L O C K T O N C O M P A N I E S

Building a Business Case for HR Technology

March 24, 2015

L O C K T O N C O M P A N I E S

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Please note

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L O C K T O N C O M P A N I E S

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Questions

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Recertification

This presentation has been pre-approved for 1 general recertification credit hour toward PHR, SPHR, and GPHR recertification through the HR Certification Institute (HRCI). The program ID number will be announced at the end of the presentation. Recertification credit toward SHRM-CP and SHRM-SCP through the Society for Human Resource Management (SHRM) is pending. To be eligible to receive credit, you must log on individually so that your attendance may be verified.

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Stacie Engelmann, SPHR, SHRM-SCP HR Consultant Lockton Benefits Company—Kansas City

Introduction

Wendy Dayton Operations Manager, HR Technology & Outsourcing Practice Lockton Benefit Group—Kansas City

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What’s Trending These Days?

BE GREEN!

BENEFITS

ADMINISTRATION

LEAVE

ADMINISTRATION

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It’s a Mobile World

79% OF SMARTPHONE USERS HAVE THEIR PHONE ON OR NEAR THEM FOR ALL BUT

http://www.adweek.com/socialtimes/smartphones/480485

Connectedness

BYOD

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Generations

Traditionalists Major trait: loyalty

World War II, Cold War, Korean War, rise of suburbs

Sacrifice, loyalty, discipline, respect for authority

Fax machine

Baby Boomers Major trait: competition

Watergate, women’s rights, Woodstock, JFK assassination

Competitive, sandwiched generation, hard work, long hours

Personal computer

Generation X Major trait: self-reliance

MTV, AIDS, Gulf War, 1987 stock market crash, fall of Berlin Wall

Eclecticism, self-reliance, free agents, work-life balance, independence

Mobile phone

Millennials/Gen Y Major trait: immediacy

Google, Facebook, 9/11 terrorist attacks, election of Barack Obama

Community service, cyber-literacy, tolerance, diversity, confidence

Google and Facebook

Generation 2020/ Gen Z Major trait: hyper-connectedness

Social games, Iraq War, Great Recession

Mobility, media savvy, life online starting in preschool, reading books on e-readers

iPhone apps

Source: The 2020 Workplace

GENERATION MAJOR

INFLUENCES

BROAD TRAITS DEFINING

INTERVENTION

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What is HRIS

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Talent Management

Succession

Compensation

Learning

Recruiting/ Applicant Tracking

Performance

ACA

Compliance Reporting

Workforce Management

Benefits Administration

HR/Payroll

Time & Attendance

Tax Services

Real-Time Processing

Dashboard/ Analytics

Global

Mobile Capabilities

Biometric, PC Based,

Swipe Cards

Info & Data Integration

Call Center

Dashboards /Analytics

Carrier Feed/Billing

Reconciliation

Decision Support

Eligibility/ Tracking

New Hire/ Life Event Processing

Scheduling

What Gives

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The Who

HUMAN RESOURCES

PROFESSIONALS

Reporting and

compliance

Payroll and

compensation analysis

Benefits administration

Applicant tracking,

skills inventory

FUNCTIONAL

MANAGERS

Performance

management and

appraisal

Recruitment and

resume processing

Team and project

management

Training and skills

testing

Management

development

INDIVIDUAL

EMPLOYEES

Self-service benefit

options

Career planning

Training and

development

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Workforce Analytics

Global Human Capital Trends 2015, Deloitte

2%

2%

3%

0%

1%

1%

2%

1%

53%

51%

59%

62%

61%

62%

69%

66%

36%

39%

33%

31%

33%

29%

25%

26%

9%

8%

5%

7%

5%

8%

4%

7%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

2015

2014

2015

2014

2015

2014

2015

2014

Utiliz

ing H

R

and t

ale

nt

opera

tional

report

ing a

nd

score

card

s

Conduct

ing

multi-year

work

forc

e

pla

nnin

g

Corr

ela

ting

HR d

ata

to

busi

ness

perf

orm

ance

Usi

ng H

R d

ata

to p

redic

tw

ork

forc

e

perf

orm

ance

and

impro

vem

ent

Not applicable

Weak

Adequate

Excellent

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Today’s Landscape

It’s a jungle out there

FMLA

Legal time off requirements for certain states

ACA compliance

Impacts almost 19% of the entire U.S. economy

Offering affordable coverage?

Managing 30 hour-per-week threshold

46% of mid-sized employers feel they are prepared for ACA reporting

51% of large employers feel they are prepared for ACA reporting

To obtain more information on ACA technology requirements, contact JoAnne Pettijohn jpettijohn@lockton.com

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Investing in an HRIS and the Impact to Your HR Department Structure

―We are overworked‖ is not meaningful

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Gathering Information

What is the business problem?

