HR Consulting Group, specializing in Human Resource Consulting,  Human Resource Management and Human Resource software for smaller businesses

Benefit Management Systems

by David A. Williams, Editor
humancapitalmanagement.biz

David Williams is the Editor of the HUMANCAPITALMANAGEMENT.BIZ website, which provides businesses with information about applying technology to improve the Human Capital Management process. Dave holds Bachelor and Master's degrees in Business from the University of Washington and has 25 years experience in IT consulting and solutions. Since 1999 Dave has specialized in Human Capital Management issues and solutions. Dave Williams can be reached at (253)853-4938 or david.williams@humancapitalmanagement.biz.

Author's Acknowledgements: I want to thank Rob Thurston, President of HR CONSULTING GROUP (HRCONSULTINGGROUP.COM) and Shafiq Lokhandwala, CEO at Nuview Systems for contributing their invaluable experience, wisdom, and insight to this article.

Contents

  • The Problem
  • The Solution
  • The Marketplace
  • Background
  • General Benefits Administration and Communication Capabilities
  • Self-Service Administration, Enrollment and Communication
  • Integration Relationships
  • Solution Benefits
  • Evaluation/Selection Process Mistakes
  • Implementation Risks and Mistakes
  • Critical Success Factors
  • Avoiding Pitfalls
  • Ongoing Costs and Risks

The Problem

Providing employee benefits is essential for all companies of all sizes, but communicating and administering those benefits is very complicated and can be tedious, time-consuming, error-prone, and costly. In addition to administrative staff, costs can include substantial fines and penalties levied by regulators and carriers for mismanaging benefits programs.

Some companies may offer more than two dozen types of employee benefits. Consider the complexities involved in communicating and administering just two representative examples:

  • Flexible Spending Accounts (FSA's) enable employees to pay for health care, dependent care and other similar expenses with pre-tax dollars. This benefit requires preparing legal documents and communications, adjudicating claims, printing checks, performing non-discrimination testing, preparing tax forms, providing customer service, and ensuring that all claims are paid pursuant to IRS regulations and FSA plan documents.
  • COBRA regulations require employers to offer continued health benefits coverage to former employees who would have lost their coverage due to job termination for reasons other than gross misconduct. This benefit requires generating timely eligibility reports, tracking a series of dates, sending out all the required notifications, correspondence, election packets, premium invoicing, and COBRA termination notices as required by law, processing the election forms, collecting monthly premiums, verifying funds, paying carriers, and providing Certificates of Creditable Coverage in accordance with HIPAA requirements.

Ironically, even after investing enormously in employee benefits, the benefits often fail to produce the desired results for the company and the employees: poorly managed benefit plans can actually make employees less happy, less loyal, and less productive.

Three or more stakeholders are often involved in each benefit program. In addition to the employer, the employee, and the government, some combination of a carrier, a broker, a Third-Party Administrator (TPA), and one or more unions may be involved. Solving problems among these multiple parties when the benefit data does not reconcile can be very time consuming and frustrating.

Adding insult to injury, the average employer spends $14,000 on benefits per employee per year (more than 42% on top of payroll according to the U.S. Dept. of Commerce), but employees don't fully recognize or appreciate it: employees typically undervalue their benefits at less than 50% of their actual cost.

The Solution

Benefits Management solutions address the above problems by:

  • Automating the record keeping for multiple benefit plans.
  • Storing all of the facts, forms, resources and paperwork for each benefit plan in one central database which serves as the single source of current, accurate, detailed, and consistent information for all the interested parties.
  • Presenting employees with clear and compelling personalized information about their benefits.
  • Compiling accurate and consistent reports for employers, government regulators, carriers, TPA's and unions.

The Marketplace

Range of Benefits Management Solutions

There is a range of solutions available to support employers in managing their benefits programs. These different classes of solutions include:

  • Benefits Administration & Communication solutions, with or without Employee Self-Service front-ends.
  • Broader benefits industry software infrastructures for procuring, managing, and distributing benefits by linking carriers, brokers, TPA's, employers, and employees.
  • Internet-based employee discount shopping networks.
  • Internet-based gift certificate rewards and recognition programs.
  • Benefit Supplier Analysis, Selection and eProcurement tools which allow employers to compare, analyze, and select benefits suppliers based on price, content, and availability, and then track the resulting impact on business results.
  • Claim and Encounter Processing systems which support employers in adjudicating healthcare, COBRA, and disability claims and encounters.

We will focus only on Benefits Administration and Communication solutions in this article.

Classifying Benefits Administration and Communication Solutions

Benefits Administration and Communication solutions can be broadly classified along the following dimensions:

  • Supports a single class/type of benefit vs. support multiple classes/types of benefits
  • Backoffice versus online Employee Self-Service.
  • PC network, Internet, or mainframe-based.
  • Hosted in-house versus hosted off-site by an ASP (which in the world of Benefits Management may stand either for "Application Service Provider" or for "Administration Solution Provider").

Solution Sources

Benefits Administration & Communication solutions are offered by a number of different types of providers. Providers include:

  • Providers who come originally from large company/mainframe computing backgrounds.
  • Providers who come originally from smaller company/PC backgrounds.
  • Providers born in the Internet age.
  • Major ERP (GIVE A DEFINITION OF WHAT ERP IS) providers for whom the benefits solution is an integrated complementary module to their HRIS, Payroll and other modules.
  • Providers of Human Resource Information Systems (HRIS's) and other Human Capital Management (HCM) solutions for whom the benefits solution is an integrated complementary module to their HRIS, Payroll and other HCM modules.
  • Providers who focus exclusively on providing "best-of-breed" benefits solutions that support a broad range of classes and types of benefit plans.
  • Providers who specialize exclusively in providing "best-of-breed" benefits solutions that support a single class or types of benefit plans (such as Healthcare/Medical Insurance plans or Flexible Spending Accounts or COBRA Administration or 401(k) or Stock Options or Non-Qualified plans or Life Insurance or Disability or Relocation, etc.).

Background

Before we proceed to look at the capabilities and benefits of benefits solutions, let's pause and lay some quick groundwork for better understanding the complexities and implications of benefits solutions.

Types of Benefits

There are a theoretically endless number of potential benefits that employers may offer and need to manage. Some of the more common benefits include:

  • Medical Insurance
  • Managed Care (HMO/PPO)
  • Dental Insurance
  • Vision Insurance
  • HEARING
  • Prescription Drug
  • Life Insurance
  • ACCIDENTAL DEATH & DISMEMBERMENT
  • CANCER, DREAD DISEASE
  • PET INSURANCE
  • Long-Term Disability Insurance
  • Short-Term Disability Insurance
  • Long-Term Care
  • Retirement/Pension Plans e.g. 401(k)
  • Employee Stock Option Plans (ESOP's)
  • Profit Sharing
  • Thrift Plans
  • Uniform Allowance
  • Monthly Parking Expense
  • Relocation Expense
  • Educational Assistance Benefits
  • Pre-paid Legal Services
  • Concierge/Personal Assistant Services
  • Paid Time Off (vacation, holidays, personal days)
  • Paid Leave (sick, jury duty, family, military etc.)
  • FICA Tax
  • Federal & State Unemployment Insurance
  • etc.

