GlobalHRstudio focus workshop: Best Practices to Build the HR BPO Business Case

Best Practices to Build the HR BPO Business Case

Paris - April 26, 2010

©2010 Global HR studio, Inc. Proprietary and Confidential

©2010 Global HR studio, Inc. Proprietary and Confidential 2

Agenda

Master your business case from the startReasons for the business caseThe different forms of the business caseAssess your own situation - The “As Is” analysisExplore the future - the “To Be” analysis

What are others doing ? - A review of HR BPO business casesDifferent sectors, different needs ?What went well - Success storiesWhat could have gone better - Challenges not to overlook

Welcome speech and workshop introduction

Networking cocktail and walking dinner

Coffee break


Business case objectives

The objective of the business case is to identify costs reduction opportunity and value add trough process improvement, technology and outsourcing

As Is assessment

To Be criteria and alternatives

To Be assumptions & scenarios

Findings: As Is & To Be comparison, current costs/future costs, TCO, impact on the organization, value adds

Financial: Payback period, Cashflow, Financing

Rollout plan and how to transition the HR organization


Business Drivers for the Business Case

Company

Compliance

Corporate Governance Sarbanes Oxley Payroll complexity and rate of change Standardization, efficient processes Service Level Agreement, KPIs Risk management

Growth

Technology

Globalization Mergers and acquisition Emerging business Shared Service Centers Cost effectiveness & value to business Increase flexibility and scalability

Decrease interfaces maintenance/ payroll platforms Increase use of ESS/MSS Decrease risks on system availability, systems upgrades Develop controls (disaster recovery plans, data protection) Increase flexibility

©2010 Global HR studio, Inc. Proprietary and Confidential 5©2010 Global HR studio, Inc. Proprietary and Confidential 5

Implementation Process

Select Partner…Finalize ROI, Contracts & Service Level Agreements

Establish future organizational model - both target & interim steps

Initiate & Communicate Change Program and Mobilize Project Resources

Justify Investment…Establish Savings Potential…gain CapEx Approval

Timing of the Business Case

Program Preparation

ClientReadiness

CountryPreparation

Blueprinting(Requirements

Gathering)

Realization(Configuration

Testing)

Final Preparation

Go-Live &

Support


What sort of Business Case?

High Level Business Case

Often early in process

Overall strategic direction set by Board - “focus on core” - “increase shareholders value” - “outsource where possible”

Tactical/operational plans under consideration

Multiple future scenarios considered

Current & future costs based on ratios, extrapolated data, assumptions

Justification of Investment (JOI) to secure CapEx/funding

Identifies big wins (& loss) areas - savings and value add

Considers impact of rollout phasing and cashflow

Vendor data - initial proposal stage


What sort of Business Case?

Detailed Business Case

Finalization of Business Case

Close to contracting

Validation of earlier high-level figures and assumptions

Future scenario determined

Outsourcing partner selected

Phasing confirmed - country & functional rollout - interim stages

Focus on selected partner scope functionality - what tasks they do for us?

Retained organization - What tasks will we keep in-house?

How many FTE’s well we need - roles, structure, level, location

Confirms savings, return on Investment (ROI) & cashflow

Often used in contract negotiations to get “Best & Final” pricing


ADP Business Case Approach

Phase Activities

Identify Project Team Kick Off Project Alert Regions & Local Players

Introduce the business case approach and confirm scope Agree on the future scenarios to be considered Prioritise the key value add/soft benefits expected from the

future solution Agree the scope of data gathering required

Questionnaires Telephone Discussions Conference Calls/WebEx Meetings

Build on any existing data that is already held corporately Confirm assumptions to be used in the business case

calculations Client Team send out questionnaires - chases up & validates ADP - complete pricing template

Project Team consolidate data Work jointly on analysis

Agree& Detail baseline & assumptions used Compile Business Case Analysis Template & Input ADP pricing

for future scenarios Review Value Add assessment Calculate Savings & ROI / Roll out Plan

Draft findings Final presentation of Findings

& Recommendations

Future Vision & Retained Organization Costs Comparison – Current vs. Future Savings Value Add Transition planning Next Steps

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Status: AS IS and TO BE not easy to assess

■ Lack of visibility on Costs

■ Lack of visibility on Risks

■ Scope is not well known

AS IS

TO BE

How are we going to get there?

