ROI: What, Why, When, How Dianna Wilusz, Managing Director Human Capital Solutions

ROI: What, Why, When, HowDianna Wilusz,

Managing Director Human Capital Solutions

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Outcomes and Agenda Outcomes

Common understanding of ROI measurement Tools to build your internal business case for outsourcing your program or project Ideas on ways to implement and measure success – The Strong ROI Case

Who is Craford? Case Study: What is Business Process Outsourcing

Out-sourcing, in-sourcing, off-shoring…….it is all sourcing Survey Says……… HR Administrative Outsourcing

Why consider outsourcing your program or project The shifting HCM landscape Which comes first……..Effectiveness or Efficiency Where do we go next…….Strategy vs. Tactical

When is it best to outsource your program or project The case for ROI What types of business processes are best suited for outsourcing

How do you do it well Selecting the right vendor Continuous improvement

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Craford Benefit Consultants Benefits and Human Capital Management consulting firm

Founded in 1961

35 employees in three offices nationwide

Strategic partnerships

120 Clients in manufacturing, technology, retail and service

17,000 Employees supported by our Call Center and Outsource Services group

>80% of our Clients include locations outside of northern California

$600M in benefit premiums under management

Recently selected:

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Our Value Proposition

Create Value by Solving Business Issues that Increase Organizational Effectiveness and Financial Performance

Craford is defined by our people, our culture, and our innovative solutions to human capital challenges and opportunities

Our client commitment is reinforced with our internal call to action….

”different, better, more”

Business Case - ROI:

What Is It?

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Case Study: What is Outsourcing? Step One:

Reach Agreement on Common Definitions Outsourcing may be one of the most complex initiatives that Organization

faces Definition

Outsourcing is subcontracting a process to a third-party company. The decision to outsource is often made in the interest of lowering firm costs, redirecting or

conserving energy directed at the competencies of a particular business or function, or to make more efficient use of labor, capital, technology and resources

Options may include Application Outsourcing, e.g. software, payroll, HRMS Business Process Outsourcing, e.g. benefit administration, LOA management, staffing Total HR Outsourcing

Outsourcing Partnership with local, specialized vendor(s) who provide a customized solution May be total outsourcing

Off-Shore Often the most cost-effective solution

In-sourcing Creation of an umbrella organization internally or Human Resources takes on the

transactional burden

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Step 2: Know your audience Gotcha’s and Considerations

The Human Resources department is responsible for ensuring that these things are done well and done in a way that supports the business objectives

The HR Department is not always the best judge of Cost Measurement of ROI Stating the value to the bottom line

Engage key decision makers and influencers in crafting the ROI Case – as early in the process as possible

Case Study: What is Outsourcing?

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Step 3: Quantify and Compare Who is Doing It? Survey Says…

13 Respondents Particularly interesting to note the breadth of responses

10 companies have outsourced portions of their HR function 1 company responded they have a total HR outsourced model 3 companies reported they have not outsourced anything 5 companies interested in further exploring the opportunity to outsource

activities related to benefits administration Cost, service quality, and vendor management were named as

areas of concern when taking into account outsourcing Cost was the number one reason why many companies chose not to

outsource Quality control was a common apprehension

Further, the two most often mentioned areas of interest for future outsourcing were Staffing/Recruiting and Benefits Administration

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Step 4:Provide broad context - Evolution Show the advantages of investing Speak Cost versus Price Evolution of the HR Profession

60’s – 70’s 80’s – 90’s 2000 – 2010 +

Organization: Personnel

Top Job: Personnel Manager

Scope: National

Metrics: Reporting

Organization: Human Resources

Top Job: VP – HR

Scope: International

Metrics: Measuring/ROI

Organization: Human Resources

Top Job: CHRO

Scope: Global

Metrics: Analysis/Modeling

Management Training Compensation & Benefits

Recruiting/Hiring Union Relations

Leadership Development Compensation & Benefits

Staffing/Right-size/Outsource Employee/Labor Relations

Organization/Change Management Talent Management

HRMS Diversity

Leadership Capability Compensation & Benefits Staffing/Virtual/Off-shore

Culture and Values Social Capital

Techno-leverage Demographics

Reputation Capital

Ulrich Model:

