In today´s price conscious business environments, justifying added business expenses and weighing the ROI, or expected return on investment, is very often a critical consideration. And with HR frequently being perceived as a cost center versus directly adding to the bottom line, the department often experiences added pressure to justify new line items like technology, outside services and other costs to upper management.  From assessing return on investment figures provided from technology, service and product brokers, to making its own judgments regarding return on investment for proposed expenses and presenting those figures to management, HR executives must be prepared to address the company´s needs and how they can be better met with emerging solutions if it wants to also further its mission within the organization. 

By being prepared with a full understanding of the business and how to best move toward its objectives, HR can quickly overcome objections and advance its perceived value within the company.  It can also better tell which vendors are best aligned to truly address its needs through their understanding provided in the ROI.

HR managers interested in making their case and evaluating the cases put forth by others should first have a full understanding of what constitutes a true ROI. 

What is an ROI?

An ROI, or return on investment analysis, is a tool to help organizations gauge the expected success of business decisions.  Many companies offer ROI figures about their products and service, but in order to be effective, a true ROI estimate should be driven by several factors:

• What are we doing now? This includes assessing the hard and soft costs of existing solutions, or lack thereof.  The existing solution may be "doing nothing" or using technology that is not completely meeting the company´s needs.  The hard costs of the solution (those that require monetary transactions to be made and which may include monthly fees, consulting costs, expenses for hardware and others) and the soft costs (those that are not necessarily paid for directly, but that do cost the company money and may include disgruntled employees, dissatisfaction over time spent correcting for a system that is not working, etc.) must be all arrived at and assessed in determining the cost of the existing solution.  
• What solution should we apply to this current situation?  A solution that is not driven by need is not driven by ROI.  Assessing the need-whether it is obtaining a more automated solution, reducing paperwork, increasing employee involvement in benefits management-is a critical first step.  
• Should we or shouldn´t we?  Ultimately, the ROI should answer "Can we afford to, or can we afford not to," move forward with the analyzed proposition? 

Understanding Company Needs

Before an ROI estimate can answer these questions, it must address the company need.  Potential downfalls of ROI estimates include that they can be confusing, viewed as not applicable or slanted toward the presenter´s position.

ROI figures, by their very nature of intending to communicate a "need," are often suspect and can reveal to the recipient whether or not the presenter knows the company´s business model, quickly disqualifying the solution if not.  Whether said aloud or thought by the recipient, "You don´t know my business" and "We can´t afford it," are common objections to ROI estimates that make it important to earn the trust of the recipient by making it clear that his or her business needs are understood.

A true ROI estimate should instead become a validation for multiple users. An ROI estimate for HR technology, for instance, might first be developed and used to validate to the reseller or broker that the manufacturer understands his/her client´s business and can be brought to the table; it then may be presented to HR to validate a decision, and finally, be brought to management by HR for approval.

To avoid objections, presenters should make sure that they are on the same page with the recipient during an initial "interviewing" stage before ROI is addressed.  During this stage, the following should be uncovered, if not obtained already:

• Recipient´s business model
• Recipient´s business processes
• Early revelation of the likelihood that there is a true solution being offered
• Early revelation of the likelihood that a solution is being offered or will instead instigate more questions

Additionally, the business goals of an ROI should address the needs of all parties:

• For the presenter/originator to meet company (or customer) needs and their own business goals
• For the recipient/management to ensure that all employees are goal-oriented to increase and protect income, and cut cost
• For the employee to have a working environment that is challenging (short and long-term) and a safe and a pleasant workplace

In each case the presenter should consider:  Is the estimate accurate, fair and meaningful to the recipient?

As it is presented, each recipient will be determining:  Is this ROI estimate an accurate depiction of my experience?

If the answer to the latter is "no," then the recipient will quickly discount the ROI.  By evaluating soft-and. hard-dollar costs and presenting that information, along with addressing the business needs, HR can present a more complete picture to educate the recipient(s) on the need for the solution.

Addressing Hard and Soft Costs

Building a complete picture and evaluating hard and soft costs can often help to dispel objections that the recipient or company cannot afford the solution, since the hidden costs of not going with the product are exposed.  

In developing and/or assessing these costs, HR must consider:

• The true identification and estimated value of the traded items - What is being given up?  These are the hard costs and may include monthly technology fees, one time setup and/or customization costs, and others.
• The true identification and estimated value of the received items - What is being gained? These are the soft costs and may include increased efficiency, the ability to better allocate personnel, increased employee satisfaction, the potential cost savings of being able to better assess the situation and find opportunities for savings, etc.

Existing costs provided by a vendor should be evaluated using these criteria or HR can arrive at its own ROI estimates for projects and solutions by budgeting them manually or in an Excel format.  The following key areas should be addressed below, as related to savings or replacement.  All drive soft dollar costs, and if all are not measured, HR will not be providing a complete ROI. These may even be subheadings within the ROI estimate.

• People
• Processes
• Capital/Money investments

Additionally, HR should assess the following to arrive at soft costs.

• Work flow of processes
• Current cost of processes
• Any change offered by the proposed solution

The challenge often lies in identifying and putting a price on soft costs, since many, such as greater employee satisfaction, are not easily quantifiable and some may not be even recognized as a benefit until after the solution is deployed.  Hard-dollars costs are easier to identify, since they are budgeted and controlled and provide well defined value, most often measured by organizations.

Proving the Case

If the business case can be effectively built that hard dollars will be less than soft dollars, HR will have built a good argument and the decision to go with a new solution will usually be made easier.

In having a true ROI estimate available, HR is more likely to be perceived as a proactive party, bringing solutions to the table to address the business needs, versus being seen as a cost center. It is also more likely to win its case, in having already dispelled potential objections, in developing the ROI estimate, in advance of the meeting.

In presenting its argument, HR should state the business case, followed by the hard and soft costs of going and not going with the solution.  Information should be provided visually, via Excel spreadsheet, Word document or other means, in addition to verbally, for recipients to follow along and absorb the details.  HR will have then set the stage to present a solution that delivers the elements promised by the ROI.

Truly assessing ROI, and making the best decisions for both the HR department and business, requires understanding the complete needs of the organization, including existing hard and soft costs and how those will be impacted by the proposed solution versus simply taking an ROI estimate at face value.  While the hard costs of purchasing a new solution are important, and can often be a roadblock for companies not wanting to spend additional money, a true ROI assessment goes beyond these to all of the subtle cost factors, weighing considerations such as expediting processes, improving employee satisfaction, increasing retention, enhancing competitiveness and others.  Often when all of these items are exposed, the concern may shift from "We can´t afford the investment" to "how can we not afford it."

Art Brooks is with BeneTrac, a provider of powerful, web-based electronic enrollment and employee benefits administration software that can be used by companies to manage benefits in-house or by outsourcers and brokers to manage their clients´ benefits programs. He can be reached at abrooks@benetrac.com