Classes of Benefit Plans

Many types of benefits are classified into groups for regulatory and management purposes. Common classes of benefit plans include:

  • Cafeteria or Flexible or Section 125 Benefits plans - Plans that offer participants a choice between cash and one or more qualified, or tax-favored, benefits. To obtain the benefit of tax-favored treatment, the plan must comply with Internal Revenue Code Section 125. Typical benefits include health insurance, group term life and dental benefits.
  • Qualified plans - Nontaxable benefits that can be included in a cafeteria plan: group term life insurance, accident and health insurance, dependent care assistance and cash or deferred arrangements.
  • Non-Qualified plans - Employer-sponsored plans that do not meet the requirements of Section 401(a) of the 1986 Internal Revenue Code and that, as a result, suffers distinct disadvantages from a tax standpoint.
  • Defined Contribution (DC) plans - Plans that provide for an individual account for each participant and for benefits based solely on (1) the amount contributed to the participant's account plus (2) any income, expenses, gains and losses, and forfeitures of accounts of other participants that may be allocated to the participant's account. 401(k), 403(b) and 457 plans are defined contribution plans.
  • Money Purchase plans - A type of Defined Contribution plan in which the employer's contributions are determined for, and allocated with respect to, specific individuals, usually as a percentage of compensation. The benefits for each employee are the amounts that can be provided by the sums contributed to his or her account. Unlike a profit-sharing plan, however, forfeitures are currently not added to participants' accounts; they are used to reduce the employer's contributions.
  • Defined Benefit Pension plans - This type of retirement plan is structured to provide a participating employee with a specific amount of retirement benefits. An employee's future benefits are determined by means of a formula. The employer is guaranteeing certain benefits.
  • Target Benefit Pension plans - Contributions are based upon an actuarial valuation designed to provide a target benefit to each participant upon retirement. The plan does not guarantee that such benefit will be paid; its only obligation is to pay whatever benefit can be provided by the amount in the participant's account.
  • Union-Sponsored plans - A program of health benefits developed by a union. The union may operate the program directly, or may contract for the benefits. Funds to finance the benefits are usually paid out of a welfare fund, which receives its income from (1) employer contributions, (2) employer and union member contributions or (3) union members alone.

The above definitions are from the International Foundation of Employee Benefit Plans' Glossary of Terms, an excellent online resource for grappling with the mysteries of "benefits-ese".

Rules

Designing and managing a benefits plan requires specifying a variety of rules that describe and govern the plan. These rules include:

  • Sources of Contribution rules
  • Eligibility for Participation rules (based on hours worked, age, length of service, etc.)
  • Contribution Formulas and Limits rules
  • Benefit Value Calculation rules
  • Enrollment period rules
  • Vesting rules
  • Disbursements and Transfers rules
  • Pre-Retirement and Post-Retirement rules.

In addition, Non-Discrimination rules are imposed on 401(k), flex, and pension plans by Section 105(h) of the Internal Revenue Code. These rules require "that self-funded employee benefit plans not provide significantly greater benefits to higher paid employees and owners than to lower paid employees. Although some disparity is permitted, there are limits which, if crossed, result in the benefits being deemed taxable income to the beneficiaries" (International Foundation of Employee Benefit Plans).

Major Players

There may be a number of entities involved in each benefit program. Each of these entities will have different motivating interests and different reporting requirements. These entities may include:

  • the employer
  • the employee
  • government regulators (IRS, Dept. of Labor and Pension Benefit Guaranty Corporation (PBGC, established by ERISA))
  • one or more unions
  • a carrier or investment company
  • a broker
  • a Third-Party Administrator (TPA)
  • any Payroll, HRIS and Benefits Management Application Service Providers (ASP)
  • any Benefits Administration Solutions Providers (ASP).

A benefits "carrier" is a commercial insurer, a Preferred Provider Organization (PPO), Health Maintenance Organization (HMO), or government agency that underwrites or administers programs that pay for health, life or other insurance services.

An "investment company" or "investment trust" is a company or trust managed by investment professionals that invests its capital in other companies for purposes of diversification …

A benefits "broker" is a state-licensed insurance solicitor who represents employers, places business with a variety of insurance companies, and is paid commissions by the insurance companies.

A "Third-Party Administrator (TPA)" (also known as an "administrative agent" or "contract administrator") is a specialist firm that may collect premiums, pay claims and/or provide administrative services for a benefit plan. An employer may choose to contract with an intermediary TPA rather than the carrier itself for these services because it expects that the TPA will be more answerable to the employer, facilitate faster, friendlier service for its employees, analyze claims and deliver risk reduction proposals, and reduce carrier premiums.

A "Benefits Administration Solutions Provider" is a term used to describe a more full-service form of an Application Service Provider. (Confusingly, both are referred to as an "ASP".) Like an Application Service Provider, an Administration Solutions Provider hosts the benefits application at its site, but it also provides additional outsourced services such as operating a toll-free call center to provide benefits information and administration services to employees, beneficiaries, COBRA continuants, the employer and carriers.

General Benefits Administration and Communication Capabilities

It is useful to think about capabilities as falling into the following four categories:

  • Core Capabilities. These are fundamental information tracking, transaction processing, document generating, reporting, and analysis capabilities that all solutions - whether basic or high-end - can be expected to deliver.
  • Advanced Capabilities. These are capabilities that only more advanced solutions will typically offer. Generally, if you don't get these advanced capabilities with this solution, then you probably won't get them at all because they are not typically available with other complementary HCM component solutions. (Some additional advanced capabilities may be categorized as Foundational Characteristics and Critical Capabilities.)
  • Complementary HCM Capabilities. These extended capabilities may be delivered in one of three ways: (1) integrated as part of the standard solution, (2) as an optional proprietary add-on module to the solution, or (3) as an optional interface to a solution from another provider.
  • Foundational Characteristics and Critical Capabilities. It is useful to identify this category separately because one or more of these capabilities and characteristics are often specified as absolute requirements yet many HRIS solutions do not offer them. This means that these capabilities are very useful as initial "yardsticks" in quickly determining which HRIS solutions can immediately be ruled out from further consideration: if a solution does not offer the necessary mix of these critical characteristics or capabilities, then they are simply not in the running.

It's useful to consider benefits enrollment and communication capabilities separately from general administration capabilities because enrollment and communications functions are handled differently in an online self-service solution than they are in a strictly backoffice-oriented solution.

Core Backoffice and Self-Serve Administration Capabilities

Core capabilities are the fundamental information tracking, transaction processing, document generating, reporting, and analysis capabilities that all solutions - whether basic or high-end - can be expected to deliver.

Core administration capabilities common to all Benefits Administration & Communication solutions - whether backoffice or self-service - are:

  • Automated record keeping of plan descriptions and rules
  • Eligibility verification
  • Record contributions
  • Record claims
  • Calculate premiums due carriers
  • Calculate employer contributions due union-managed plans
  • Transmit participant and premium data to brokers/TPA's/carriers
  • Exchange plan, participant, contribution, and disbursement data with payroll/HRIS applications or service providers
  • Calculate accrued benefit values for each participant and plan
  • Record disbursements
  • Reconciliation tools which compare payroll to benefits carrier files to identify and eliminate duplicate/redundant coverage from different vendors
  • Management reports showing:
  • Benefits summaries by employee group
  • What employee profiles are choosing what plans
  • Who will be eligible to enroll during the next open enrollment period
  • Who has and has not enrolled during an open enrollment period
  • Non-discrimination compliance testing and 5500 reporting to the IRS, DOL
  • Additional government reporting for the IRS, Dept. of Labor, PBGC
  • Union reporting
  • Plan Design checklists
  • Board Resolution to Adopt/Amend templates.

Even basic solutions offer some flexibility in continuing to work with current carriers, brokers, TPA's, payroll and HRIS partners in addition to the provider's own pre-selected network of partners.

Core Backoffice Enrollment & Communication Capabilities

In a backoffice benefits administration and communication solution, employee communication is handled by compiling and printing the benefits information that employees need to be informed, empowered benefit consumers. This printed information includes:

  • Benefit summaries which describe important plan provisions
  • Plan comparisons
  • Legal summaries including Summary Plan Descriptions (SPD's), insurance booklets and other legal documents
  • THE ACTUAL MASTER PLAN LEGAL DOCUMENTS
  • Plan eligibility rules
  • Frequently asked questions
  • Forms for notices, applications, elections, designations, assignments, releases, etc.
  • Company contacts
  • Provider directories
  • Personalized plan contributions and balances
  • Personalized projected pension and social security
  • Personalized benefit value statements.

Personalized benefit value statements show each employee how much the employer and the employee contributes to each benefit and the accrued value of pension and other plans. These statements clearly communicate to each employee the full value of their compensation and benefits program.

Enrollment and election changes using a backoffice administration and communication solution are accomplished by printing the necessary forms, having the employee complete them, and then using benefits administration staff to enter the information from the forms into the system.

Advanced Backoffice Administration & Communication

Advanced capabilities are those that only more advanced solutions will typically offer. Generally, if you don't get these advanced capabilities with this solution, then you probably won't get them at all because they are not typically available with other complementary HCM component solutions. (Some additional advanced capabilities are categorized separately below as Foundational Characteristics and Capabilities.)

