of future costs, as it may be relevant to actually document two or more options for review and approval. The costs of all options should follow the same three broad-stroke categories listed above (direct/indirect/technology), as this will ultimately enable an apple to apples comparison amongst the various options presented. Aside from the general rule of removing any costs no longer required based on the option being evaluated, the following are key points of consideration to take into account against each category:
Direct Resource Costs: Ensure that the resources listed here are the final end state planned resources. Do not document any restructuring costs or one-time costs in this section (such as re-training/ redundancy costs). Ensure that if you require a remix of resources from the current to the future to-be that the future state resource mix is listed here clearly.
Indirect Resource Costs: Document any new costs required to be budgeted for due to the new system. For example, new support costs due to the solution being managed externally rather than in-house. It is recommended to get agreement amongst any internal departments being impacted by the proposed change (e.g. Finance may be required to remove headcount from their budget if that headcount is no longer being used in supporting HR/ Payroll, ensuring that they are aware and are supportive of this will further strengthen support for your business case).
Technology/ Material Costs: Any associated technology costs that are needed on an ongoing basis are to be documented in this section (again do not document any one-time costs such as implementation fees in this section, these will be documented in the one-time transition costs section of the business case). These costs are typically subscription costs.
If your HR roadmap is a phased roadmap, where there are interim stages with significant impact to the business case, you may want to document the phases so that a more accurate view can be ascertained.
One-time transition/restructuring costs are an important category of costs to document to ensure that the end to end business case is known and that a holistic approach to the proposed Transformation can be displayed. One-time transition costs can be internal, external and restructuring in nature:
Internal Costs: Relate mostly to resource costs involved in the transformation and project team. These are typically project team members (typically the dedicated project team from the client side), cost of involvement of business representatives involved in stages of the project (such as during the design phase, testing phases etc.), and any costs associated with back-filling of resources that need to be taken into account (such as extra payroll resources that are required to support the payroll manager whilst he/she is involved in parallel testing).
External Costs: The implementation services fees from the system/solution provider. If multiple service providers are being used (e.g. a provider for the system and a provider for change management), ensure all costs are documented.
Restructuring Costs: Any one-time costs that are going to be incurred due to the implementation of the system/solution, typically these are cost of re-training/ re-deploying workforce, or in some cases redundancy costs if positions are no longer required in the organisation.
Financial Summary, Tangible and Intangible Benefits
Once the as-is, to-be and one-time costs have been gathered, summarising these into a simple table that shows a five year view should enable a view as to the financial impact of the proposed transformation. If you have multiple to-be options, these should all be documented so that comparison of options should be easy to make, and if you have an interim stage before the final end-state is achieved this should also be taken into account in the summary.
Note, the entire financial analysis and summary so far has focused on tangible benefits, i.e. benefits that can be quantified. Often these are the benefits that are taken into account when looking at the ROI on an investment, however, it is important to not ignore the intangible benefits, i.e. benefits that cannot easily be quantifiable, even though they may have a positive impact on the overall case. Examples of intangible benefits include:
- Increasing employee engagement, leading to increased productivity;
- Increased customer satisfaction levels due to higher quality of service (as staff are better trained etc.);
- Improved employee collaboration due to availability of tools;
- Increased alignment of employees and managers to organisational goals.
Presentation Is Key
Once you have documented the costs associated with your business case, bringing all the information together into one simple, clearly articulated presentation/ word document is often the deal breaker. Poorly documented and presented cases will have more risk of not being approved rather than being approved even if the numbers add up.
I typically recommend the following structure of a business case presentation/ document:
- Executive summary (high level of what is being requested, recommendation, costs and associated savings)
- Cost benefit analysis
- Solution overview
- Transition plan
Hopefully once you’ve created the above document and presented to your executive/ board/ whoever approves the case, you will be well on your way to embarking on your HR transformation journey!
Download an Excel workbook and associated PowerPoint presentation (PDF) to assist with documenting your HR and payroll transformation business case.