Building business case for HR projects

When it comes to HR process re-engineering project or HR technology implementation projects, it is important to showcase a compelling business case and this isn't always straight forward for HR projects. It is important to showcase the right picture to those people (especially your finance business partner and CFO) who loves number!

When thinking about building business case, we need to understand the benefits and costs to deliver the benefits and ultimately the 'Business Value'. Once this is clear then you may take investment decision based on Pay back period calculation or NPV. In this blog we will be focussing on typical benefits and costs that needs to be considered for HR projects.

There are 3 types of business benefits to consider
  1. Direct Savings is a tangible benefit that can be easily calculated financially in a business case
  2. Indirect Savings is a tangible benefit that is hard to covert into a numbers, however important to consider as these are opporunity costs
  3. In Tangible benefits are strategic benefits that we can't put a number against, however these are key drivers to business.
Below diagrams shows the business benefits split for HR project
HR Project Benefits

Below are some of the examples for direct and indirect savings in HR projects. For indirect savings, you will need to take assumptions for calculation - align these assumptions with your sponsor and key stakeholders.

Direct Savings: 
  • Headcount reduction due to automation , redundant roles
  • Reduced Licensing cost which is difference is licensing between old and new system
  • Savings from decommissioning system like legacy system maintanence costs
  • Processing cost reduction like pay per payslip
  • Support cost reduction like external partner costs
Indirect Savings: 
  • Time saved by HR (hours saved * no. of employees * avg. hourly salary)
  • Time Saved - Reduction in rework (e.g. errors)
  • Reduction in attrition of employees or HR colleagues
  • Reduction in fine or ticket numbers resulting in potential saving in time and money
In terms of cost, these are not as difficult to calculate as benefits, however often project managers ignore costs related to change management and people leading to project running over budget.  When it comes to cost, you will need to think about 'One-Off cost' and 'Recurring cost' from people, technology, processes, change management and project running perspective. Finance would be looking at the overall cost from a CAPEX and OPEX perspective. CAPEX is the capital expenditure that you can amortise and OPEX is the operating expenditure that business needs to consider as part of the operations. One-off cost and year 1 running cost is better represented under CAPEX , but this depends upon the accounting practices followed within your business. Below is quick cheat sheet to consider when estimating project cost.
HR Project Cost considerations

In the final business case document, always try to show 3 or 5 year costs and benefit to ensure cost benefit analysis is complete and business take a wholistic view when approving HR initiatives that drives real business value. It is hard to prove to the accountant the value for HR projects, but if you follow the benefits considerations mentioned above with the right assumptions, it isn't difficult afterall!

Before I close off this blog, i would also like to share different ouputs, outcomes, benefits and value and it is very important to understand this when working on a business case for projects and each of these managed at the right level to ensure business case is delivered. Below is simple diagram explaining this concept from prince2 framework
ouput vs outcome vs benefit vs value


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