In addition to the core capabilities listed above, more advanced backoffice benefits administration and communication capabilities may include:

  • Support for administering more types of benefit plans.
  • Support for more rules required by complicated plans.
  • More methods of employee contributions such as EFT, direct billing, or credit card.
  • Connection with more brokers and carriers.
  • Increased flexibility to work with existing partners.
  • Automatically determine the correct benefits for which each employee is eligible.
  • Track, notify and enroll eligible participants automatically.
  • More automated personalized notification, alerts and reminders delivered via email in response to specified events.
  • Tools (used by benefits administrators) to support employees in making the best decisions about benefit plans. Examples include:
  • Tools for entering employee profile and preference information and then presenting alternative plans ranked in order of best fit for comparison.
  • Calculators that show employees the potential tax savings of participating in 401(k) and cafeteria plans.
  • "What if" calculations of the impact changing plans and/or contributions would have on take-home pay and future value.
  • "What if" modeling of the effects on compensation and benefits of an increase in pay, a change in hours worked, moving to another city, taking long-term leave, adopting a child, etc.
  • More graphical presentation of data.
  • Literature fulfillment management.
  • Activity logging for an in-house Employee Benefits Call Center.
  • Support for an in-house online Employee Benefit Help Desk.

Other advanced capabilities that assist benefits professionals in administering benefits include:

  • "Personalization" based on each user's profile which contains information about their job role, their specified individual preferences, and possibly their prior history of using the system. This personalization exposes only the capabilities, and displays only the information (content), each specific user requires or desires.
  • Configurable automated workflow capability that helps push work and data through the system properly and quickly. Oversights are minimized, cycle times are accelerated, and everyday decisions are more informed because automated workflow reminds each user what to do, alerts them to what is overdue, and delivers the right information at the right time in order to do each task well. Automated workflow can typically be configured using different business rules to fit different routing, review, approval and notification processes based on Business Unit, country, location and a variety of other factors. Automated workflow can:
  • Guide users through common functions, e.g. new hire setup, transfer to new location, change job, change pay rates, etc.
  • Maintain checklists and track task statuses for employment orientation, termination/separation, etc.
  • Proactively remind users to initiate processes.
  • Alert them when information or work arrives for them to process e.g. requests for time off, pay raises, etc.
  • Alert users and managers about process tasks that are overdue.
  • Automatically route processed information or work and notification to the appropriate person(s).
  • Configurable Automated Event Triggers that can be configured using business rules to automatically notify users via email, pager or cell phone, pagers when specific events take place. Trigger Events might include upcoming scheduled activities for oneself or one's subordinates, overdue tasks, schedule slippage, status changes, or exceptionally high or low performance numbers. Ask the solution provider what kinds of events can be configured to trigger what kinds of notifications.
  • Mass Change capability that allows users to make mass changes to systems records, e.g. mass insertions of records, mass deletions of records, and mass updates of field contents.
  • Online help may be in the form of a browseable/searchable version of the reference manual or it may be in the form of context sensitive help. Help content may be modifiable to reflect specific company benefits plans, policies, procedures, etc.
  • Online data exchange with benefits providers.
  • Online Benefits Services "portal" which provides centralized access to a variety of resources which are useful to benefits professionals including:
  • Online training tutorials for benefits law.
  • Online Benefits Resources Library that provides access to current regulations and guidelines for compliance with state and federal benefits laws.
  • Online access to legal services to answer basic legal questions.
  • Links to a variety of other online benefits resources.

Some additional advanced capabilities are described below under Foundational Characteristics and Critical Capabilities.

Complementary Administration & Communication Capabilities

If available, these capabilities may be rudimentary or advanced, and they may be delivered in one of three ways: (1) built in and integrated as part of the standard solution, (2) as an optional proprietary add-on module to the solution, or (3) as an optional interface to a solution from another provider. Ask your provider how you can acquire any of these capabilities you may be interested in. Examples of these complementary capabilities include:

  • Support for designing all types of benefit plans.
  • Library of prototype plans.
  • Plan Proposal tools to support benefits administrators in comparing relative costs and attractiveness of competing plans to employees and the employer.
  • Outsourced live and/or online Employee Benefits Call Center to support benefits enrollment, education, billing and service.
  • Online Analytical Processing (i.e. interactive OLAP analysis) of benefits data.
  • Data Warehouse or Data Mart repository which combines benefits data with data from other HCM functions, financial systems, and other IT applications in order to monitor and evaluate the impact of the benefits solution, and HCM in general, on business results.

If these complementary capabilities are either incorporated as standard or offered as proprietary add-on modules, then important questions to ask include:

  • Do the capabilities and costs compare favorably enough with alternative best-of-breed solutions from third-parties that would need to be custom integrated?
  • Was it developed internally or acquired from another company?
  • How consistent is the user interface among the different modules?
  • How seamless and real-time is the integration?
  • In what cases (if any) is data entered by one user not immediately available to be viewed or reported by all other users authorized to see that data?
  • In what cases does the same data need to be entered separately into each system?
  • Is the data stored in multiple databases? If so, how easy is it to draw desired custom reports from the multiple databases?

If these complementary capabilities are offered through a packaged interface to a third-party solution, then important questions to ask include:

  • How seamless and real-time is the integration?
  • In what cases is data entered by one user not immediately available to be viewed or reported by all other users authorized to see that data?
  • In what cases does the same data need to be entered separately into each system?
  • How easy is it to draw desired custom reports from the multiple databases?
  • What is the history of the two providers working successfully together?
  • How will the relationship and integrated solution be impacted if either of two partners is acquired by the other partner's competitor?

For more information about integrating capabilities, modules and solutions see the article Evaluating Data Integration and Migration Capabilities on this website.

Foundational Characteristics and Critical Capabilities

One or more of these capabilities and characteristics are often specified as absolute requirements by "executive sponsors", IT, and other key stakeholders, yet many benefits solutions do not offer them. Therefore these capabilities can serve as initial "yardsticks" in quickly identifying benefits solutions that can be immediately eliminated from further consideration.

Such foundational characteristics and critical capabilities may include:

  • Extent to which the user interface is customizable to reflect company "branding", terminology, etc. (This usually depends upon whether the screens are coded using HTML and the degree to which screen field labels are stored in accessible database tables.)
  • A user interface which meets the Department of Education's Section 508 Universal Accessibility standards for the visually impaired. Among other things, Section 508 of the 1998 Rehabilitation Act states that all electronic and information technology procured, used, or developed by the federal government after June 25, 2001, must be accessible to people with disabilities. Affected technology includes application software and websites. Companies who contract with the federal government will want to be compliant.
  • Extent to which the software architecture (through multiple "domains" or otherwise) permits different Business Units (BU's) and/or geographies to operate and report differently and restrict the data that is available to other BU's and/or geographies.
  • Globalized for multiple currencies for international offices and/or customers (via e-commerce or otherwise).
  • Globalized for multiple languages so that different users can simultaneously work in a different language. Note that Japanese, Chinese and some other Asian languages have a special requirement for "double-byte characters".
  • Support for "localization" which permits tailoring the solution to meet the different needs of different countries or regions. Localization means the solution can be configured for different polices and processes to satisfy foreign laws (e.g. privacy policies, reporting requirements, etc.), local cultures, and local preferences. Some differences that may require localization include differences in benefits plans, policies, and procedures.
  • Performs satisfactorily (esp. "response time") using the Internet connection speeds (i.e. "bandwidth") available to most users.
  • "Scalability" or growth capacity. The question here is "What investment in IT infrastructure is required for this solution to satisfactorily serve a projected number of users, process a projected number of transactions, store projected volumes of current and historical data, and generate projected volumes of queries and reports?" The most scalable software architectures are promoted as "multi-tier", "n-tier" or "3-tier" architectures. Briefly, the multiple "tiers" refer the 3 separate specialized "layers" that the programming is partitioned into. These programming layers cooperate with each other to do the job. The "presentation layer" software runs on a Web server and presents the solution to users and their Web browsers. The "business logic" layer runs on an application server and performs the logic and calculations that we primarily associate with making the program do what it should. The "data layer" runs on a database server and consists primarily of the underlying database that stores and retrieves all the data. This architecture tends to be the most scalable because (a) each layer can run on one or more separate computers that are optimized for performing the specific task, and (b) optimized computing power can be incrementally added almost infinitely (a bit of an exaggeration) at each layer as needs grow and bottlenecks of different kinds develop. A well-deployed multi-tier architecture can also support the highest levels of data security because a security "firewall" (which can maximally control access to the database) can be inserted between the presentation and business logic layers.
  • Compatibility with specific third-party carriers, investment companies, TPA's, payroll providers, HRIS providers, etc.
  • Compatibility (i.e. integrates with and possibly operates similarly) with ERP/Financial systems.
  • Compatibility with either Windows-based or Macintosh PC's or both.
  • Compatibility with either Internet Explorer browser or Netscape browser or both.
  • Compatibility with the rest of existing and planned IT hardware and software infrastructure.
  • Compatibility of the underlying Database Management System (DBMS) with corporate IT standards.
  • User PC software/hardware requirements. For example, some IT departments may insist on a true "thin client" design so no additional software beyond a standard web browser needs to be installed on user PC's during implementation and upgrades.
  • A "native" Web application, or a client/server application which may be optionally Web or intranet-enabled using Citrix server or some other means, or a client/server or desktop application that is not Web-enabled.
  • ASP (Application Service Provider) delivery is required or expressly ruled out. Briefly, ASP's (also sometimes called "hosted service providers") are solution providers that will install and host the software at their site (rather than having to install and maintain it on your computers at your site) and "rent" you access to it via the Internet. Renting the solution on an ASP-basis may be a requirement because (a) the business strategy call for outsourcing tactical functions as much as possible, (b) a minimal IT staff is not equipped to support this solution, or (c) the IT staff simply does not have the time or resources available to commit to this solution right now. On the other hand, IT, HR or other key stakeholders may have absolutely ruled out ASP-based solutions out of concern (rational or otherwise) for reliability, accessibility and/or security of any solution that is hosted off-site.