■ Options on the market

■ Scope

■ Impact on the organization

■ Transition


Building the TCO

ScopeGeographic Scope

Payroll HR Time Self Service Corporate Reporting Payroll Accounting

Country Specifics - Lodgments, Tax filing, benefits garnishments, declarations, P11D’s participation& intéressement

Costs

Hidden/Corporate Costs

Avoided Costs

FTE - direct & indirect costs

Outsourcing costs

IT Costs – IT FTE Systems, licences, maintenance amortized upgrades, interface

Replacement systems

Rollout of new functionalities to match To-Be offer

IT _ Multiple interfaces/ Upgrades

Compliance Cost – SOX internal quality audits

Consolidated reporting

Overpayments


How ADP support the AS IS

AS IS

AS IS Findings

Value Add questionnaire

Functional Questionnaires complexity assessment, scope validation

Costs Questionnaires Payroll, Time …■ Lack of visibility on Costs

■ Lack of visibility on Risks

■ Scope is not well known


Country Data Gathering Questionnaires


Criteria for the TO BE

Options on the market (one-to-many)■ Processing services

■ Managed services

■ Comprehensive services

Functional Scope■ Payroll, HR, Time,

■ ESS/MSS

■ Automation – interactive forms

■ Future Operational Model

■ Shared Service Centre

■ CRM tools

Geographical scope

Functional s

cope

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Geographical Scope■ Global, Regional

■ Countries


COS

Managed Services

ADP Service Options

Processing Services :Traditional “service bureau” relationship where clients leverage ADP’s hosted systems, ADP provides back office processing and administration.

Managed Services: In addition to Hosted Systems & back office processing, ADP also provides front office administration

Comprehensive Outsourcing Services (COS) : In addition to managed services, ADP also answers direct employee requests and queries

ProcessingServices


How ADP support the TO BE

TO BE

Responsibility Matrix, retained profiles

Functional & Geographical coverage

Service levels and definitions ■ Options on the market

■ Scope

■ Impact on the organization

■ Transition


ADP Responsibility matrix


ADP Sample Role Descriptions


Impact of Transition on the Business Case

■ Project methodology

■ Rollout plan

■ Resources

AS IS

TO BE

How are we going to get there?

■ Set-up costs

■ Social costs and impact

■ Costs savings

■ Payback and financing


Don’t forget to include Added Value

“Price is what you pay - Value is what you get”, Warren Buffet

Value will be perceived differently by different stakeholders

Stakeholders analysis will help to identify desired benefits

Weighting the desired benefits can provide key selection criteria for future scenario

Strive to measure & quantify if possible

Include Business Case as part of the Value Proposition even without attaching cash value


Value Add: Example of Client Stakeholder Analysis

Costs savings Reduce internal costs (interfaces, monitoring, skills)

Reduce HRIS costs (one platform)Minimize costs through economy of scale

Reduced reporting costs –data consolidation & report development

Costs

Legal compliance meeting internal audit requirements

Documentation and control of data transfer / error handlingGuarantee SOX compliance and reduce audit fees

Compliance

Local expertise/support for payroll Select robust and focused partner

Long term solutionLimit operational risk trough a robust and proven governance modelEnsure solution scalability (add. countries, processes, organization)

Risk management

Increase automatic data entry One system with a comprehensive integration

Reduce interfacesESS/MSS alignment with other processes

Facilitation of SAP interfaces for HRIS data

Technical Improvement

Reduce administrative tasks Be able to focus on what matters (HR)

Be able to count people at reasonable costsReduce errors

Benefit from sharing improvement

Process improvement


Benefits Executives are wanting from Outsourcing(Source: NelsonHall 2010)

