Conducting a feasibility study
So, your organisation is interested in considering outsourcing some or all of your internal HR/pension functions. How do you proceed? A feasibility study is a good starting point:
Business Case: Typically, a feasibility study will start with a business case for the decision to outsource. The business case will focus on quantitative factors or cost and qualitative factors or intangible benefits.
The challenge is truly defining all the costs associated with the administration of the function the company is considering outsourcing, such as pensions. This is an important point, while it may be a challenge to ascertain the total costs, it is critical to the balance of the feasibility study to be as thorough as possible in gathering and analysing all data.
Some costs are obvious and include all staffing costs for employees directly or indirectly assigned to the task. Other costs may not be as easily determined but are no less important - costs such as technology, training, space, telecommunications, postage, overhead costs for IT, and other support services.
The good news is there is a financial benefit in going through what may be a difficult task in compiling all costs associated with administration. In a recent survey conducted by our firm, over 500 CFOs and senior finance executives provided their views on outsourcing. The survey revealed that 89% of the respondents believe that outsourcing does enhance shareholder value. Furthermore, survey respondents that measured the return report that they reduced pre-outsourcing expenses in the past year by an average of 17% and expect to reduce pre-outsourcing expenses by the same amount in the next year.
Following the quantitative business case analysis, the next step in the feasibility study is to understand the qualitative factors. These include missed opportunity costs of not focusing limited resources on your core business, adaptability and speed to change, compliance risk management and technology obsolescence.
Other steps in the feasibility study include:
o Identifying a project team: The team typically includes the project manager, senior pensions and/or HR member, IT representative, accounting financial representative, and pensioner payroll/HRIS representative).
o Assessing your current service level: A very important step in your feasibility study is to understand how you are doing today. What is your administration scorecard? What are the current perceptions of administration around the tasks that you are considering outsourcing? What do employees and managers value most in administration (eg, knowledge, dependability, reliability etc)?
o Discovery process: Will the employer use a third party to aid in the discovery process to determine a provider or are the necessary resources available internally? Outsourcing contracts are long-term and they normally represent significant financial decisions. Many employers have opted to use a third party to provide professional assistance.
o Procurement process: The next step is to determine the procurement process – the key selection criteria, the identification of potential providers, the short-listing of providers, and ultimately, the decision-making criteria for the preferred provider.
o Presentation to senior management: The presentation to senior management can take a number of different approaches. Often, the presentation will be limited to the project team. The team will review the process, how the decision was made and ultimately who was identified as the preferred provider. Another approach could be a final presentation by the preferred provider or providers, normally a maximum of two.