What has a successful case looked like?

Consider the reading audience.

Consider the approvers’ perspective.

Who could be a champion?

Who are the implementation resources?

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What level of detail does the organization (i.e., deciders) need?

Understand company objectives.

Understand impacted business processes.

When will the major costs be incurred?

Gathering Information (Continued)

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Now what?

What if you’re reviewing a project that has already started . . .

Sunk cost - already-incurred cost that cannot be recovered

Cost savings – an action resulting in the decrease of costs in the current year

Cost avoidance – an action resulting in future spending reductions

Strategy of cost avoidance = fewer dollars for investment

What do we do with the information we have assembled?

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What Does a Successful Business Case Look Like?

SUCCESSFUL BUS INESS CASE

Clearly outlines the problem

Outlines considerations for going forward, including no action

Does not mean you get a ―Yes‖ to proceed

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Executive Summary

1

Structuring the Business Case

Business Plan

2

IRR / ROI

3

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Background and Opportunity 2

Objectives and Goals 5

Duration 7

In-Scope 7

Out-of-Scope 9

Project Phases, Activities and Deliverables 10

Project Schedule and Milestones 12

Costs 13

Internal Implementation Effort 13

Initial Software and Services Expenses 14

Initial Hardware Expenses 14

Total Cost of Ownership 14

Project Resource Requirements 15

Appendix A—Total Cost of Ownership 23

Example Table of Contents

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1 2 3 Business Case Structure

Executive Summary 1

Statement of the problem

Objectives and goals

Financial objectives

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1 2 3 Business Case Structure

Example Problem Statements

Client’s benefits administration, employee information and recruiting database are operating on an early

generation HRIS system. This server-based product is no longer sold by Vendor 1, and support services are

becoming more limited. We also have a server-based version of Vendor 1’s payroll system which is at least

two versions behind current Vendor 1 technology for server-based systems. Our time and attendance system

is so antiquated that support and maintenance have been discontinued entirely.

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1 2 3 Business Case Structure (Continued)

Example Problem Statements

Client currently utilizes Vendor for US Payroll and HR needs, and 6-7 other bolt-on systems in the US and internationally to maintain employee data and provide information needed to the appropriate recipients. The systems were implemented between 1998 and 2008 with interfacing technology, and have not been upgraded to the most recent platform. In fact, Client was notified by the vendor that the systems were being retired by June 2015, and it was necessary for them to move to a more current platform. The current system functionality is limited; it requires duplicate manual entries, significant manual intervention to generate standard reports, lacks workflow, lacks true integration of data, and does not effectively support the changing global business environment.

The current Human Resources headcount requires 22 full-time US and 5-6 internationally-based employees to support. The current system infrastructure does not allow for ease in mobile capabilities, nor does it have on-boarding, robust learning management, career development, succession planning, compensation planning, health and safety, disciplinary action management, robust reporting. As a result:

Duplicate data entry and lack of system functionality

Current processes will not scale to support business objectives

Managers and HR lack visibility into enterprise talent pools

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1 2 3 Business Case Structure (Continued)

Example of Objectives

Client has the ability to limit redundancies in data stored in multiple places and provide employees with tools to manage their information and careers.

The new technology would allow managers real-time access to their employee information, such as hours worked, salary history, organization charts, etc. The increased visibility of employee information to managers along with reduced paperwork is expected to relieve the Manager’s administrative burden.

Objectives

The primary objectives of the project are to:

Develop a more scalable infrastructure to manage growth and minimize business risk/exposure

Implement an integrated HRIS and Payroll technology solution to support Client’s business objectives and strategies

Gain process efficiencies in the employee life cycle (recruitment, onboarding, payroll administration, benefit administration, performance management, employment law compliance, and termination

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1 2 3 Business Case Structure (Continued)

Example of Objectives

Client Business Alignment

Improve operating costs

Improve productivity through increased employee satisfaction/engagement

Consistent employee experience-hire to retire—full life cycle

Guaranteed service levels with fees at risk

Process improvement opportunities

Country/Federal/State compliance of payroll standards

Minimize risk; reduce/avoid costs

Liability: tax, wage attachments, FMLA, overpayments, HR compliance, hours of service

Functional Area: Human Resources

Leverage new technologies/streamline process

Reduce operating costs

Formalized audit and control processes

Better access to data and reporting metrics

Maximize data integrity

Minimize change management impact or disruption to employee/user experience

Cost effective solution, adherence to fiscal strategy

Scalable solution—allows for business growth

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1 2 3

―Hard Cost‖ Savings

Savings from current contracts

Back-office savings via transaction automation and HR/payroll productivity

Improved accountability with headcount tracking visible to process participants

―Optimization Savings‖

Increased visibility and accountability for compliance through reporting and system capabilities

