1. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 1 Selecting & Procuring the Right HR System to deliver an actual ROI for your business Paul Rains. MIPP Director Transact HR Ltd

2. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 2 How to maximise your ROI IDENTIFY COPQ BUILD INTO SRS BASELINE USING SIX SIGMA PHILOSOPHY AND LEAN TOOLS and TECHNIQUES PROCURE & IMPLEMENT MEASURE & CONTROL

3. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 3 What is Six Sigma? ‘Six Sigma is a goal for process improvement that forces us to put our vision of quality in numerical terms’. ‘ A more practical definition is data driven problem solving’

4. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 4 I thought Six Sigma was about Manufacturing? Six Sigma can be applied to any Transactional Service and Transactional HR fits the bill perfectly. ‘Lean’ Tools and Techniques can be particularly effective when utilised for transactional services. Research in the US suggests that there is between 30% and 80% waste (non value adding activities) in transactional processes. On-line survey specialists PSL stated last month that 46% of organisations still do not measure the success of their HR processes.

5. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 5 Why Does it Work? It measures the VARIATION in a process. Brought about by Poor Process Design Brought about by People Brought about by Skills and Behaviours Brought about by Different Systems Brought about by Measurement Systems

6. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 6 Define Your Objectives What do you want to achieve?

7. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 7 Define the Initial Business Proposal Problem Statement There is currently a high degree of manual intervention required to perform day to day HR and Payroll transactional activities. On average this results in ‘X’ hours per month being spent manually calculating employees company sick pay entitlement, whilst ‘Y’ hours are spent correcting incorrect absence information supplied. In addition ‘Z’ hours are spent checking this work each month. Goal Statement To select and implement a new HR IT System that will reduce the non-value added activities ‘X’, ‘Y’ and ‘Z’ in HR and Payroll departments by 95% to deliver a ROI in ‘X’ years

8. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 8 Analyse your Queries (What do they tell you?) Non Receipt of payslip Non Payment of Overtime Waiting for P45 Waiting for Contract offer Incorrect Deduction for Sickness 5%32%6%9%48% Reason(s) Wrong address heldLine Manager not submitted form in time for payment Form Lost in transit HR not informed employee is a leaver by line manager Payroll have not yet written form out HR not informed employee has started HR not in receipt of all the relevant forms to produce letter Line Manager has not informed HR employee has returned to work Potential System Requirements Publish Payslip on local intranet using ESS Use ESS to submit claims and workflow processes for authorisation Get system to print P45’s Use workflow and MSS to notify Line Manager all documentation is not complete Use MSS and workflow to notify Line manager to complete return to work form and date

9. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 9 Identify the Cost of Poor Quality (COPQ) Refers to all costs associated with the issue. Usual Suspects Re-work, Checking, Duplicate keying, Testing, Errors, complaints Hidden Expediting costs, low morale, loss of focus, down time.

10. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 10 Appraisal This refers to any process, system or procedure that exists only to look for problems. How often do you do something then immediately check it? Prevention This refers to systems and procedures that are designed to prevent things going wrong. Whilst beneficial they should be included in the COPQ Internal Failure Problems that occur ‘within’ the business that may not impact the customer directly External Failure Cost of any error that reaches the customer. These failures can become very significant Types of Costs of Poor Quality

11. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 11 Understand Your Processes DOCUMENT EACH PROCESS Show both the Inputs and the Outputs Identify where there may be room for process Improvement

12. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 12 High Level Process Mapping (SIPOC) SuppliersInputsProcessOutputsCustomers HRSelect Employees to be reviewed Annual Salary Review List of current Salaries Line Managers Line ManagerAppraisal rating Proposed Salary increase Budget Controller Final Authorisation New Salary to be paid HR Apply new Salary Salary Review Letter Employee Payroll Take on New Salary Payslip Interface file of Payroll costs Employee Finance / Budget holders Issue List of Salaries to be reviewed Apply Increase Issue Salary Review Letter Calculate increase and authorise Pay New salary and record costs

13. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 13 Issue List of salaries Calculate Increase & authorise Apply Increase Appraisal Completed ? One of the most common purposes of process mapping is to help identify the re-work loops in a process. Has increase been applied in last 6 mths? Has Employee now left? Will increase exceed budget? Y N NN 30% 5% Detailed Process Mapping 5%

14. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 14 Measure your Current Performance Use KPI’s ( Here are a few examples)  The elapsed time to complete the recruitment process for a departmental manager.  The number of incorrect sickness calculations in any month.  The number of documents received after the deadline for each department each month.  The elapsed time to issue a Training Course booking confirmation letter following a telephone booking by an employee.  The number of pay advice slips each pay period that require re- work  The time taken to calculate and pay arrears of Salary and associated payments (e.g. O/T) following a retrospective Pay Review.  The elapsed time to issue a revised contract letter following a change to the employees T&C’s

15. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 15 Employee Reports Error Payroll Diagnose Error Make correction to payment due Inform Employee Error Fixed? N Y KP1KP2 KP1-Time taken to correct the Pay advice error KP2-Percentage Of errors not resolved First Time Process Diagrams (Operational Definition)

16. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 16 Use Lean Tools and Techniques Value Stream mapping to identify… –Value Added Activities –Non Value Adding Activities –Required Waste –The Process Efficiency cycle Identify the 7 Deadly Wastes –The Waste Over processing –The Waste of Waiting. –The Waste of Transportation. –The Waste of Over Production. –The Waste of Motion. –The Waste of Errors / Rejects / Defects.

17. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 17 Time Value Stream Mapping for New Starter Process New Starter Appointed Line Manager fills out form Send Form to HR HR issue offer letter & Starter pack Employee returns documents HR check docs and chase up missing info HR send out Job references HR Issue Medical Form HR inform Line Manager of DOS HR create record on HR system Employee Starts 0.5 2 1 15 0.5 12 722 33

18. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 18 = (Value Added Time) x 100 / Total Lead Time = (4 Days) x 100 / 46 Days = 400 / 46 =8.69% Process Efficiency Formula Type of ApplicationTypical Cycle Efficiency World Class Efficiency Business Processes (Services) 10%50%

19. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 19 Value Added Analysis THREE TESTS 1.Would the customer be interested or care about this activity or be willing to pay for it? 2.Does the activity physically change the output or is it a necessary pre-requisite for doing so? 3.Is the activity carried out ‘right first time’?

20. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 20 All these activities add Cost but which add Value? Fixing a Software Fault? Completing a Job Reference for a former employee? Keying in new starter information into the HR System from the Recruitment System? Expediting the non-payment of Overtime? Looking up Employee Numbers for Input documents without them? Re-printing a Contract of Employment Letter? Printing a P45 for a leaver? Chasing missing identification information for a new starter? Issuing a copy P60?

21. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 21 Baseline Performance ‘ Having measured and base lined your current processes and performance you can use this data to compare the same measures once the new system has been implemented to monitor the improvements you have delivered’.

22. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 22 Don’t Miss this Opportunity ‘Selecting and Implementing a new HR / Payroll system is an ideal opportunity to Review and Improve business processes and deliver sustainable long term business savings’

23. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 23 How Do I go About Selecting a New System? Lets take a look at what you need to do next….

24. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 24 Define Your Requirements System Requirement Specification Technical Specification Consider the Voice of the Customer (VOC) Consider the Cost of Poor Quality (COPQ) Understand the Volumes involved

25. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 25 Example SRS RequirementModuleMoSCoW The ability to hold for each employee their UK Driving Licence Number, Expiry date and details of any endorsements showing both the date, the offence code and the fine awarded. HRM The ability to ensure that the first 3 days of any new period of sickness absence are not paid and do not count against the employees entitlement AbsenceM There should be functionality to allow the end user to add a ‘formula / calculation’ to any pay or deduction code to convert a rate / units or a non- numerical value into a cash value PayrollM The ability to pass the personal data of successful applicant to the HR system without re- keying the data. RecruitmentM

26. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 26 Technical Considerations Platform / Operating Software / Database Telecommunication Infrastructure / bandwidth Workflow Capability / Self Service Cost / Time of System Implementation and maintenance costs / time Sizing - Capacity System Response Times Number of Concurrent Users / Peak traffic flow Security Fat / Thin Client Business Intelligence strategy Interfaces (in and out)

27. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 27 Example TRS RequirementMoSCoW The Database of the HR IT system should have compatible ODBC drivers to allow us to connect the database to ‘Business Objectives’ our business intelligence tool M The underlying software application database must run on Microsoft SQL server version 7 or later M There should be functionality to allow batch processes such as GTN to run concurrently without queuing S We require access to the software application over the internet using a Microsoft IE 6.0 or higher web browser M

28. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 28 Who are Your Customers and what do they want?

29. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 29 What Do they Want? (VOC) EmployeesHMR&CLine Managers Pensions Department Health Care Provider To be paid accurately and on time A P45 when an employee leaves the company A list of staff costs for their particular cost centre each pay period Details of Pension contributions deducted and Pensionable Earnings for each pay period for each scheme member A list of active scheme members with their cover levels and the cost of that cover A pay statement informing them what they have been paid The money you have collected from each employee in Income Tax and National Insurance Contributions Form P60 by 31 st May each year Information regarding the number of days / occurrences staff have been off sick in that particular month A list of scheme members who have changed cover levels A contract of Employment letter when joining your company A record of every employees, Earnings, Income Tax and National Insurance contributions for the tax year A list of scheme members who have left A P45 when an employee leaves the company A list of any staff that will shortly be entitled to Long Service Awards

30. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 30 Critical to Quality Tree (CTQ) Key HR Metrics The aim of a CTQ tree is to provide clarity around the aspects of the Voice of the Customer, in this case providing Line managers with Key HR Metrics information. Easy to use Accurate and timely Easy to obtain / Access To be informed when available Automated process Extract data from HR System Drill down capability Web based solution VOCDELIVERY Data warehouse

31. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 31 Volumes

32. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 32 Having Defined what you are looking for and Measured your current performance. Go out and find the right HR System for your Business

33. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 33 The Selection Process Evaluate Market Draw up Long List Pre Tender Questionnaire Evaluate and Short List ITT Evaluate and Select preferred supplier(s) Legal and Contract Negotiations Clarification Software Evaluation

34. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 34 Tips and Hints Avoid buying ‘X’ because we have already have ‘X’ Financials, demand the best fit for HR and Payroll. Best of breed products may deliver better and longer term business benefits. Think global! Solutions should ideally be web based Think about your long term HR strategy and visualise where you want to be in 5 – 10 years and how you see the HR IT system helping to deliver that strategy Don’t get taken in by the sexy bits! In my experience of mergers / acquisitions and divestments, best of breed products tend to be more flexible and adaptable when dealing with these activities. Consider the technology used by the software, is it out of date or about to be replaced?

35. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 35 Pre Tender Questionnaire Select at least 8 suppliers  Check for Financial Stability  Define any recognised quality standards that the software should initially meet  Carry out user Software Evaluation Testing  Focus mainly on a Match to your Requirements  Get verbal references from other ‘users’ of the software in your Industry sector  Consider Capital and Revenue Costs of software

36. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 36 Pre Tender Questionnaire At this stage - Keep it Brief, keep it simple Ask Questions about the Business (e.g. Time in business, Turnover / Profit last 3 years, nos of Employees, size of customer base by industry sector, customer retention rate) Allow suppliers to submit published documents as evidence (e.g. Annual accounts, software brochures) Persuade them to give you a full evaluation copy of the software to allow you to match it’s capabilities to your own requirements. At this stage you will be doing most of the work Allow 2 -3 weeks for suppliers to return responses. Allow sufficient time for your own evaluation which will be dependant upon the number of responses

37. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 37 Remove any Potential Bias in the Selection Process Use Evaluation Scorecards to evaluate each potential supplier to reduce potential emotional preferences. Use weighting factors to highlight area’s of particular importance to you. Ensure all area’s of Transactional HR (Recruitment, HR, Payroll, Training, MIS) are included in the evaluation team. Score each supplier individually and discuss the combined outcome with the evaluation team.

38. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 38 Example SRS Scorecard The figures above show a possible weighting factor to apply, the lower the score the better the match to your requirements RequirementStandard Functionality Configurable by the end user Can be built by the end user using tools supplied Only built by software Supplier Salary Modelling Skills GAP Analysis Hold Disciplinary records Hold Multi Contract employments Automated Arrears Calculation Weighting Factor 1245

39. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 39 Bespoke Software v Manual Process (CSP) CostsBespoke Software Year 1 Manual Process Year 1 Bespoke Software Year 2 Manual Process Year 2 People£16,000£16,400 Development Costs (one off costs) £50,000 Support Costs£7,250£7,600 Time spent Testing Software Upgrade £1,000£1,025 Cost of time spent on re-work (amendments) £1,000£3,000£1,025£3,075 Costs of Time spent on Errors in Calculations £2,000£10,000£1,500£10,250 Cost of Sickness Entitlement Overpayments £10,000£30,000£5,000£30,750 Totals£71,250£59,000£16,150£60,475

40. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 40 The ITT Short list at least 4 suppliers  Focus on Capability, Process Improvement & Quality  Use Method Statements and Workshops to prove capability and process improvement opportunities.  Use Critical to Quality Trees to prove quality  Use a formal Presentation to the Selection Panel on a chosen topic to prove capability or process improvement opportunities.  Consider the software suppliers customer support track record to date.  Consider Return on Investment  Seek Clarification on responses to questions  Use Evaluation Scorecard to avoid emotional decisions  Consider weighting factors

41. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 41 Example of a Method Statement Please provide an overview of how your proposed HR System would improve the effectiveness and efficiency of our current Recruitment processes?

42. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 42 The ITT At this stage the supplier should be doing most of the work Ensure Instructions (questions) in ITT are linked to relevant section of your Evaluation scorecard State a date, time, venue and topic in the ITT for the presentation to be provided by the supplier to allow them plenty of time to prepare. The topic chosen may be the same for all suppliers or different for each supplier but should seek to provide total clarity on a particular requirement or set of requirements that so far have not been proven. Allow 3 – 4 weeks for suppliers to return responses

43. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 43 Keep rating simple e.g. 1 = Strong, 2 = Moderate, 3 = Poor The lower the overall score the stronger the solution, the optimum score being 1 Example ITT Scorecard ElementInstruction NumberWeightingRatingScore Price (as a multiple of lowest bid price)10.251 Quality of service2,3,40.11 Process Improvement5,6,70.21 Capability8,9,10,110.11 Track record (References)120.1520.3 Match to Requirements 13 0.2 2 0.4 1Totals1.35

44. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 44 The Contract Ideally keep 2 suppliers in mind at this stage Make sure suppliers responses to ITT become part of the Contract Consider length of contract Watch out for restrictions on use Consider technology refresh Consider Software Support / Error resolution times The Software Companies BCP RPI / CEL / AEI Index linking? Intellectual Property Rights (IPR) / Escrow Exit strategy

45. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 45 So Remember When Selecting a New HR IT System Consider  Your Current HR Process effectiveness and efficiency and the Process Improvements a new HR system will deliver.  Your System Requirements.  Your Technical Requirements.  Your Customers Requirements.  The volumes and the number of transactions you process.  How you are going to connect to the application.  The Headcount to maintain and support application.  Implementation and Development time.  The Life Cycle of the Application.  Technology refresh.  The Cost of the application and the Return on Investment (ROI) period.

46. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 46 Cost Benefit Analysis for sign off Prepare Cost Benefit Analysis (CBA) showing –Return on Investment (ROI) –Reduction in Non valued added activities (COPQ) –Reduction Costs / Headcount Use Discounted Cash Flow (DCF) model Include any ‘Soft’ benefits Obtain sign off to purchase

47. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 47 Version 1 (entire 15 234 cost centre saving) Pre Feb 200620062007200820092010 20112012201320142015 £kYr 0Yr 1Yr 2Yr 3Yr 4Yr 5 5 year sub- totalYr 6Yr 7Yr 8Yr 9Yr 10 10 year total Supplier X bid costs(753)(668)(690)(712)(735)(758)(4,316)(783)(808)(834)(861)(888)(8,489) Payroll savings07057287517758003,7588268528809089378,161 In House System upgrade costs00000000400000 HR savings(150)9931,0251,0581,0921,1275,1461,1631,2011,2391,2791,32011,349 Net cash flow(903)1,0301,0631,0971,1321,1694,5881,2061,6451,2851,3271,36911,421 NPV @ 8%3,4617,173 Example of DCF Model

48. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 48 In Summary to maximise your ROI Use Lean Tools and Techniques to identify the COPQ of your current Transactional HR processes. Translate this data into your System Requirement Specifications you can then select the HR system that will deliver the most cost effective solution for your business’. After implementation you can measure these processes again to identify the improvement realised.

49. 6/3/2015Copyright Transact HR Ltd www.transacthr.com 49 Any Questions? email paul.rains@transacthr.co.uk www.transacthr.com