For more information about how ASP solutions are justified, and how to distinguish among different ASP offerings see the article Evaluating ASP-based Solutions on this website.

  • Support for HR-XML standards. It is probably too early to consider this an absolute current requirement, but it is important to be aware of it. XML stands for eXtended Markup Language and is an emerging successor to HTML (which is the programming language used to develop Web pages). Close to 100 HCM solution providers have formed an independent the standards body called the HR-XML Consortium. The Consortium has begun publishing specifications for standardized formats of common HR-related documents (e.g. resumes, job descriptions, etc.). These standardized formats will ultimately make it easier (i.e. less expensive) for different HCM solutions to exchange information directly and over the Internet. HCM solutions that are designed to "speak" HR-XML will not require custom interfaces to exchange data with other HCM, ERP, SCM or CRM solutions that read and write HR-XML. HR-XML is not yet a widely implemented standard, but it has important potential and it is at least worthwhile to find out what a provider's plans are for it.
  • Value-Added Services available. Depending upon the resources requirements (e.g. expertise, people, time) imposed by the complexity of the solution being considered, and upon the current availability of those necessary resources within the company, it may be critical that the solution be acquired from a provider who offers (either directly or through established partners) the complementary consulting, management, technical, training and support services necessary to ensure the project's success.
  • Implementation timetable. If a hard deadline for being operational is imminent, then it simply will not be possible for some providers and solutions to meet the deadline.

Self-Service Administration, Enrollment and Communication Capabilities

Self-Service Prerequisites

In order to successfully implement self-service benefits enrollment and communication capabilities, two major conditions must be met:

1.      A high enough percentage of employees must have adequate access to the system via the Internet at work and/or at home using either PC's or shared kiosks.
2.      Employees must be willing and able to successfully use it regardless of education level or any disabilities.

Self-Service Administration and Communication Capabilities

A self-service benefits administration and communication solution is a front-end employee interface to the backoffice benefits administration and communication solution. As such, it builds upon the capabilities of the backoffice solution described above to offer additional capabilities and to shift the way enrollment and some administration tasks are handled. It is a secure, online, employer-branded benefits portal website which employees can access instantly at their convenience - anytime, anywhere - either through a "Benefits" link from the corporate intranet, or directly as a standalone Internet URL.

Benefits self-service capability allows more personalized administration, enrollment and communication than is possible for a strictly backoffice solution. Once a user logs into the system with their user name and password, personalized web pages explain all relevant benefits, present the relevant forms, and allow access to the user's personal benefits records and statements. More personalization means each employee receives more pinpointed, meaningful information and has a more engaging, efficient and satisfying experience.

Once the infrastructure is in place to support benefits self-service for employees it can potentially be expanded to allow carriers, brokers, TPA's, and payroll/HRIS service providers access the data they need on a self-serve basis as well.

Self-service Benefits Management is a major component of a complete Employee Self-Service (ESS) system. Other components of a complete ESS may include:

  • Self-service HR
  • Self-service Learning Management
  • Self-service Career Planning and Management
  • Self-service Performance Management
  • Self-service Schedule and Project Assignment Management
  • Self-service Time and Expense Management

Basic Self-Service Benefits Communications Capabilities

In a self-service benefits administration and communication solution, employee communication is handled by compiling and presenting online the benefits information that employees need to be informed, empowered benefit consumers. This online information includes:

  • Benefit summaries which describe important plan provisions
  • Plan comparisons
  • Legal summaries including Summary Plan Descriptions (SPD's), insurance booklets and other legal documents
  • ACTUAL MASTER LEGAL PLAN DOCUMENTS
  • Plan eligibility rules
  • Frequently asked questions
  • Forms for notices, applications, elections, designations, assignments, releases, etc.
  • Company contacts
  • Provider directories
  • Personalized plan contributions and current balances
  • Personalized projected pension and social security benefits
  • Personalized benefit value statements
  • Benefits-related news items
  • Benefits-related surveys
  • Links to carrier websites and other useful online benefits resources.

Advanced Self-Service Benefits Communication Capabilities

In addition to the basics listed above, more advanced online communication capabilities may include:

  • Automatic personalized notifications, reminders and alerts delivered via the employee's personal benefits homepage and/or email.
  • Online versions of tools employees may use directly to support making the best decisions about benefit plans. Examples include:
  • Tools for entering employee profile and preference information and then presenting alternative plans ranked in order of best fit for comparison.
  • Calculators that show employees the potential tax savings of participating in 401(k) and cafeteria plans.
  • "What if" calculations of the impact changing plans and/or contributions would have on take-home pay and future value.
  • "What if" modeling of the effects on compensation and benefits of an increase in pay, a change in hours worked, moving to another city, taking long-term leave, adopting a child, etc.
  • Articles that explain the importance of benefit plans and how to use them.
  • Multimedia "plan tours" that use narration and animation to demonstrate how benefit plans work.
  • Online search utility that allows users to quickly find all references to the information they need.
  • Online requests to send benefits literature.
  • Links to an online Employee Benefit Help Desk.

Complementary Self-Service Communication Capabilities

Advanced benefits solutions can often be expanded to act as a more general purpose employee portal which also delivers general company news and other information such as employee handbooks, etc.

Self-Service Administration and Enrollment Capabilities

Self-service benefits enrollment and election changes are accomplished by presenting the necessary forms online and then having the employee complete them and submit them electronically. Depending upon the system design, workflow rules, and type of transaction, the central benefits database is either updated immediately or after the submitted data is reviewed and approved by a benefits administrator. Benefits statements and other types of employee benefits reports are often updated immediately to reflect new elections and other changes.

Some of the information employees may update online includes:

  • Personal information
  • Dependent information
  • Beneficiary information
  • Current benefit elections and choices.

Administrators can monitor employees' progress through open enrollment and send email reminders.

More advanced self-service capabilities typically mean increasingly more sophisticated personalization of views and information. Support for electronic signatures to eliminate the need for written signatures on printed applications is another valuable advanced feature.

Optional Self-Service Access Capabilities

It may be important to provide self-service access to the benefits solution to significant numbers of employees who don't have adequate personal access through the Internet. In this case, it may be important that the self-service solution you choose offer one or both of the following optional interfaces:

  • Versions for touch-screen kiosks which may be shared at the workplace
  • Interactive Voice Response (IVR) which allow employees to access and update basic information using a telephone.

Union groups may be reluctant to use the Internet, but they may accept an IVR interface.