Mid-market / National

1) Cost reduction and control

2) Become strategic partner / Stop doing transactional work

3) Compliance / Risk management

4) Improved technology

5) Lack of resources

6) Reduced risk

7) Better payroll data and service

8) Process improvement

9) Dissatisfied current provider

10) Bad experience with internal payroll

Large / Multi-national

1) Cost reduction and control

2) Global / multi-country service using single vendor and platform

3) Improved payroll data and service

4) Process improvement

5) Improved technology

6) Become strategic partner

7) Compliance / Risk management

8) Bad experience with internal payroll

9) Lack of resources


Presenting Business Case Findings

Context of the Business case - strategic aims, timing etc

Summary of Scope - geographical, scenarios, functional scope

Data integrity - sources, coverage & assumptions used

Inclusions & Exclusions - no surprises

Cost comparison - current vs. future

“Avoided Costs to show Like-for-Like Savings Comparison

Phasing & Ramp Up - interim stages

Investment internal & external transition costs

Treatment of Severance costs

Return on Investment - Net Present Value & Payback

Cashflow Analysis - cost neutral years, financing & amortization

Value Add to the business


Vive La Différence!

Re TCO savings:

“Cost is top reason why clients outsource payroll today…”

“Client cost savings range from 10% to 45% with an overall average savings of 25%”

Re FTE savings:

“The average staff reduction for an outsourced HR engagement is 54%...with upper quartile 76%”

NelsonHall 2010

Everest Research Institute 2008


Example of Current Vs Future

Client X Euro Euro

Global ( extrapolated) Current Future with ADP Saving % saving CommentsActive Headcount/employees 49,034 49,034 -

Total FTE's involved in HR processes 265 186 80 30% HR FTE reduction due to systems standardisation & process automation (potential for 69 FTE redundancy )

Total FTE's involved in Payroll processes 125 32 93 75%Outsourcing Payroll to ADP at MS level - likely 85 heads could incur severence & 8 FTE redeploy to work of greater value add?

Total Pay Transactions per annum 1,098,976 1,098,976 -

Global ( extrapolated) Current Cost €

Future Cost €

Saving % Comments

HR FTE 12,624,884 8,837,419 3,787,465 30% HR FTE reduction due to systems harmonisation & process automation

Payroll FTE 3,619,235 929,934 2,689,300 74% Payroll Systems & Outsourced Services 2,242,873 5,845,303 3,602,429- -161% Outsourcing Payroll to ADP at MS level

HRIS & IT FTE Costs 1,924,925 1,032,891 892,033 46% Mininal IT FTE required per region for connectivityHidden/Corporate Costs 654,615 - 654,615 100% Due to multiple systems & Vendors - (conservative estimate)

Total Cost of Ownership 21,066,531 16,645,547 4,420,984 21.0%Difference % Comments

HR:FTE Ratio 185 264 79Payroll :FTE 393 1,552 1,158 Outsourcing Payroll to ADP at MS level

Total Cost per Active Employee per anumn 430 339 90 21%Total Cost per Payslip 19.17 15.15 4.02 21%

Current Vs Future Costs - Managed Services

TCO Metrics


Example of Cashflow Projections

Option 1 - Normal ADP Payment Schedule 2010 2011 2012 2013 2014

ADP Implementation Fees Phasing: 303 4,923 2,242 0 0

Client X saving if (-) on Operational costs 0 -804 -4,428 -4,417 -4,417

Cash flow saving if (-) 303 3,945 -2,187 -4,417 -4,417

Payback Period (Months): 31

Option 2: Financing & Amortization ** 2010 2011 2012 2013 2014

ADP Implementation Fees Phasing: 0 2,320 2,320 2,320 2,146

Client X saving if (-) on Operational costs 0 -804 -4,428 -4,417 -4,417

Cash flow saving if (-) 0 1,516 -2,108 -2,097 -2,271

Payback Period (Months): 20


Finally Don’t Overlook these Challenges

Collecting the right dataAmbiguous questions and answersMissing, unavailableReluctantly supplied

Knowing what your Executives/Finance will include/exclude in/from your calculations

Understanding the decision makers criteria for funding approval

Resistance to change - even planning for it

Defining the scope of the To BeUnderstanding what is on offer from vendors in the market & specifically from your selected partnerPhasing - what by then - not all savings kick in at the same time

The time required

Education

GlobalHRstudio focus workshop: Best Practices to Build the HR BPO Business Case