HR Function Outsourcing
Project Introduction
This client had previously consolidated various HR organizations into a single global shared services organization and now was looking at the next step in its evolution. The organization wanted to get out of the transaction processing business, focus on strategy and personnel development, reduce costs and provide a higher level of service to its employees. The organization was considering a range of options including full business process outsourcing, out-tasking selected HR functions or keeping the organization intact and implementing major new IT applications.
The client hired TBI to assist in an evaluation of different options including the various outsourcing options, providing not only our marketplace experience in outsourcing but also our knowledge of systems integration and transaction processing intensive HR functions.
Base Case Development
As a first step TBI analyzed the transaction processing functions of the HR organization establishing a base case for staffing levels and expense and capital budgets. Then we proceeded to define the sourcing options and associated migration paths from which we worked with client personnel to identify the impact of each option on staffing and budgets. We developed models from the bottom up of what the HR organization would look like in the new environment, not only determining staffing levels but roles and responsibilities as well. These models were validated with client management.
In addition TBI populated a client-defined model for rating and weighting non-quantitative factors to be taken into account for making a decision amongst the options. The model included considerations of speed to accomplish, quality of service, and implementation risks. TBI led operating and executive HR management through the rating and weighting process to develop total scores for each option.
Vendor RFI
TBI requested “rough-order-of –magnitude” estimates from a number of vendors as part of determining the costs of implementing and operating each option (along with the remaining HR staff determined above). For full scope business process outsourcing we provided six vendors with an overview of the HR operations under consideration and requested estimates for out-tasking a combination of three transaction intensive functions and outsourcing the HR operations that were deemed in scope. Through a combination of discussions and providing additional information we arrived at reasonable estimates of the one time and ongoing costs of out-tasking and outsourcing.
In addition we also requested estimates of systems implementation costs, rates and time frames for a full scope PeopleSoft implementation if the client decided to keep all or most of the HR functions in-house. Again we provided ten vendors with descriptions of the processing environment, transaction volumes, etc. We analyzed the vendor responses for reasonableness, and comparability to each other, as well as to internally developed numbers.
Net Present Value Models
Working with client finance staff TBI developed a New Present Value model to take into account the staffing reductions, the costs of implementing an outsourcing solution as well as the ongoing costs of each option. The NPV values were calculated for different migration paths within each option over a five-year period.
Decision Model
TBI then built a simple decision model for the client incorporating the NPV results, the non-quantitative model results and the level of support provided to achieving overall HR strategic objectives by each option to lead to a recommended solution.