Reduced time and dollar costs in implementing business process improvements

Productivity driven by improved employee and manager self-service

―Soft Cost‖ Productivity Savings

Improved recruiting efficiencies

Improved communications to employees regarding Client benefits and compensation

Improved employee development capabilities

Improved access to secured data anytime, anywhere, with mobile functionality

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1 2 3

Business Plan 2

Business Plan

Problem statement

Stakeholders

In-scope definition

Out-of-scope definition

Desired system attributes

Rough timeline

Implementation strategy

Risks

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1 2 3

Example Problem Statements

Client Frustrations With Current Solution/Vendor

―Our biggest frustration with vendor is we do not have a dedicated person to call when we have questions. Since we do not have a specific person who knows us, we get different answers when we call in.‖

―In October, we received a letter from vendor, stating that local exemptions would no longer display on an employees pay stub if local exemptions are not used in the calculation of their income tax. The vendor deleted all the local exemptions for Non Residents even though the exemptions are used in the calculation. I called them a few times on this and was given different answers. One person told us to put a hold on our payroll, and then she would make the correction and release the payroll. The correction did not work and the payroll was never released. This caused a problem since we needed the payroll early due to the payroll manager being out of town on Thursday and Friday. On January 6th, Vendor 1 finally said it was their error but it was going to take 1 -2 weeks to correct their system. We’ve had to manually calculate one employee’s check for the first two pays in 2010.‖

―We also have a lot of issues with the general ledger. Back in August of 2009, our custom settings setup was deleted. In September, our ETS to us flag was turned off. The accrual days for January 2010 were calculated incorrectly. We will manually have to make the adjustments for this. The vendor cannot explain why these happened on their end.‖

Business Plan

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1 2 3

Stakeholders Example

Business Plan

VENDOR SELECTION, MEETINGS, AND PROJECT TEAM Project Team Name Client SVP, Human Resources

Name Client Division Head

Name Client Manager, Payroll

Name Client Manager, Benefits

Name Client Manager, Compensation

Name Client Human Resources Admin II

Name Client Payroll Assistant Manager

Name Client Manager IV

Name Client Controller

Name Client Director of Tax/Reg. Reporting

Name Client Supervisor

Name Client Manager IV

Name Client Manager III

Name Vendor Consultant

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1 2 3

Example In-Scope Definition The following activities are in scope for the project:

HR

HR System Implementation

HR System Initial Conversion—defining program

HR System History Conversion

HR System Interfaces

Employee Self Service

Manager Self Service

Payroll

Payroll System (integrated with HR)

Payroll Processing

Tax Filing

Learning Management

Learning Management Functionality

Learning Management Interfaces

Time & Attendance

Time & Attendance System

Time & Attendance Initial Conversion

Time & Attendance Interfaces

Health & Welfare

Web Enrollment

Initial Conversion

H&W History Conversion

Other

SaaS Solution

Total Comp Statements

Single Sign On

Reporting

Business Plan

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1 2 3

Example Out-of-Scope Definition The following activities are out-of-scope for the project:

Leave of Absence Management—Performed by outside third party

LOA Initial Conversion

LOA History Conversion

LOA Interfaces

QMCSO Qualification

Unemployment Compensation Services—Performed by outside third party

Paper Fulfillment—Web enrollment will be utilized

FSA Administration—Performed by third party

Call Center—Employees are supported by internal Benefits group

Historical benefits and payroll data prior to 1 year—Difficult to convert; will ensure data is available electronically

Business Plan

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1 2 3

Example Desired Systems Attributes

Data Integrity

Ability to pull reporting across HCM business process functions (HR, Payroll, Benefits, PTO)

Decision-ready analytical tools for organization insight and benchmarking

Enhanced Benefit Administration Solution integrated with Payroll providing eligibility, status tracking, enrollment and flexible reporting

Mitigate Risk/ACA Compliance

Built in conformity based on Health Care Reform/ACA Regulations to ensure compliance

Provide PTO visibility to employees for accurate point in time balances, earned projections, and corporate liability reporting

Audit trails to minimize risk exposure

Tighter Integration to Eliminate Leakage and Redundancies

Single HCM vendor to minimize internal IT resource burden (i.e., no longer managing interfaces to third-party Benefit vendors and maintaining PTO accrual calculations)

Managed real-time data integration across HR, PR, Benefits, PTO, and Leave to ensure integrity and streamline processes

Proper controls for tracking and calculation to avoid costly unforeseen PTO liabilities

HR, Benefits & Payroll staff efficiency gains with investment in automated processes and integrated technology

Business Plan

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1 2 3

Example Implementation Strategy

The start date of the project implementation is January 2013. The overall project duration is expected to be approximately 8 months, with a targeted cutover and ―go live‖ for the first phase by June 1, 2014.