Usability of Self-Service Benefits Solutions

Research has shown that properly designed software not only enables all employees to successfully enroll in benefits, regardless of education level, but it actually increases the rate of successful enrollment of less educated employees over traditional paper forms. Three major factors can contribute to this effect:

  • Compared to long, complex written forms, well-written software can prevent the user from being overwhelmed by the information by breaking the form up into "bite size" pieces: a series of screens present just one thought at a time. Based on prior input, only the necessary portions of forms will be subsequently displayed.
  • Data entry can be substantially reduced by automatically filling in name, address and other information that is already known, and by providing plenty of point-and-click selections.
  • The software can be designed and tested for readability by a broad range of reading levels. The grade reading level of the online software application and information content can be calculated according to widely accepted formulas such as the Fry Graph Reading Level Index ore the SMOG Readability Formula. In general, the reading level of the material goes down (i.e. readability increases) as sentences become shorter and as words become simpler (e.g. contain fewer syllables). If the reading level of your audience is broad or unknown, then it is probably best to keep the reading level at the 5th or 6th grade level.

In addition, consider these user interface characteristics (which are the same as for evaluating online courseware and Internet websites in general):

  • How proactive are the communications?
  • How personalized are the communications?
  • How clear (i.e. easily understood) are the communications?
  • How engaging is the user experience?
  • How few words, clicks, and steps are necessary to perform the necessary tasks?
  • How easily can users switch between detailed and summary views of information?
  • How intuitive is the user interface? (Self-service applications are used relatively infrequently by every kind of user and should require no training).
  • How helpful and context-sensitive is the online help?
  • How satisfactory is the response time at commonly available internet connection speeds?

A final consideration is the extent to which the user interface should meet, or is required to meet, the needs of visually impaired and other disabled employees. Among other things, Section 508 of the 1998 Rehabilitation Act states that all electronic and information technology procured, used, or developed by the federal government after June 25, 2001, must be accessible to people with disabilities. Affected technology includes application software and websites. Companies who contract with the federal government will want to be compliant.

Integration Relationships

The Benefits Administration & Communication system has the potential to support and interact with a number of other IT systems. For example, the benefits system may:

  • Receive information about new hires, terminations, and updated employee information from the HRIS.
  • Send updated employee information to the HRIS.
  • Send updated information about benefits elections to the HRIS.
  • Receive information about employee and employer contributions from the payroll system (possibly through the HRIS).
  • Send information about premiums, fees and payments due carriers, investment companies, brokers and TPA's.
  • Receive updated information about plans from carriers and investment companies.
  • Receive updated information about the value of pensions, thrift accounts and other plans from investment companies and other providers.
  • Receive information about claims and service activity from TPA's.
  • Exchange information with a Benefits Help Desk/Call Center system.

The benefits system must also integrate with the company E-mail system if it is to support automated workflow capabilities and deliver automatic reminders, notifications, and alerts via email.

Solution Benefits

Classes of Benefits

There are potentially a significant number of valuable benefits to be gained from implementing a Benefits Administration & Communication solution. Some of these benefits are fairly common to all good IT-based solutions. Others are very specific to benefits solutions. Some benefits accrue to the individual employees, and others accrue to the organization as a whole. Some benefits accrue to "line" employees who are served by the HR/Benefits department. Other benefits are enjoyed primarily by the HR/Benefits staff itself.

The potential benefits from a well chosen, well-implemented Benefits Administration & Communication solution might be usefully classified as follows:

  • "Cost Savings" benefits are reductions in operating costs that can be reasonably well quantified and projected and compared against the costs to acquire, implement and "own" the solution in order to perform a Return on Investment (ROI) analysis. Cost Savings are especially valuable for two reasons: first, because they "go straight to the bottom line" (i.e. for every dollar saved, profits increase by one dollar), and second, because they often begin to be realized in just months.
  • "Cost Avoidance" benefits refer to potential costs that will likely not have to be spent as a resulting of implementing the solution. Some Cost Avoidance items (such as equipment or people that will not have to be added in response to relatively certain future growth because the solution effectively increases the capacity of existing people or processes), may be credibly projected and included in an ROI analysis. Others (like penalties, fines and legal judgments that will likely be avoided as a result of better reporting and control which reduce the risk) may not be accepted by stakeholders as credible when included in an ROI analysis. They are however typically identified as part of the overall business case.
  • "Topline" or "Revenue Enhancing" or "Value Generating" benefits are benefits that may be expected to ultimately contribute to growing sales revenues (i.e. the "topline" of the Income Statement). Topline Benefits result from improved productivity, performance, quality, cycle times, and satisfaction. Topline Benefits tend to ramp up over a period of months and years, and often contribute value far beyond that contributed by Cost Savings. However, because they are also difficult to accurately project, they are typically described in the business case, but not included in the ROI calculations.

HRIS Business Case Outline

To be most helpful in organizing the business case and ROI analysis, the partial list of potential benefits which follows is classified by type and structured as an outline. The highest outline level is the highest level expression of the source of the benefit. The lowest level of the outline describes the most specific capability of the solution which ultimately results in the benefit. The intermediate outline levels describe the chain of effects that connect specific solution capabilities with the ultimate financial and other benefits.

Expand or contact this basic outline as necessary to fit your purposes. The specific benefits to be included in your business case will, of course, depend in part on the specific capabilities of the solution you are considering.

Sources of Cost Savings

Eliminate excess cost of multiple redundant benefits systems, technologies, providers, admin/support personnel that may be currently used by different Business Units or departments

 

 

Sharing centralized benefits administration & communication services (with flexibility to support different needs of BU’s, depts, individuals).

Possibly cut operating costs by outsourcing tactical benefits management functions to shared specialists who are in a position to achieve greater economies of scale.

 

Lower cost benefits administration and communications

 

 

Eliminate bottlenecks by increasing production capacity of Benefits staff and processes (to process more transactions, complete more tasks, produce more units)

 

Shortening and/or eliminating activities

 

Entering data only once and automating tedious, error-prone manual processes

 

Self-service benefits administration and enrollment

 

Reduced administrative costs

 

Paperless self-service benefits enrollments and updates

 

Electronic signatures eliminate the need for hardcopy forms

 

Reduced Benefits Call Center activity (especially during open enrollment)

 

Self-service benefits administration, enrollment and communications

 

Reduced printing, copying and distribution costs

 

Self-service benefits administration, enrollment and communications

Reduce total Benefits staffing levels (esp. ratio of Benefits staff per 100 employees) or re-deploy them to perform more high-value strategic functions (see the article More Valuable Strategic HR Activities on this website).

 

 

Reduce the amount of Benefits staff time required to answer routine questions, process routine transactions, compile reports, and perform “administrivia”

 

- Automating more processes
- Automatically compiling reports for government, unions, benefit providers
- Automatically compiling internal management reports
- Providing “what if” analysis and planning tools
- Employee Self-Service

 

Reduce the amount of Benefits staff time required to FIX errors

 

Fewer data entry, processing, and compilation errors

 

- Entering data only once
- Data checked for validity/reasonableness upon entry
- Automated workflow
- Improved online forms, checklists, guidelines, knowledgebase
- Automating more error-prone manual processes
- Automatically compiling reports for government, unions, benefit providers
- Automatically compiling internal management reports

 

Reduce the amount of Benefits staff time required to reconcile discrepancies

 

Fewer discrepancies occur

 

Everyone (all HR/Benefits staff, employees, carriers, investment companies, brokers, TPA’s and unions) working simultaneously with the same current information

 

Faster reconciliation of discrepancies

 

Automated reconciliation tools

Reduce hiring and HR development costs among line personnel and Benefits staff

 

 

Lower turnover

 

Increased employee satisfaction, morale, loyalty, and retention

 

- More consistent and predictable quality and results

 

More repeatable processes

 

Entering data only once and automating, tedious, error-prone manual processes

 

- Line personnel spend less time reviewing benefits communications and
   completing benefits-related paperwork

 

- Line personnel spend less time playing phone tag and remediating errors
   related to benefits

 

- Enhanced corporate image as employer of choice

 

Better Benefits services

 

Faster, more detailed answers about benefits

 

- Increased employee visibility, control, convenience, empowerment

 

Benefits self-service anytime, anywhere

 

- Benefits staff shift from less creative, uninteresting administrative tasks
   to more interesting, creative, high value, strategic tasks

