Credibility with the business
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8 min read
Key findings
A people proposal is deferred when it cannot be compared with other requests, so the case prices doing nothing beside the recommended option.
A $425,000 leadership programme repays its cost in a year if 5.5 of ten fewer complaints a month are due to it.
Finance agrees the cost basis and the attribution rule before the paper is written, and an operating leader owns the measure.
Payback and break-even can be stated before the spend, while a measured ROI needs the programme's effect isolated afterwards.
Seven fewer complaints a month is 84 a year, which at $6,500 each gives an annual benefit of $546,000.
An HR business case states the business problem in the sponsor's own numbers, prices the cost of the gap and compares the options, including doing nothing.
It then recommends one option with its cost, and names a measure, a baseline, an owner outside HR and a review date.
Finance agrees the cost basis before the paper is written, so that the executive team meets numbers that have already been checked.
A people proposal is deferred when the executive team cannot compare it with the other requests competing for the same money.
A leadership programme serves as the worked example below, because its benefits are hard to see in any single measure.
Why Proposals Get Deferred
Three features make a request impossible to compare.
A cost with no alternative beside it
A benefit stated in the function's own language, such as engagement or capability
No date at which anyone will know whether it worked
Edwards, writing about strategic workforce planning, reports that without a financial argument a plan is often dismissed by the finance planning team.
He advises against asking the CFO for sponsorship directly, and recommends enlisting Finance to build the business case with the practitioner.
What The Case Contains
Six elements carry the case, and a seventh is optional.
The problem, in the business's own words
The cost of the gap, with its sources
The options, including do nothing
The recommendation, with its cost
The measure, its baseline and a review date
The owner, who works outside HR
The optional seventh is a named comparable, another part of the business that did the same thing, and what followed.
Internal precedent uses definitions the executives already accept, which an external benchmark does not.
The first element comes from the framing work described in root cause analysis in HR, because a case built on the presenting problem prices the wrong gap.
Costing The Gap
Kaufman and Guerra-Lopez define a need as the gap between current results and desired results, together with the consequences of each.
The cost of the gap is those consequences expressed in money, and several of them sit in records the business already keeps.
Replacement cost for the regretted exits involved
Vacancy cost where output stops
Rework or error rates attached to the capability
Cycle time, expressed in days of delay
External spend already covering the gap
An organisation that pays contractors to cover a capability has already chosen an option, and the contractor spend is the price of not building that capability internally.
Every unit value in the calculation needs a named person in the business who confirms it.
In the example below, experts inside the organisation supplied the cost of each complaint, and that unit value is the first number a finance partner should check.
Options Including Doing Nothing
Four options cover most people proposals.
Do nothing. Continue paying the cost of the gap
Buy. Hire the capability externally, at market rates and with a failure rate
Contract. Rent the capability, at a premium and without retention
Build. Develop it internally, over a stated period
Doing nothing is priced from the cost of the gap over the same period as the other three.
That price gives Finance a baseline against which to compare everything else.
Speaking In Finance Units
Executives work in cost, risk and time, so a rate expressed as a percentage of a population needs converting.
Two translations are worth rehearsing before any meeting.
Turn every rate into a number of people, and then into money
Turn every capability gap into a delivery consequence with a date
With assumed figures, a regretted attrition rate of 12 per cent in a population of 200 is 24 people. At a replacement cost of $40,000 each, confirmed by Finance, the gap costs $960,000 a year.
A Worked Leadership Programme Case
Phillips and Phillips work through a leadership programme example that shows where a finance partner will press.
An organisation had too many employee complaints above a set severity, and experts inside it put the cost of each one at $6,500.
Six months after the leadership programme, complaints had fallen by ten a month.
The analysis attributed seven of those ten to the programme and the other three to other causes.
Seven fewer complaints a month is 84 a year, which at $6,500 each gives an annual benefit of $546,000.
The fully loaded cost of the programme was $425,000, so the net benefit was $121,000 and the ROI was 28 per cent.
A finance partner will test two numbers in that calculation, the $6,500 unit cost and the attribution of seven complaints out of ten.
A break-even statement tells Finance how much of the improvement must be due to the programme for the case to hold.
At $6,500 a complaint, the programme recovers its $425,000 in twelve months if at least 5.5 of the ten fewer complaints a month are due to it.
That is 55 per cent of the observed fall.
At the attributed seven a month, payback takes about nine months.
Both figures are calculated from the same inputs, so Finance can check them against the source figures.
Edwards advises agreeing with Finance exactly which benefits are attributed to an initiative, using a clear and auditable method.
