In recent years there has been a significant take-up of Human Capital Management (HCM) applications into organisations to bulk out their legacy HR or ERP data and to align with the emerging Workforce Planning processes and policies.

Some of the kudos for the transition of Workforce Planning from an art to a science goes to a leader in the field, Peter Howes. From academia (he is a fellow QUT alumnus), he moved into developing one of Australia’s first HRIS (Orion, now Aurion) but his real breakthrough was in launching the Infohrm application in 1995. Infohrm went on to become one of the ‘Best of Breed’ HCM applications in the market. Among its many accomplishments was to leverage the Corporate Leadership Council so as to develop metrics in line with its own in-house think-tank. It also became one of the first HCM providers to become web-deployable, leading the industry toward SaaS solutions which are the industry standard, all of which displayed innovation and strategic vision.

Interestingly, Inform (formally Infohrm) and now Inform Impact was sold by Peter early in 2010 for a reported $40.5M USD. It is my view that one of the unreported reasons for the sale of Inform at that time would be the realisation that the industry was no longer a niche market and that progressively the major ERP’s (especially SAP and Oracle/PeopleSoft) were entering the Workforce Planning space, making longer term sales more difficult and current licensing renewals tougher to forecast.

I am on the record for not being a fan of HCM solutions as it is my belief that organisations with mature ERP or HRIS systems should be looking at expanding functionality within those core internal systems rather than implementing more software platforms. Saying that there are always exceptions and a recent discussion I had was a case in point.

A finance sector organisation with more than 10,000 FTE’s was considering a HCM provider but was having trouble with the business case. To add to their concerns the business did not have a solid ERP in place but was looking to implement one in the near future (this is a common issue with many banks globally as they are one of the few organisations to have kept and maintained mainframe platforms). In this instance there is no short-term solution, such as the WRAP program discussed in my recent Baby Steps article. Without a viable ERP in place consideration should be given to implementing a HCM product to provide a gap solution with up to a five year life-span, dependant on complexity.

One of the key arguments that would need to be put to the C-Level would be a comprehensive Total Cost of Ownership (TCO) incorporating both the direct and indirect costs associated with the preferred (and alternate) HCM providers. TCO goes beyond the initial purchase price or implementation cost to consider the full cost of the HCM system over its useful life. A TCO analysis often shows there can be a large difference between the price of something and its long term cost.

In relation to a TCO for a HCM deployment these are some of the considerations.

• Software costs: HCM solutions such as Inform Impact, Aruspex and OrcaEyes prefer SaaS deployment these days although they will offer traditionally deployed hardware/software. SaaS solutions come with an implementation cost and then an ongoing maintenance fee often priced with your FTE staff and key users in mind.
• Hardware costs: If you deploy traditionally then you will need to factor in data-centre capacity, server(s), cabling etc.
• Electricity: If you have hardware then a percentile of your data centre costs.
• Integration costs: No modern HCM comes to you as a COTS (Commercial-Of-The-Shelf) product. You will need to ‘plumb’ the HCM into your current systems. Functional and technical consulting costs as well as project management need to be included in the costs.
• Purchasing costs: As above, you cannot go into a store and buy a product and have it up and running by COB. Purchasing a HCM system comes with a lot of hand wringing and time and this needs to be rolled into your project cost centre (or equivalent).
• Migration costs: Migrating data from legacy or current systems will include staffing, outages, verification etc.
• Testing costs: Yes, you need to test and this needs to be costed.
• Training costs: Yes, you need to train people who are going to use the application and have staff who understand Workforce Planning to better utilise the functionality. All of this should be factored in over your time-frame and should include in-house documentation.
• Insurance: It should be noted that with some SaaS implementations the insurance could be covered under the ongoing maintenance arrangement.
• Management costs: Steering committees and all management involvement should be costed.
• Outage costs: This is an indirect cost but should be factored into the planning. You will often need to request an outage history from the potential vendor but I always advise for you to utilise your contacts and find another organisation with the product in place to gauge downtime issues. The larger SaaS providers often guarantee in writing a 99.99% uptime. However, 99.99% does not mean the system NEVER goes down, it just means you will get a credit for underperformance (chasing credit notes from organisations is painful and takes time & effort and should be costed).
• Back-up/Recovery costs: In the US the standard is SAS70 certified but most organisations have a DR plan and costing should be along those parameters.
• Other product costs: Can include upgrades required for a particular model (i.e. web-server upgrades to complement a SaaS deployment or deploying iPhone applications across the corporate suite etc).
• Risk costs: The first of the big indirect costs you need to consider. What if the vendor you choose goes bust during your ownership period? As is the case with Inform, some of their clients bought the product while it was still a niche Australian company and now find that they have to deal with someone from SuccessFactors (a completely different organisation). This needs to be understood and the impacts costed.
• Opportunity costs: Is it better to outsource your solution to a HCM provider or to build your systems internally. Having a HCM is convenient but what are the long term impacts (i.e. loss of transformational system improvement etc). These will also need to be factored in as a cost over the product life-cycle.
• Decommissioning and Exit Strategy costs: Decommissioning servers, systems or relationships with vendors comes at a price and needs to be costed. Eventually, you will need to consider your longer term Workforce Planning strategy and that will include considerations around incorporating HCM functionality into improving HRIS or ERP platforms.

Large organisations should already have TCO documentation in place to assist Workforce Planners in the decision making process. If they don’t then its time you spent some time with your CIO or another key IT Manager to seek a TCO-5 (in the Army we called this a soldiers-five, effectively five minutes of data dump on a subject you didn’t know anything about 10-minutes ago!).

Be warned, HCM vendors will try to manipulate you into thinking that their system is the only one for you and all other systems come with significant risk. Most of the current HCM systems I have seen in recent years have a lot of the same functionality, just different methods of getting there and putting your companies logo in the corner or changing the font to ‘Dax Offc Light’ to is not a consideration in picking your solution.

If you are considering a HCM solution and are having an issue with Executive buy-in then providing a TCO report will aid your cause.