Testing/training will occur during the month prior to ―go live.‖

Full details of project plan and milestones to be provided by contracted vendor/Project Manager once confirmed/finalized.

Business Plan

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1 2 3

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1 2 3

Risks Example

The vendor is rolling out a new version of the software one month after go-live

The project manager is scheduled to be out of the office unavoidably for two months of the implementation

Full details of the project plan are not available until the consultant is hired

Business Plan

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Internal Rate of Return (IRR) Return on Investment (ROI)

Both risk assessment rates help determine whether to undertake project

IRR – focused on risk compared to outside market or internal projects

ROI – is the project effort is worth its cost?

Gains / Savings and Costs are used in both rate calculations

Gains / Savings Difference between existing contract and anticipated contract

Reduced hours from current processes

Reduced headcount

Cost Cost of application and hardware

Implementation hours for vendor and internal resources

IRR, ROI 3

1 2 3

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IRR

Example

1 2 3

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IRR

Example

3 2 1

Cost, Savings Per

Yr Calculation

Initial expense ($8,365,062.00)

Savings year 1 $3,032,166.00

Savings year 2 $3,032,166.00

Savings year 3 $3,032,166.00

Internal Rate of Return 4.31133% =IRR(e24:e27,5%)

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Internal Rate of Return (IRR) Return on Investment (ROI)

Both risk assessment rates help determine whether to undertake project

IRR – focused on risk compared to outside market, internal projects.

ROI – is the project effort / investment worth its cost?

Return on Investment = ((gain from investment – cost of investment)/cost of investment) x 100

1 2 3

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Cost Implications Avoided Expense/

Savings Impact of Risk

Benefit Leakage: Untimely & disconnection in data exchange between Enrollment Tools and Carrier’s employer’s experience ―cost leakage.‖ Benchmark Data: 5% average benefit leakage.

5% of benefit cost

TBD

ACA Penalties: Penalties can range from $100/day for noncompliance to $2,000 penalty per employee for not offering appropriate coverage or $3,000 for each employee receiving a subsidy at an Exchange.

TBD

Workload/Staffing Consideration: ACA regulatory requirement burdens will add workload to HR for tracking look-back periods, research IRS penalties, potential audits, set up and manage reporting for DOL and Exchanges. Estimate one FTE fully burdened-$60,000.

$60,000

Leave Management: Companies that do not automate leave management grant their employees an average of 1.25 extra unearned days off per year, costing approximately $125,000 for every 500 employees The average cost to defend an FMLA lawsuit is $78,000, regardless of outcome; The average verdict for wrongful termination in FMLA cases is approximately $335,000.

$1.6M

1 2 3 ROI

Example

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2 ROI

Return on Investment:

Our project would appear to have a positive Net Present Value (NPV) when the savings from automating Time & Attendance are factored in. Full details of two independent studies are included in Appendix A that conservatively point to an estimated annual cost avoidance and cost reduction of ~$547,000. Compared to the costs, it would appear this project would provide a quick return on investment.

Reduced Payroll Error = $251,256.00

Reduced Payroll Inflation = $265,757.00

Increased Process Efficiency = $25,730.00

Annual Savings = $540,723.00

Savings expected over 5 years* = $2,575,953.00

See Appendix A for additional details and assumptions behind these calculations

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Example

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Example

Increased Process Efficiency

Improved Productivity—Because the selected vendor’s solution integrates time and attendance recording with payroll systems, managers and payroll accountants no longer need to collect, check, authorize and transfer data from employees’ time sheets or time cards. Current staff effort to handle time collection, time cards, and the re-work associated with missing data, etc. is 16 hours every 2 weeks.

16 hours x 26 pay periods = 416 hours that can be saved. If a $20 per hour wage estimate is used this cost savings would be $8,320.

Paperless Payroll/Reduced Paper costs—savings on the W-2’s (available through self-service), paper checks, timecards, etc. At least 8 hours has been identified by the HR team as currently being invested each pay period in paper management activities that would be eliminated including sorting and mailing paper pay advices.

Again, if we use the $20 per hour wage, we are looking at a cost reduction of $4,160.

We would no longer provide paper pay vouchers or W-2’s saving $13, 250

ROI 1 2 3

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Thank you for attending.

Questions?

Wendy Dayton - wdayton@Lockton.com

Stacie Engelmann - sengelmann@Lockton.com

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Our Mission

To be the worldwide value and service leader in insurance brokerage, employee benefits, and risk management

Our Goal

To be the best place to do business and to work

www.lockton.com

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