 

Entering data only once and automating, tedious, error-prone manual processes

 

- Employees more fully recognize the value of their benefits

 

Benefits Value Statements

Reduce the cost of lost productivity while a position is vacant and the replacement hire is ramping up

 

 

Lower turnover

 

Increased employee satisfaction, morale, loyalty, retention

Reduce the cost of lost workgroup productivity due to temporarily having to shift attention and resources executing strategy to rebuilding

 

 

Lower turnover

 

Increased employee satisfaction, morale, loyalty, retention

Reduce the cost of lost on-the-job corporate knowledge, skill, experience (institutional memory)

 

 

Lower turnover

 

Increased employee satisfaction, morale, loyalty, retention

Reduce cost of sales

 

 

More repeat sales

 

Increased customer satisfaction, loyalty, retention

 

More consistent and predictable quality and results (while allowing for necessary differences)

 

More continuity and experienced production, delivery, customer service

 

Lower turnover

 

Increased employee satisfaction, loyalty, retention

Reduce benefits premiums

 

 

Ability to calculate premiums based on actual headcount and start dates rather than ”rounding” back to the beginning of the week or month and paying for days or weeks of unnecessary benefits

Reduce rates and payments for state-funded and company-funded workers’ compensation insurance programs

 

 

Pursue aggressive claim management by identifying what accidents/illnesses are happening, where and when, and instituting preventative measures, identifying potential fraudulent claims, and getting employees back on the job faster

 

Long Term Disability and Workers’ Compensation reporting

 

Sources of Cost Avoidance

Avoid excessive costs of discovering problems late and having to take drastic measures to solve them quickly

 

 

Improve foresight of developing problems so can prepare to prevent or resolve them in the most orderly, cost-effective, optimal way

 

Early warning ability to project/forecast potential problems

Avoid remediation, re-work, and wasted investment (scrap) costs related to Benefits staff output

 

 

Reduce data entry errors

 

- Entering data only once
- Data checked for validity/reasonableness upon entry

 

Reduce transaction processing errors

 

- Automating tedious, error-prone manual processes
- Automated workflow
- Improved online forms, checklists, guidelines, knowledgebase

 

Reduce oversight errors

 

Less forgotten/lost work

 

Automated workflow

 

Improve the timeliness and quality of the Benefits staff output

 

- Enforce more consistent quality through automation of best practices

 

- Improved online forms, checklists, guidelines, knowledgebase

Avoid higher employer benefit contributions

 

 

Increase participation in 401(k) and other contributory plans where lower participation levels can lead to disqualification or higher employer contributions for higher paid employees.

 

- Online self-service benefits application forms

 

- Calculators demonstrate value of  pension plans

Avoid the risk and cost of billing errors which result in overcharges for benefit premiums

 

 

Everyone (all HR/Benefits staff, employees, carriers, investment companies, brokers, TPA’s and unions) working simultaneously with the same current information

Avoid the risk and cost of statutory fines, excise taxes, litigation expenses and requirements to pay court-imposed damages and medical claims that will not be reimbursed by insurers

 

 

Reduce the risk of failing to comply with government regulations

 

- Provide Benefits and line managers necessary training, knowledge and
   resources to stay informed about changes in state and federal regulations and 

   operate in compliance

 

- Enforce standardized, non-discriminatory work practices

 

- Track, document and report compliance with government regulations

 

- File required government reports correctly and on time

Avoid the cost of having to invest in additional technology/human capital as grow

 

 

Increase efficiency of existing people and processes

 

Entering data only once and automating, tedious, error-prone manual processes

Avoid costs of lost opportunities

 

 

Be better informed of profitable opportunities

 

- More frequent, thorough Plan Proposal comparison analysis

 

Sources of Topline, Revenue Enhancing, Value Generating Benefits

Enhanced corporate image as investment of choice

 

 

Increased value of Human Capital

 

Highly productive workforce (i.e. high revenue per employee)

 

Highly skilled workforce

 

Attract the best talent

 

Highly trained

 

Highly experienced

 

Attract the most experienced

 

Low turnover

 

Spend more time being productive

 

Spend less time generating and processing paperwork

 

Automate away “administrivia”

 

Spend less time searching for information

 

Spend less time being interrupted to answer questions and train others for tasks that could be handled by self-service information lookup

 

Line personnel spend less time playing phone tag, FIX errors

 

High Morale

 

Spend more time being productive

 

Employees are more aware of the value of their benefits

 

Improved benefits reporting and administration

 

Better Benefits services

 

Faster, more detailed answers about accrued vacation, benefits, etc.

 

More satisfying work/life balance

Improve quality and execution of business strategy.

 

 

Provide HR/Benefits with more time, information and tools to support executives and line managers in formulating, tuning, and executing the critical Human Capital element of business strategy.  For more specifics about exactly what more valuable strategic activities HR/Benefits could be doing see the article More Valuable Strategic HR Activities on this website.

 

Free HR/Benefits from spending most of its time answering questions, generating reports, and performing “administrivia”

 

- Automating more processes
- Automatically compiling reports for government, unions, benefit providers
- Automatically compiling internal management reports
- Providing “what if” analysis and planning tools
- Employee Self-Service

Enterprise-wide reporting & control to optimize the Benefits function for the entire enterprise across multiple Business Units and departments

 

 

More timely, accurate management information (feedback) that is detailed in resolution, enterprise-wide in perspective

 

Share centralized Benefits Management services

Lose no benefits information when employees and contingent workers transfer across departments or Business Units

 

 

Share centralized HCM services

Establish a necessary Benefits Management infrastructure (representing capacity and capability) that enables delivering new or improved benefits services that simply would not otherwise be possible.

 

More efficient HR/Benefits operations

 

 

Eliminate bottlenecks by increasing production capacity of Benefits staff and processes (to process more transactions, complete more tasks, compile more reports, perform more analysis, deliver more services)

 

Shortening and/or eliminating activities

 

Entering data only once and automating, tedious, error-prone manual processes

Faster operational cycle times for HR/Benefits processes

 

 

Shortening and/or eliminating activities

 

Entering data only once and automating, tedious, error-prone manual processes

 

Automated workflow

Focus more on “value add” benefits administration and communication activities that improve the quality and speed delivery of the Benefits staff’s answers, reports and services

 

 

Free Benefits staff to shift from less creative, routine, low value, repetitive administrative activities to activities that make their services more valuable to their internal and external “customers” (including devoting themselves to addressing the pressing problem of controlling spiraling health care costs, esp. prescription drugs and psychological services, through innovative employee assistance, generic mail order drugs, etc.).

Devote more HR/Benefits resources to improving all HCM processes associated with acquiring, developing, deploying, motivating, and retaining employees

 

 

Free HR/Benefits staff from spending most of its time answering routine questions, processing routine transactions, compiling reports, and performing “administrivia”

 

- Automating more processes
- Automatically compiling reports for government, unions, benefit providers
- Automatically compiling internal management reports
- Providing “what if” analysis and planning tools

Improve ALL business processes, functions and operations

 

 

Better people and aligned, motivated effort

 

Improve HCM processes

 

Better HR/Benefits Dept. support for executives and line managers

 

HR has more data, time and tools to support analysis, forecasting, planning

 

More timely, accurate Benefits management information (feedback) that is detailed in resolution, enterprise-wide in perspective

Decentralize responsibility & capability for HCM

 

 

- Enable Benefits Self-Service

Possibly re-direct investment in tactical Benefits Management functions to strategic/core competencies, operate Benefits Administration & Communication on a more variable cost basis, and possibly improve quality

 

 

Possibly outsource tactical Benefits Administration & Communication functions to a shared specialist

Codify and enforce application of best benefits administration practices

 

 

- Automation
- Management reporting (oversight)

Everyone (all HR/Benefits staff, employees, carriers, investment companies, brokers, TPA’s and unions) working simultaneously with the same current information

 

 

- Shared centralized information repository serving a diverse & geographically
  distributed workforce

 

- Better quality data is consistently captured in real-time, validated for
   reasonableness upon entry, made immediately available enterprise-wide

Faster, more frequently updated benefits communications

 

 

Self-service online benefits communications

More optimal decisions

 

 

Better reports and oversight

 

- More timely, accurate management information that is detailed in
   resolution, enterprise-wide in perspective

