The Ultimate Guide to HR Outsourcing: From RFP to ROI in 9 Strategic Steps
To ensure the most appropriate
and productive use of outsourcing, HR managers should rely on a thoughtful,
well-tested process. Even when an existing supplier relationship is
satisfactory, it is beneficial for the HR organization to consider other options
periodically. This not only improves transparency in the relationship but it
also helps HR to confirm that the organization's needs are being met and to
gain perspectives on new approaches and tools. Current suppliers should be
included in the process (unless there have been serious, unresolved performance
problems).
The outsourcing process includes
nine steps:
1. Analyze needs and define
goals.
2. Define the budget.
3. Create a request for proposal
(RFP).
4. Send RFPs to the chosen
contractors.
5. Evaluate contractor proposals.
6. Choose a contractor.
7. Negotiate a contract.
8. Implement the project and
monitor the schedule.
9. Evaluate the project.
Analyze Needs and Define Goals.
A thoughtful needs analysis is
the most critical stage. Analyzing a project that uses a contractor is not a
one-person job. It requires a multidisciplinary team consisting of
representatives of all potential users. At this stage, project goals and expectations
are defined.
Example: A project team has been formed to purchase a new human resource information system (HRIS) for an organization. The team, consisting of members of the HR, accounting, marketing, and information technology departments, develops a questionnaire to distribute to all potential users of the new system to define the necessary functions.
The team documents information
regarding the current system, for example:
· Outputs currently received from the system
(required government agency reports, employee records, applicant tracking,
etc.).
·
User complaints and needs.
·
Key problems of and constraints on the current
system that limit its usefulness.
The questionnaire includes such
questions as:
·
Where should the system be located?
·
How should the system fit with systems already
on site?
·
What kind of hardware, software, and other
components are needed?
·
What calculations must it be able to perform?
Define the Budget.
If possible, plan for the use of
outsourcing resources in your annual budget. Know what can be spent for the
outsourced service and what it costs to provide that service in-house. This
information provides a look at the expected financial return on investment.
Example: The director of HR is analyzing the available resources in the
budget for a new HRIS. In doing so, questions like the following are
considered:
·
What is the budget for planning?
·
What is the budget for the system?
·
What is the budget to support the new system
when it is operating?
Create a Request for Proposal
Once the team has reached a
decision that outsourcing with a third-party contractor could be beneficial,
the next stage is to prepare a request for proposal (RFP). An RFP is a written
request asking contractors to propose solutions and prices that fit the
customer's requirements. The purpose of an RFP is not only to ensure that
responses actually meet the project's needs but also to ensure some consistency
among responses so that they may be more easily compared.
While RFPs may differ in
structure depending on the organization and industry, contractors are usually
asked to provide the following:
·
Executive summary. Contains a synopsis of
the vendor's product or service and usually includes an understanding of the
client's needs.
·
Company information. Provides information
on the vendor company's size, financial stability, business viability, and
experience in the field.
·
Project team/resources. Explains who will
be involved in the project from both the client and vendor companies.
·
Deliverables. Outlines how the vendor
will meet client needs/ objectives.
·
References. Lists previous clients for
whom the vendor has performed similar work.
·
Outlined development process. Includes a
detailed description of the project plan, with the objectives, the scope of the
effort, and a time line.
·
Cost. Lists potential charges and prices
for all products and services involved in the project.
Example: The HRIS project
team determines the type and depth of information to be provided by each
contractor.
Send RFPs to Chosen Contractors.
Once the RFP has been designed,
it is sent to selected contractors. Instructions on the manner and date for
submission should be included in the request.
Example: The HRIS project team researches prominent contractors of HRIS
systems, narrows the list to five, and sends them the RFP.
Evaluate Contractor Proposals.
Many variables need to be
considered when evaluating a third-party contractor's proposal. These variables
differ based on the organization's size, priorities, and industry. See Exhibit
4 for criteria to consider when selecting a contractor.
Factors to Consider
When Evaluating Third-Party Contractors
- Evaluating a Third-Party Contractor
- · Scope of resources
- · Company reputation/references
- · Ability to meet specifications
- · Customization options
- · Results of site visit
- · Price
- · Additional value-added capability
- · Commitment to quality of product and service
- · Previous/existing relationship
- · Schedule
- · Flexible contract terms
- · Location
- · Cultural match
Example: The submitted proposals are reviewed by the HRIS project team. In
this case, the top three factors under consideration are 1) ability to meet
specifications, 2) customization options, and 3) price. The team also calls the
contractors' references and then narrows the field to two. These two are asked
to make presentations to the project team.
Choose a Contractor.
When all proposals have been
carefully reviewed, it's time to select a contractor that will meet the
organization's needs.
Example: The HRIS project team chooses a contractor whose
system meets 85% of their specifications and who can customize the remaining
15% into the final product. The price is well within the team's stated budget.
Negotiate a Contract.
Before the project commences, a
written contract that outlines the contractor's services should be agreed upon.
This contract will describe not only the key deliverables of the project but
will include additional information such as implementation time frames, payment
terms, performance standards (including response times), training expectations,
and upgrade costs and responsibilities.
Example: The director of
HR and an advisor from the legal department review and negotiate the final
contract with the chosen contractor.
Implement the Project and Monitor the Schedule.
Once the contractor is selected
and the contract is approved, the next step is to get the project up and
running. First, conduct an initial project planning meeting to review and
refine implementation targets in the project schedule.
Example: The HRIS project
team meets with team members from the contractor to finalize the project plan
and implement system development. The system is implemented on schedule and
within budget.
Evaluate the Project.
Upon completion of the project,
all payment terms are usually settled, and the contractor could ask for an
evaluation of its services. This is also the time to conduct an internal
evaluation to gather information on how the new system is working and to
develop an ongoing evaluation plan.
Example: During the project planning process, the HRIS project
team defined benchmarks that could be used to evaluate the system once it was
implemented, for example, percentage of errors or number of times support is
required. The team now evaluates the system's performance and works with the
contractor to correct deficiencies. The team determines that an annual
evaluation will be sufficient to plan changes to the system required by legal
changes or changes in compensation and benefits.
Topic Broue
Proficiency indicators related to this section include:
- · Analyzes and interprets key performance indicators (KPIs) to understand the effectiveness of the HR function.
- · Designs and oversees programs to collect, analyze and interpret HR- function metrics to evaluate the effectiveness of HR activities in
Key concepts related to this section include:
·
HR function metrics (examples include HR staff
per full-time employee, customer satisfaction, key performance indicators (KPIs),
balanced scorecard)
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