Employee Champion

Administrative Expert

Ulrich Model:

Strategic Partner

Change Agent

Employee Champion

Administrative Expert

New HC Strategist:

Business Professional

Leader

General Manager

Human Capital Visionary

Source: The Next Challenge article 2008


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Step 5: Link to the Operations in ROI terms

Three HR Value Propositions Efficiency (time & money, input divided by

output): Benefits costs/employee Cost/hire Time to fill positions Cost/grievance HR expenses/total operating expenses

Effectiveness (ratios & scorecards) ROI Balanced Score Cards Human Capital Revenue = revenue per

employee Impact (business results):

HR performance impact on strategic success Time to integration/adoption Closed loop feedback

Strategy – People and organizational strategy to support the business strategy

Service – Best service for least cost

Consultation – Agent for organizational change and effectiveness

Source: The Next Challenge, 2008

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Case Study: What is Outsourcing? Step 6: Personalize it – the role of HR

Which Descriptor Best Describes the View of HR Held by Executives (Respondents = 1,280)

The Domains of HR, and Their Respective Weighted Impact on Business Performance

Strategic Partner 34%

Employee Relations Focused 19%

Policy Administrator 17%

Reactive Problem Solver 17%

Program Coordinator 7%

Do Not Know 7%

Other 6%

SOURCE: SHRM BALANCED SCORECARD, 2002

Strategic Contribution 43%

Personal Credibility 23%

HR Delivery 18%

Business Acumen 11%

HR Technology 5%

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Case Study: What is Outsourcing? Step 7: Opportunity Costs and Other Drivers

Harvard Business Review has identified outsourcing as one of the most important management ideas and practices of the past 75 years

Spending by U.S. organizations on outsourced business services will triple from $100 billion to $318 billion

Studies indicate that outsourcing is increasingly viewed positively by executives and top management alike, at both US and multinational companies

Firms in dynamic markets such as telecommunications, high-tech products, and professional services, already source more than 40% of their operations outside

Innovation is now seen as the key strategic benefit of outsourcing

SOURCE: O21

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Case Study: What is Outsourcing? Step 8:

The “killer close” Outsourcing fits into the evolution of HR becoming highly strategic and less transaction

based “The progressive HR leader must be a business manager first and foremost, looking at

HR as a “business within the business”…… “They need to be able to speak the same language and make the same case for being in

business that the CEO’s of HR outsourcing companies are making.” An offer they cannot refuse

Demonstrated ROI % of measured ROI achieved Flat rate on identified opportunities Others?

Decreased expenditures Hardware - Software and ongoing maintenance/licensing/support Specialized staff - Specialized consultants

Efficiencies of scale Costs spread over greater number of employees served

Staff reduction or redeployment The magnitude of Return on Investment is driven by the ability and the willingness

to change Enhanced business process management

SOURCE: The Next Challenge, 2008

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It Is All About ROI

The purpose of an ROI analysis is to present the savings of a specific program in terms of a cost/benefits (C/B) ration for an organization.

To calculate ROI, you need to determine three things:1. Program Benefits

2. Program Costs

3. Savings Equation

There is no industry standard for determining ROI. There is variability in all three steps.

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Calculating ROI

One Fundamental Truth:

A poorly designed or executed program does not have an ROI.

RR

II

O

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The real questions are:

Does your Program have a positive impact on your business?

What’s the evidence?

