The following is an actual example illustrating how to successfully make a business case in HR. It follows the format outlined in Parts One and Two of this article series. Space limitations prevent me from going into too much detail, but this outline should give you some idea of the basic approach taken in this example.
Making the Case
A business case is a logical step-by-step approach for selling a program or project to senior management. Unfortunately, HR people have a long but weak history in making business cases. The following is a narrative example, with numbers, designed to show you how it should be done. Beneath each question from the previous article are the details of the strategy taken in this illustrated example.
Identify the Decision Makers You Are Trying To Influence
1. Who is the target audience? The CFO’s office processes and approves budget requests for additional staff during our hiring freeze.
2. What are their decision criteria? After reviewing the minutes of the budget committee meetings, we found that the CFO’s office only approves 45% of the proposals that come before her. After reviewing the trend analysis of the last 100 previous decisions over the last year, we identified the differences in the projects that were approved and projects that were rejected. It is obvious that successful programs are approved based on the following criteria:
- 50% of the decision is based on the calculated financial impact of the proposed project (where the minimum passing score is a 15% ROI and a revenue impact of at least $1 million).
- 25% of the decision is based on a promise of immediate return or payback period (where the minimum passing score is at least 25% of the promised results being achieved within six months).
- 25% of the decision is based on the risk of failure associated with the project (where the minimum passing score is that the project has less than a 25% chance of failure during its first two years).
3. Who is likely to resist it, and who is likely to support it (and why)?
- The CEO consistently vetoes high-risk proposals where the chance of failure is over 25%.
- The CIO and the VP of marketing consistently support (95% of the time) new revenue-increasing programs that increase revenue by at least $1 million.
- The CFO rejects 90% of all HR proposals. The CFO consistently complains that their proposals are heavy on emotion but weak on data. The CFO has rejected 50% of all requests for new staff during the hiring freeze because they lacked a significant financial impact.
Demonstrate That the Individuals Proposing This Program Are Credible
It’s unfortunate but true that programs supported and presented by people without a track record or knowledge of the industry get funded at a rate of 10%. If this project is to be funded, you must make a strong case that you are “experts” in our industry, in our business and in the area of recruiting.
1. Prove you are an expert in your industry, firm, problems, and solutions. The project director is a recognized national expert in the field of HR. He has been at XYZ corporation for eleven years and he completes 95% of his projects under deadline and under budget.
2. Forecast trends and patterns. The project director (Joe Boxer) has recently demonstrated a correlation of 0.92 between a decrease in the unemployment rate and the need for increased HR staffing personnel. With the lower unemployment rate, there is a corresponding lower quality of candidates and longer time to recruit them both of which dramatically decrease departmental productivity (especially in high-growth areas like marketing and IT). As a result of the projected drop in the unemployment rate of 1%, there is a need to increase HR recruiting personnel by hiring an additional recruiter. HR has successfully demonstrated in the past that the return to the firm (in the form of increased employee productivity) for every new hire in the HR staffing personnel office results in a minimum of a $1,000,000 increase in employee productivity during the first year. Every month of delay without hiring the recruiter will cost nearly $100,000 in lost productivity, two points on profit margin and one percent on market share.
3. Demonstrate your success rate and track record. The last five increases in HR program staff have generated more than $10 million in increased productivity without a single failure. The average return on investment on HR projects is 62%, where the firm average for all programs is only 41%. The last three HR projects approved had an average ROI of 97%. Each of the last five increases in staff produced their results on time and under budget.
4. Show that the HR “owner” of the project is well known, trusted, and respected, and that a senior non-HR manager is “sponsoring” the project. The CIO and the VP of marketing are the “sponsors” of this project. They have already identified the need for additional hiring to aid their departmental growth. The HR project director (Joe Boxer, who is the director of staffing) has presented six different projects to the CFO’s staff and all six were approved. He came from the CFO’s staff and maintains to this day a high level of credibility and believability with that department.
Demonstrate That the Program Helps the Firm Meet Your Goals and That the Program Fits Your Corporate Culture
1. Show that the solution helps you meet your goals and objectives. Maintaining productivity levels in the marketing department is the number two goal on the CEO’s priority list. Maintaining productivity levels in “IT” is the number three goal on the CEO’s priority list. Increasing HR’s talent capabilities is the fifth goal on the list and increasing hiring speed and quality is number twelve.