 

- Tracked, reported, triggered and automatically emailed exception event alerts

 

Better projections and forecasts

 

Better “what if” modeling tools

Earlier, better adjustments to Benefits Management tactics

 

 

Better information about progress toward achieving strategic objectives

 

More timely, accurate management information (feedback) that is detailed in resolution, enterprise-wide in perspective

Shorter time to awareness, decision and resolution of Benefits problems

 

 

- More timely, accurate management information that is detailed in resolution,
   enterprise-wide in perspective

 

- Tracked, reported, triggered and automatically emailed exception event alerts

Shorter time to awareness, decision and capitalization on Benefits-related opportunities

 

 

- More timely, accurate management information (feedback) that is detailed in
   resolution, enterprise-wide in perspective

 

- Tracked, reported, triggered and automatically emailed event alerts

More repeat sales

 

 

Increased customer satisfaction, loyalty, retention

 

More consistent and predictable quality and results

 

More continuity and experienced production, better delivery, better customer service, faster problem resolution

 

More highly skilled, motivated employees

 

Lower turnover

 

Increased employee satisfaction, loyalty, retention

Evaluation/Selection Process Mistakes

Mistakes made during the evaluation and selection process will make the difference between ultimate success and failure. The most common mistakes include:

  • Not getting executive sponsorship. Without executive sponsorship you won't get the resources and management support you need. Without a compelling business case and ROI analysis you probably won't get the executive sponsorship you need. As Jim Spoor at Spectrum HR puts it, "Closing the gap between what is possible and what is actually done requires support from the very top of the organization. Gaining that top level of support from the CEO for change in how things are done is the major role for the Chief HR/HCM officer".
  • Not getting broad input and enrollment from key stakeholders. Key stakeholders include managers and users in the HR, Benefits, Payroll, Training, IT, Strategic Planning, Legal, and functional departments. They can be enrolled by participating in the requirements definition, business case development, ROI analysis, and provider/solution evaluation.
  • Reinforcing old ways. Don't acquire a solution that simply automates dated business processes. Instead, look for a solution to enable new business processes that significantly improve the way the company does business. Ideally the solution you select should accommodate current processes while helping to migrate quickly toward new improved processes.
  • Selecting a solution for the wrong reasons. Don't select a solution based on name recognition or what a friend at another company bought. Instead, select a solution based on your specific requirements and thoughtful evaluation of which solution is the best fit and value for your company. There are no easy short-cuts.
  • Having wrong expectations about requirements. Clear definition of important business problems faced by stakeholders and a prioritized list of the specific capabilities required to solve those problems must drive the evaluation/selection process. Solution requirements cannot be truly accurate unless you have first identified where the biggest bottlenecks are, what the biggest impediments to improved performance are, where the greatest potential cost savings are, and then ranked which potential changes and new capabilities will yield the highest ROI.
  • Not narrowing the field quickly and efficiently: not pre-screening and eliminating inappropriate systems quickly to free up more time to carefully evaluate those solutions that are most likely to be the best fit.
  • Getting lost in a sea of product features. By focusing on targeted, higher priority, problem-solving capabilities you can avoid being overwhelmed by competing features lists, avoid being unduly impressed by flashy but low value features, and avoid the scourge of "feature creep". Like spreadsheets, no one company will need or use all the features of a benefits solution.
  • Having wrong expectations about solution capabilities. Having providers explain and demonstrate how their solution will solve your specified business problems will ensure that your understanding of a solution's relevant capabilities is accurate. Arranging to test required capabilities can further validate your expectations.
  • Missing opportunities to leverage what you've already got. Analyze the potential ROI of building upon or extending other complementary Human Capital Management (HCM) system components (e.g. HRIS, payroll, etc.) that may already be in place and working well. Be careful to think far enough ahead though to determine whether this incremental extension approach may be leading to a premature "dead end" in terms of growing and changing to meet future needs.
  • Not engaging consultants soon enough. If the experience, knowledge, and perspective of a consultant would be valuable, then remember that consultants as a rule can deliver their highest value earlier, rather than later, in a project.
  • Not investing enough in a solution that will be a stable and flexible foundation for future growth. There are rare cases where it makes sense to invest a little in a marginal short-term solution that you plan to replace, but in most cases it is best to invest in the quality product you really need for the next 3-5 years so that an unnecessarily large additional re-investment will be not be prematurely required.
  • Investing too much in a solution. Shop for the best value, not for the cheapest solution or the most capable solution. You can easily get a better system by spending more money - anyone can play that game - but as you spend more money you begin to experience diminishing returns. Know when to stop investing additional money in non-essential capabilities and features that will not yield returns as large as those that might be gained from alternatively investing those scarce funds in improving some other entirely different aspect of Human Capital Management or other business function. Also, look for solutions that don't require you to invest heavily in advance for capabilities you won't require until later and would prefer to add on incrementally later if and when you really need them.
  • Assuming that high expectations can only be met with a high priced solution. It's true - you generally trade off capabilities for lower price, but providers of more moderately priced solutions often choose to add some relatively higher-end features to their products. So be on the lookout what may be an exceptional "bargain" for your purposes.
  • Relying too much on planned customizations to a software solution. Customizations tend to be difficult to estimate and costly, and they can potentially inhibit taking advantage of future product updates and on-going provider support. Before relying on significant customizations and programming add-ons to deliver the desired functionality, make certain you are not missing another solution that can deliver the functionality through richer capabilities and more flexibility - without customization programming - through configuration.
  • Failing to plan for how to leverage the additional new information that will be available.
  • Having wrong expectations about timelines and costs: not adequately estimating and budgeting for calendar time and all costs related to additional custom reports, data collection/cleansing/migration, integration with other systems, any process re-engineering, change management, and adequate training.
  • Failing to understand what desired information is already contained in standard reports, what additional or modified reports will be needed, and how much time and expense will be required to create the customized reports.
  • Failure to plan and budget adequately for Change Management. Change Management refers to the education, training, incenting and internal marketing necessary to minimize and manage the anxiety, resistance and conflict that will inevitably occur among employees, customers, suppliers, and partners as a result of implementing a solution that changes how people work and are rewarded. Change Management is essential to help avoid people-related delays in the project, avoid productivity loss associated with low employee morale, and avoid excessive turnover and loss of valued employees. This mistake may be related to overestimating the organization's overall ability to absorb change.
  • Not selecting a provider committed and able to keep up-to-date with regulatory changes and reporting requirements.
  • Not specifying responsibilities and commitments from teams of providers. If multiple providers are partnering together to provide the solution, then specific roles and responsibilities to lead and to follow must be understood in advance by all partners. A protocol for arbitrating ambiguities and disagreements will also likely prove useful.
  • Over-promising: creating unrealistically high expectations and setting yourself up to lose credibility.
  • Paralysis by analysis. This refers to the practice of taking so many months (or years!) to evaluate and select a solution that numerous updates are released by candidate providers in the interim, the original analysis is no longer valid, availability of budgets has shifted, key stakeholders have turned over, and most importantly, the company has lost the irrecoverable opportunity to benefit from the cost savings, revenue enhancements, and competitive advantages the solution would have accrued during that extended period of time. Given a) that a substantial and realistic business case and ROI projection for a solution has been made, and b) there are clearly more than one "good enough" solutions available to deliver something close to the ROI projection, then the opportunity cost of delaying implementation of the solution can very quickly far outweigh any remaining differences in features or price. Waiting to determine the absolute "best" solution, or to get the absolute lowest price, is often counter-productive in this process.

