Thursday, July 22, 2004

HR Transaction Costs

One of the questions I am asked over and over again is "what level of return on investment can I expect from the implementation of Employee Self Service (ESS)". While the answer to that question is as varied as the organisations who deploy ESS, let me try to summarize in broad terms what can be expected. As a starting point I see three levels of ESS, each more complex than the first, however typically the more complex the ESS then the greater the potential benefits.

The first level of ESS is publishing of content for employee's to access, the content would include processes, policies, procedures, printable forms, contact lists, payroll calendars, essentially any information that an employee should be able to read and interpret themselves. Five years ago just publishing the content you be enough, today organisations expect more sophisticated features embedded within the content publishing, these typically are moving into the content management space. Some of these features might be keyword search, free-text search, personalisation, workflow approvals for content changes, personal content publishing, aggregations and syndication, collaborative tools to support the development of content. Besides
us there are many vendors who operate in the content management/publishing space, examples would be Documentum, FileNet, Vignette, Open Text, IBM, and of course Microsoft.

The next level of ESS focuses around basic forms processing, this may be as simple as home address changes, payslips, EEO information collection to forms that require simple workflow processes such as leave requests, and timesheet approvals. It is at this level that savings in transaction costs really begin to be realised. Depending on how integrated with your payroll system your chosen solution you will start to see gains due to a reduction in data entry by HR/Payroll administrators. However the more of these you automate the larger your benefits. Most HR/Payroll vendors within the Australian market place offer a solution for these transactions, however most do not automate many.

The final level moves into complex forms and workflow processing, typical areas might be employee transfers, terminations, salary changes, expense claims and contractor management. These processes typically involve several business process steps and many different people from the beginning to the end of the process. Tools to help with business process management are needed to fully achieve the potential benefits. These types of transactions are the most complex to implement and need significant support from all areas of the business. In all likelihood what ever solution you see "on the self" will need to be customised to meet your business rules.

Transactional efficiency also helps to lower the cost of ownership of an HR/Payroll application. Research through the
InfoHRM Group, an HR strategy consulting firm, has shown that the average transaction performed by HR costs $17. This research also shows that the typical company can realizes about a 40% savings for every HR transaction that is avoided. Any self-service transaction that takes the work process out of HR saves approximately $6.80. These savings are realised by redistributing the roles and responsibilities of HR/Payroll. Using self-service applications does not add cost back in terms of employee or manager time as they would be spending a comparable amount of time completing the "paper based" transactions. While these are just examples and the figures for your organisation would differ, you can see how such savings can add up very quickly the more that is automated.

This is only one side of the equation, you need to take into account the costs of your new technology. To ensure you cover all costs you should use a process of "Life cycle costing", or ensure you have all costs from concept through to eventually decommissioning of the solution. Some studies have found that 85% of the total cost of software ownership is the cost of people to develop/acquire, maintain and provide support and the required networking and communications infrastructure. By looking carefully at the potential costs you can reduce the number of hidden costs that are encountered which reduce the eventual payback. Costs can be broken into five high level categories: Hardware, Software, Development/Customisation, Initial Services, and Ongoing Services. I do not have space to cover each of these although with a little research
at or you should be able to build a listing for your organisation.

When evaluating the implementation of ESS, ask potential vendors for business case development tools, all should have such a tool and can be used to help you. If you cannot find one, let me know as
we have one that will do the job. If you work for a large organisation (or a small one with lots of money) you could purchase information for some of the big consulting firms, or even hire them to help you develop your business case. A reminder, ensure you have a business case to hire them, I know a bit of a chicken and the egg scenario,

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posted by mspecht @ 7/22/2004 10:39:00 am   |