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Opportunities Model: Measurement Tools

BusinessStrategy

WorkforceDevelopment

StrategyHuman CapitalProcesses &

System

Manage Deployment of

Personnel

ManageCompetencies

and Performance

Develop andTrain

Employees

Motivate andRetain

Employees

>Productivity >Consistency>Customer Sat. <Ee Turnover>Quality <Cycle Time

>Revenue<Cost >Margins

HighPerformance

Workforce

OptimizedBusinessResults

WealthCreation

Market Value > Book Value

MeasurementTools:

Ex: StandardExit Interview

Survey

MeasurementTools:

Ex: StandardCompetencyAssessment

MeasurementTools:

Ex: Pre or PostTest, ImpactEvaluation

MeasurementTools:

Ex: EmployeeSatisfaction

Survey

• International Assignment• Mobile Workforce• Employee Turnover

• Forecast Workforce Requirements• Recruit, Select, and Hire• Succession Planning

• Competency Management• Performance Management

• New Hire / On-Boarding• Learning and Development• Coaching and Mentoring

• Leadership Development• Knowledge Management

• Compensation and Benefits• Employee Satisfaction• Employee Engagement

• Work / Life Balance• Workforce Diversity

Image Source: Knowledge Advisors, 2008

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Strategic Measurement and Business Impact

Define the Issue Clearly

Nature & Size of Problem:- Cost- Population Affected

Opportunity to Make a Difference: - Actionability- Potential for Improvement

Ensure the Right Solution is in Place

Allocation of Resources:-Support Strategies

Behaviors:- Employees & Dependents- Providers- Plans & Vendors- Company Stakeholders

Investments in Outsourcing

Business ValueLine of Sight

Evaluate Program Operations and Outcomes

Impact:- Utilization- Satisfaction- Cost

Methods:- Establish Relationships- Establish Causation

Refine Strategies and Program

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A Comprehensive Measurement Methodology

Operational Participation/engagement Call center statistics Case statistics

Satisfaction Financial Behavior / Culture

Operational Participation/engagement

Satisfaction Behavioral / Culture impact Financial Impact

Operational Participation/engagement

Satisfaction Behavioral / Culture impact Financial impact

Key MetricsWhat is being measured

MethodologyHow data is collected

and analyzed

PerformanceHow the vendor is doing

FeaturesHow is the data being

presented?

Timely User-friendly

Accurate Actionable

To properly evaluate the performance of a vendor, it is essential to assess the metrics that are used as well as the methodology for collecting data, analyzing and reporting results.

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An Effectively Managed Program Needs On-going Measurement – the real measure of ROI

Program design Process flow effective/efficient Vendor cross-referrals feedback

Participation rates Baseline utilization Demographics of participants

Awareness Program awareness/marketing Name/brand recognition Program perception/early adopters

Program satisfaction feedback Impacts

Knowledge, attitudes, beliefs Self-efficacy Behaviors

Baseline analysis

Program design Process flow effective/efficient Vendor cross-referrals feedback

Participation rates Repeat program utilization Demographics of repeat users Completion/case closure rates

Awareness Program perception/engagement


Outcomes Health care utilization Lost work time Productivity EE Turnover Employee satisfaction/culture

Program design See intermediate-term

Participation See intermediate-term

Awareness Program perception


See intermediate-term Impact on organizational culture and strategy

Outcomes ROICost of ownershipBreakeven

Short-term measures(0 – 12 months)

Intermediate-term measures (12 – 24 months)

Long-term measures(2 – 5 years)

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The ROI of a Well Designed and Well Managed Program

Development of a High Performance Workforce Evidence of effective Human Capital Management

Increased productivity Increased quality Increased consistency Decreased employee turnover Decreased cycle time

Impact on the financial statement Revenues increase Costs decrease, yielding Higher margins

Producing the ultimate effect of human capital value: wealth creation Increased stakeholder value

Taxpayers (for public sector organizations) Shareholders (for corporations) Employees Partners

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Documents

ROI: What, Why, When, How Dianna Wilusz, Managing Director Human Capital Solutions