Implementation Risks and Mistakes

Common reasons this kind of solution is implemented late, comes in over budget, or ultimately fails to meet expectations include:

  • An uncommitted team. You must select a project team comprised of both internal and provider members who are committed to focusing their time, effort, and attention and executing the project regardless of obstacles. Include representatives from HR, Benefits, Training, Finance, IT and functional areas on the team.
  • Lack of customer participation. For the roll-out to be a success, your company must take an active role in the implementation. Internal team members must be granted adequate time away from busy daily routines to participate adequately in all necessary aspects of the implementation and keep it moving forward to reach interim milestones.
  • Unclear roles and responsibilities. Roles and responsibilities of each internal and provider team member must be clearly defined.
  • Appointing a provider or third-party consultant to be the overall project leader. The stakes are high and a company employee must ultimately be responsible.
  • Inexperienced provider. The provider needs to have enough of a track record with different types of customer requirements to provide a proven implementation methodology, advise the project team about best practices, and educate them about what to expect. (Some practical indicators of provider experience include the number of implementations provider team members have performed for this and other providers, how long they have been on board with the provider, and what they identify as the most common risks and mistakes.)
  • Failure to provide a deadline and intermediate milestones to focus attention and commitment.
  • Not forming a project steering committee. This committee should be composed of executives and line managers who receive weekly progress reports and help the project team address issues that arise.
  • Provider presenting too many alternatives or open-ended questions for the customer to decide. The provider should instead present a limited number of specific reasonable or best-practices alternatives to choose from.
  • Over-reliance on "committee" decisions. Dozens, if not hundreds, of decisions need to be made regarding exactly how the software should be configured for processes, rules, roles, workflows, lookup tables, and individual fields. Relying on a committee (or any combination of multiple people) for making these decisions can consume a lot of time. Instead, make the first stage of the implementation a limited pilot, appoint a single team member to act as arbiter for these initial configuration decisions, resolve to make the best decision possible within a self-imposed limited period of time, and look for opportunities to make your best guess, try it and change it later if necessary.
  • Underestimating the time required to specify and understand (and document if necessary) current and new roles, rules and workflow processes. They need to be understood by the project team in terms of who needs to get what, how often, and how they respond because the automated workflows and rules within the solution need to be configured precisely and consistently.
  • Not allowing adequate time to gather, clean up, and otherwise prepare all benefits, personnel and other necessary files and forms to input or import into the software.
  • Underestimating the time necessary to enter all the required data into the system. (How to import or otherwise build up history data in particular always requires discussion.)
  • Neglecting Change Management: assuming that all you have to do is "build it, and they will come". Don't assume that the value and advantages of the solution will be obvious to everyone. Understand that people by nature tend to resist change. Change makes people uncomfortable, and people want to avoid discomfort. Few things are more uncomfortable for people in the workplace than anticipating or dealing with changes in processes, procedures, work tasks, roles, responsibilities and the balance of power. Anticipate the degree of perceived or actual change, inconvenience, and possibly threat, that the solution requires of people and deal effectively with it through participation, education, internal marketing and incentives.
  • Inadequate training. You must provide enough quality training to make users efficient, effective, and comfortable with the solution.
  • Adding capabilities and services not contracted for.
  • Overlooking faster, more cost-effective low-tech approaches: spending excess time/money creating data migration programs for relatively low volumes of data when it may be faster/cheaper to simply hire one or more temporary workers to manually key in and carefully check the data.
  • Losing a project manager or other key player on either the provider or company side during the implementation process. It may take weeks or more to hire or re-deploy someone to take their position and get up to speed. What is the provider's and customer's succession plan?
  • Failure to define what "success" is so you will recognize it when you see it. Based on your Business Case and ROI analysis, select some measurable metrics and targets that, when achieved, will clearly and objectively indicate that the project succeeded. The metrics may include observed competencies, skill levels and/or behaviors. They may include attitudes, cycle times, turnover rates, costs, revenues and other forms of business results. Record the current levels of those metrics before the system is implemented so that you can compare them with later readings after the solution is implemented.

Critical Success Factors

Your project might be thought of as the proverbial "chain" that is only as strong as its weakest link. The capabilities of the solution itself are only a single link in a long chain of Critical Success Factors (CSF's). Major "links" that must be strong in order for a project to succeed include:

  • A compelling business case
  • Committed executive sponsorship
  • A track record of credibility
  • Adequate training and support
  • Sufficient motivation to use the solution
  • Appropriately re-aligned roles and responsibilities
  • Reliability and ease of use
  • Meeting or exceeding expectations
  • Long-term provider support
  • Availability of required services
  • Long-term cooperation among teams of providers.

Regardless of the capabilities of the solution itself, the project will breakdown and fail to deliver the expected results of one or more of these critical factors is insufficient. For a more detailed discussion of each of these factors see the article Critical Success Factors on this website.

Avoiding Pitfalls

The evaluation and implementation mistakes described above can be avoided, and the Critical Success Factors can be achieved, if you start with the right foundation and carefully execute a plan that includes:

  • Building a compelling business case and ROI analysis that is aligned with business strategy and objectives.
  • Enrolling executive sponsors.
  • Developing broad stakeholder support.
  • Avoiding getting bogged down in features lists and focusing instead on problem-solving capabilities.
  • Using demonstrations effectively.
  • Verifying performance, services and support.
  • Attending to issues of Change Management.
  • Using consultants effectively.
  • Making up your own mind.

An approach for successfully executing such a plan is described in the article Get on Track and Avoid Pitfalls on this website.

Ongoing Costs and Risks

Even after the solution is implemented and in use, there remain a number of ongoing costs that need to be budgeted for and potential risks that need to managed. Among the things that will likely require on-going attention and investment are:

  • Maintenance/Support fees paid to the provider for on-going updates and help desk support.
  • Installation of updated versions of the solution.
  • Adapting any custom programming to updated versions of the solution.
  • Adapting integration programs to updated versions of the solution.
  • Adapting integration programs to changes in the other systems the solution interfaces with.
  • Keeping new employees trained in the use of the solution and existing employees trained in using and administrating updated versions of the solution.
  • Reconfiguring the application on occasion so it remains aligned with changes in business strategy and tactics.
  • Monitoring and reporting ongoing progress toward "success" so you can build credibility and intervene when necessary. Use an appropriate combination of system reports, user surveys, and studies to monitor and report ongoing progress toward achieving projected cost reductions and improvements in cycle times, quality, system usage, satisfaction, turnover, competencies, skill levels, behaviors, attitudes, revenue or other business results you identified in the original business case and ROI analysis. This is essential for building credibility and respect for HR/Benefits and its strategic role. It is also an effective means of creating momentum and "fuel" for future acceptance and adoption of a solution as it is rolled out across the enterprise.
  • Change Management: even though an initial targeted implementation for one department, division or business unit is completed, it will likely require an ongoing investment in change management as it is rolled out across the enterprise. The first users may have been unusually highly motivated, so it is easy to mistakenly assume that all future users will adapt so easily.
  • Promoting enterprise-wide adoption of the solution to top C-level executives if the solution has initially been justified and implemented for only a single department or business unit. This promotion of an enterprise-wide solution may have been avoided in the course of the original initiative in order to avoid the time and effort that would be involved. If so, it should definitely be done after you have a "win" under your belt in order to gain the full additional economies and other benefits that will result from the ability to optimize Benefits Administration & Communications for the entire enterprise as a whole.

Some things that can go wrong after the solution is implemented and in use include:

  • Losing the key executive sponsor/booster/champion for the solution before the rollout is complete, before the benefits of the solution are realized and recognized, without there being either another executive available to fill the role, before general support has reached critical mass, and without there being another executive ready and able to step in and help sustain the momentum. A succession planning problem: who is prepared and willing to step in if you lose the key sponsor while it remains a critical role?
  • Users working outside and around the new system. This may be due to lack of education, training, or incentive. It may also be due partly to an inherent lack of configurability to fit the necessary requirements of transactions and processes.
  • Customizing the software with "in line" programming can make it difficult and costly to implement product updates provided by the provider. It may also make the provider unable/unwilling to continue providing the previous level of support. The provider and professional programmers should be able to provide guidelines for customizing software products with minimal impact on ongoing supportability.
  • The provider becomes unable or unwilling to keep up with changing regulatory requirements. This may occur for financial reasons or because the provider decides to discontinue developing and supporting a solution for strategic reasons. This situation inevitably requires replacing the solution, but one possible short-term response is for customers to temporarily band together to directly fund one or more necessary updates to buy time while replacement solutions are being evaluated and implemented.

Summary

While benefits can seem to be complex, time consuming, and error-prone, these problems can be mitigated by

  • Proper planning
  • Making a case for ROI
  • Getting key stakeholder support

Using advanced technology can increase employee satisfaction and understanding.

Contact the Author: david.williams@humancapitalmanagement.biz
Comments or questions for the Editor: editor@humancapitalmanagement.biz
Human Capital Solutions 2002. All rights reserved.




















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