6/3/2015copyright transact hr ltd 1 selecting & procuring the right hr system to deliver an...

04/18/23 Copyright Transact HR Ltd www.transacthr.com

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Selecting & Procuring the Right HR Systemto deliver an actual ROI for your business

Paul Rains. MIPP

Director Transact HR Ltd


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How to maximise your ROI

IDENTIFY COPQ

BUILD INTO SRS BASELINE

USING SIX SIGMA PHILOSOPHY AND LEAN TOOLS and TECHNIQUES

PROCURE & IMPLEMENT

MEASURE&

CONTROL


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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’


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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.


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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


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Define Your Objectives

What do you want to achieve?


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Define the Initial Business Proposal

Problem StatementThere 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 StatementTo 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


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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 held Line 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 RequirementsPublish 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


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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.


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AppraisalThis refers to any process, system or procedure that exists only to look for problems. How often do you do something then immediately check it?

PreventionThis refers to systems and procedures that are designed to prevent things going wrong. Whilst beneficial they should be included in the COPQ

Internal FailureProblems that occur ‘within’ the business that may not impact the customer directly

External FailureCost of any error that reaches the customer. These failures can become very significant

Types of Costs of Poor Quality


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Understand Your Processes

DOCUMENT EACH PROCESS

Show both the Inputs and the Outputs

Identify where there may be room for process Improvement


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High Level Process Mapping (SIPOC)

Suppliers Inputs Process Outputs CustomersHR Select

Employees to be reviewed

Annual Salary Review

List of current Salaries

Line Managers

Line Manager Appraisal rating

Proposed Salary increase

Budget Controller

Budget Controller Final Authorisation

New Salary to be paid

HR

HR Apply new Salary

Salary Review Letter

Employee

Payroll

Payroll Take on New Salary

Payslip Interface file of Payroll costs

Employee Finance / Budget holdersIssue List of

Salaries to be reviewed

Apply Increase

Issue Salary Review Letter

Calculate increase and authorise

Pay New salary and record costs


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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 N N

30% 5% 5%

Detailed Process Mapping

5%


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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


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Employee Reports Error

Payroll Diagnose Error

Make correction to payment due

Inform Employee

Error Fixed?

N

Y

KP1 KP2

KP1- Time taken to correct the Pay advice error

KP2- Percentage Of errors not resolved First Time

Process Diagrams (Operational Definition)


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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.


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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

0.5

1

15

0.5 0.5

0.5 0.5

12

7 2 2

3 3


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= (Value Added Time) x 100 / Total Lead Time

= (4 Days) x 100 / 46 Days

= 400 / 46

= 8.69%

Process Efficiency Formula

Type of Application Typical Cycle Efficiency

World Class Efficiency

Business Processes (Services)

10% 50%


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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’?


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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?


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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’.


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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’


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How Do I go About Selecting a New System?

Lets take a look at what you need to do next….


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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


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Example SRS

Requirement Module MoSCoWThe 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.

HR M

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

Absence M

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

Payroll M

The ability to pass the personal data of successful applicant to the HR system without re-

keying the data.

Recruitment M


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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)


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Example TRS

Requirement MoSCoWThe 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


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Who are Your Customers and what do they want?


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What Do they Want? (VOC)

Employees HMR&C Line 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 coverA 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 31st 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 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


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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

VOC DELIVERY

Data warehouse


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Volumes

0500

100015002000250030003500400045005000

Starters Leavers SicknessEntries

VariableInput

Entries

Changesto T&C's

PersonalChanges

HR / Payroll System Transactions Feb 2006

Employees

Pensioners


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Having Defined what you are looking for and Measured your current performance.

Go out and find the right HR System for your Business


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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


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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?


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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


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• 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


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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.


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Example SRS Scorecard

The figures above show a possible weighting factor to apply, the lower the score the better the match to your requirements

Requirement Standard 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 1 2 4 5


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Bespoke Software v Manual Process (CSP)

Costs Bespoke 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


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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


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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?


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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


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Keep rating simple e.g. 1 = Strong, 2 = Moderate, 3 = PoorThe lower the overall score the stronger the solution, the optimum score

being 1

Example ITT Scorecard

ElementInstruction Number

Weighting Rating Score

Price (as a multiple of lowest bid price) 1 0.25 1 0.25

Quality of service 2,3,4 0.1 1 0.1

Process Improvement 5,6,7 0.2 1 0.2

Capability 8,9,10,11 0.1 1 0.1

Track record (References) 12 0.15 2 0.3

Match to Requirements

13

0.2

2

0.4

1 Totals 1.35


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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


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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.


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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


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Version 1 (entire 15 234 cost centre saving)

Pre Feb 2006 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

£k Yr 0 Yr 1 Yr 2 Yr 3 Yr 4 Yr 5

5 year sub-total Yr 6 Yr 7 Yr 8 Yr 9 Yr 10

10 year total

Supplier X bid costs (753) (668) (690) (712) (735) (758) (4,316) (783) (808) (834) (861) (888) (8,489)

Payroll savings 0 705 728 751 775 800 3,758 826 852 880 908 937 8,161

In House System upgrade costs 0 0 0 0 0 0 0 0 400 0 0 0 400

HR savings (150) 993 1,025 1,058 1,092 1,127 5,146 1,163 1,201 1,239 1,279 1,320 11,349

Net cash flow (903) 1,030 1,063 1,097 1,132 1,169 4,588 1,206 1,645 1,285 1,327 1,369 11,421

NPV @ 8% 3,461 7,173

Example of DCF Model


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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.


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Any Questions?

email [email protected] [email protected]

www.transacthr.com

6/3/2015copyright transact hr ltd 1 selecting & procuring the right hr system to deliver an...

Documents

transactional hr

hr processes

day hr

transit hr

new hr

informed hr employee

right hr system

line manager payroll