2. Clarify whether it fixes an existing problem or is a new opportunity. Hiring an additional recruiter solves an existing problem in the marketing and IT departments. These departments are understaffed by 10 percent and their productivity is down by 15 percent (because of the poor quality of their current hires). The program provides us with a positive opportunity to expand our talent capabilities while at the same time solving the existing problem of low staffing levels in marketing and IT.
3. Demonstrate how it fits our culture and our processes. Our push to maintain our position as the low-cost provider in our industry requires us to assess new programs based on their ROI. Increasing the staff in the HR staffing department does run counter to our attempts to keep overhead costs to a minimum, but the need to act quickly as a result of the imminent decrease in the unemployment rate, the decrease in productivity in IT and marketing, and the high ROI for this project makes cost reduction a secondary concern.
4. Impact on diversity? The HR staffing department has a 47% diversity rate compared to the firm’s overall rate of 29%. The project manager has agreed to advertise for the position in all major minority publications, and the hiring of additional recruiters with the ability to source diversity candidates will help us meet and even exceed this year’s diversity goals.
Demonstrate How It Helps Improve Your Firm’s Competitive Position
1. Show how it gives you a competitive advantage. We are currently the industry leader in attracting talent. This additional recruiter will allow us to maintain that competitive advantage. Additional HR staff will allow us to successfully poach top talent from other area firms, thus obtaining a disproportionate share of the quality marketing and IT talent in our industry. We need to act quickly, though, because talent will soon be harder to acquire as a result of the decrease in the unemployment rate.
2. Demonstrate how it allows your company to differentiate itself. Additional speed and response time to applicants (as a result of the new HR hire) will help us build our external brand image as a great place to work. In addition, the additional recruiter will result in increased staffing levels in marketing and IT, which will directly increase our ability to develop innovative products and increase our product development speed.
3. Show how it makes your company just like “them.” Cisco is our target firm to emulate. It currently has an HR staffing ratio of 15 recruiters per 1,000 employees. This addition to our staff will bring us up to that ration.
4. Demonstrate that you have done your benchmarking. Five other “peer” firms have recently added HR recruiting staff in response to this decrease in the unemployment rate phenomenon. Cisco is the leading firm when it comes to recruiting talent. There speed and quality of hire are 15% better than ours. The other emerging firm to watch in our industry with regards to talent is Juniper Systems.
5. Forecast where your competitors “will be.” Our competitive intelligence tells us that our competitors can add no additional staff beyond their currently planned additions due to recruiting software limitations that will take 18 months to resolve.
6. Forecast what response will they will make to your program. We expect no response, because of their recruiting software limitations, but if they do copy our approach we would propose to give each of our recruiters basic sales training in order to increase their effectiveness without the need to increase our overall staff headcount.
Demonstrate That There Is a High Probability of Success
1. Prove how often these types of solutions work. Eight-five percent of the time in our industry and 95% of the time in our firm hiring a recruiter (during times of decreasing unemployment rates) does result in an increase in hiring quality and a decrease in hiring speed.
2. List the critical success/failure factors. The critical success factors for hiring a new recruiter were developed after studying 22 cases of recruiter hiring success and failure during the last three years. The “CSFs” include:
- Hiring within 30 days after a position is approved
- Hiring experienced recruiters away from other firms
- Paying them 10% above market
Common problems related to adding new recruiters include:
- A lack of computers and recruiter training can hamper HR recruiting efforts.
- Outdated candidate lists can reduce HR recruiting effectiveness by 5%.
- Failing to source on the Internet slows hiring speed by 50%.
3. List the environmental or economic factors that impact the likelihood of success. If the unemployment rate should stop decreasing and instead start increasing by more than 10%, this will have the effect of mitigating the “low unemployment rate effect.” This, in turn, would cause a 20% decrease in the expected revenue gain (as a result of the increased recruiting success in IT and marketing). The probability of such a shift in the unemployment rate happening is estimated at less than 10%, and even if it did occur, the ROI for the program would still exceed the firm’s average by 10%.
4. Demonstrate that you have the talent, technology, or other competencies necessary for success. Our current HR recruiting staff is the most effective in the region. We have demonstrated our ability to hire the best recruiters and industry in three out of the last five years. There is ample mentoring, computing capacity, and training, as well as office space, available for any new hire within HR.
Demonstrate the Possible Economic Impacts
1. Revenue. One million dollars in the first year as a result of the faster and higher quality of the hires in marketing and IT. We expect it to increase our overall margin by one percent. We anticipate no change in the stock price as a result of this program.
2. Payback period. We anticipate it will take only six months until the initial investment is returned.
3. Amount of upfront money needed. $75,000.
4. List the program success measures (metrics). Things we will measure in order to assess the program’s effectiveness include:
- Increased revenue attributed to the new hires in IT and marketing as a result of the additional recruiter
- Decrease in the time to hire attributed to the new recruiter
- Increased quality of hire (performance of new hires vs. current employees)
- Manager satisfaction rate (of those managers in IT and marketing that had new hires with the new recruiter)
- Our external image (percent of positive recognition as a great place to work) as measured by industry surveys
- The project’s overall ROI
5. Calculate the program’s ROI. The projected ROI is 62%.
6. Calculate its impact on your products and services. We estimate that product development time will decrease by 7% and our overall product quality will improve by 5% as a result of the new hires in marketing and IT.
7. Show that your program facilitates your company’s rapid growth. The backlog of hiring requisitions will be eliminated in thirty days and the candidate callback waiting time will be decreased by 6 hours as a result of this new recruiter. Hires will start 60 days earlier, so product development time will decrease by 7%. The increased hiring (as a result of the new recruiter) will decrease product error rates in IT by 2%. There is no projected error rate impact in marketing. Projects in marketing and IT that are now held back due to lack of staff have an estimated value of $500 million.
8. Likelihood of external financial support. There is no likelihood for obtaining external financial support.
Demonstrate That Your Project Plan Is Credible
1. Show that the project lead is credible. Yes, he has a 95% success rate (met 100% of the goals) on projects, and he has in the past decreased product development time (by 7%) and hiring time (by 50%).
2. Demonstrate that your team is competent. N/A
3. Show that you can attract any talent you might need. We have ten top recruiter resumes currently in our applicant pool, so we anticipate no difficulty in hiring. Seventy-eight percent of the previous recruiters selected for hiring accepted our offer.
4. List the program steps.
- Update the job description.
- Place an ad.
- Search Internet chat rooms and list servers frequented by writers.
- Ask our own best talent which recruiters are best at trying to recruit them away.
- Ask other recruiters and managers for referrals.
- Make an offer.
- Provide two days of initial training.
- Measure the results and provide additional training or incentives as necessary.
5. Show that you have undertaken a pilot or beta test. Although it was not possible to undertake a pilot, our current staff is already seeing an increased difficulty in recruiting as a result of the decrease in the unemployment rate. Similar recruiter hiring has produced positive results during the last two times the unemployment rate dropped.
6. Highlight the program monitoring system. All HR recruiting is coded so that we can identify which staff member generates which new hires. Marketing and IT productivity and product development will be measured on a monthly basis. Manager and candidate satisfaction will be measured quarterly. The CFO has approved the project metrics and monitoring system.
7. Provide best- and worst-case scenarios. Best case is increased revenue of $2 million per year and ten hires within a year. Worst case is $200,000 in revenue during the first year and two hires in the first year.
8. Show a plan for identifying any “unintended consequences.” Additional recruiter hiring for marketing and IT may increase conflict between IT and marketing for attention from the recruiter. Other operating units may become jealous because they’ve received no additional recruiting help.
9. Identify any potential legal issues There is a .02% chance of a lawsuit as a result of the increased volume and speed of hiring.
Individuals Perceive That the Program Offers Them Some Direct Personal Benefits
1. Establish a personal relationship with the decision maker. The VP of HR and the CFO have a strong working relationship. They will serve in the executive committee, and they are golfing partners.
2. Demonstrate that the program improves “their” chance of promotion or increased income. We estimate that the increased growth and revenue as a result of increased hiring will increase all executive bonuses by five percent this year.
3. Demonstrate that the program might build “their” image. There is no estimated impact on the CFO’s image.
Other Factors To Consider
1. Anticipate being offered a reduced budget. Even if only a part-time position is offered, we estimate it will generate a positive ROI of 12%.
2. Include a continuous improvement process in your plan. Revenues will be monitored to see if additional staff, new hiring incentives, or recruiter training can lead to an increased yield. If so, additional resources will be requested to take advantage of these possible program enhancements, 3. Take into account their past experience with your department. The negative business partner image from the 1990s has been worn away by our attempts to become business leaders. We anticipate no negative political or “reputation” issues.
If All Else Fails…
1. Program promises.
- The date the program will be operational (i.e. when the recruiter will be on board and functioning) will be January 30th (60 days from today).
- Within six months of operation, the hiring backlog in marketing and IT will be zero.
- By the end of the first 12 months of operation, revenues in marketing and IT will be up two million dollars.
If the above doesn’t occur I will offer my resignation.