He also advises halving the quantities and doubling the timeframes that the practitioner has in mind before presenting any forecast.
ROI, Benefit-Cost Ratio And Payback
Three measures are in common use for a people programme.
ROI. Net benefits divided by costs, as a percentage
Benefit-cost ratio. Gross benefits divided by costs
Payback period. The time taken to recover the investment
A benefit-cost ratio of 3 to 1 is an ROI of 200 per cent, and treating it as 300 per cent is a common error.
Payback period marks the break-even point and ignores both the time value of money and benefits beyond it.
Phillips and Phillips note that it is used occasionally, particularly to forecast the payoff before investing.
They list four ways to set a target ROI.
The target can equal other investments, sit slightly above them, sit at break-even or follow the client's expectation.
Examples of the first two are 18 per cent and 25 per cent.
They also state that isolating the effects of the programme is a requirement, and that omitting it produces a baseless claim that overstates the programme's financial value.
A case written before the spend can carry the payback period and the break-even attribution, because neither depends on a result that does not yet exist.
The measured ROI, with its isolation method stated, belongs in the report at the review date.
A case written before the spend can carry the payback period and the break-even attribution, because neither depends on a result that does not yet exist.
Costs That Belong In The Case
Phillips and Phillips call for fully loaded costs, which include needs assessment, design, delivery and evaluation, so that no cost is left out of the analysis.
The $425,000 in the example above is a fully loaded figure of that kind.
A case that shows only the supplier's fee leaves Finance to find the remaining costs, and the discovery affects how the benefit figures are read.
The case also states whether the cost is one-off or annual, and prices both.
Benefits Without A Price
Some benefits resist conversion to money, and Phillips and Phillips report them as intangible benefits, meaning impact measures that are not converted to monetary value.
Gupta and colleagues take a more optimistic view of measures such as teamwork and innovation.
They say these can be converted into hard numbers by considering how the accomplishment affects mission-critical work.
The practitioner decides case by case, and a conversion enters the calculation only when the leader who owns the measure will stand behind the figure.
Anything left unpriced is listed with its baseline and review date, so that the review can judge it.
Questions Finance Asks
Phillips and Phillips put the central challenge as how anyone knows that it was the programme that improved the measures.
The case is written to answer four questions in advance.
How do you know it was the programme? The attribution rule and the break-even statement
Who confirmed the unit cost? The named person in the business
What else could the money do? The priced options, including do nothing
What happens after the first year? The statement of one-off and annual cost
Naming An Owner Outside HR
The owner of the result is the operating leader whose number is expected to move.
Alzate, writing on the Kirkpatrick model, states that initiatives need collaboration between their developers and key business partners if they are to produce business results.
Edwards reports a practitioner's advice that CFO buy-in keeps a people initiative from being seen as just HR tasks.
A case co-signed by the operating leader uses a measure the business already tracks, and its review sits in that leader's reporting cycle.
Conversations Before The Paper
Edwards advises against presenting to the CFO until someone in Finance has positioned the case, and aims to enter every CFO meeting knowing the decision is already yes.
Three conversations come before the paper.
Finance. Agree the cost basis and the attribution rule together
The operating leader. Agree who owns the measure and reports it
The likeliest objector. Hear the objection privately, before the meeting
A sponsor who has already decided to back the programme needs the same treatment, because the sponsor's enthusiasm does not answer the comparison that the executive team will make.
The first meeting with such a sponsor follows the steps in internal consulting contracting.
When The Proposal Is Refused
A refusal rejects one of four things, and three questions establish which.
Was it the problem, the solution, the cost or the timing?
What would have to be true for the proposal to be approved?
What is the smallest version that would be funded?
The third question can produce a pilot, and a pilot produces the measured result that the first proposal did not have.
After Approval
Phillips and Phillips end the ROI method with black box thinking, borrowed from aviation safety.
The practitioner analyses why a programme failed to deliver and how to improve it.
The practitioner reports at the review date, in the same units and against the same baseline as the case, whichever way the result went.
A register of what each case claimed and what happened lets the next proposal cite the function's own record.
The method for the review itself is set out in training evaluation, and the problem of getting a leadership programme applied at work in leadership development transfer.
Where The Tools Sit
Trusted Talent Advisor covers the evidence standard and the investment case in its evidence component, and the positioning behind a contested proposal in its credibility component.
Its template pack includes a cost of inaction estimate and a business case canvas.
Sources
1. Phillips, J. J. and Phillips, P. P. Impact and ROI: Results Executives Love, in Biech, E. (ed.) ATD's Handbook for Training and Talent Development. ATD Press.
2. Edwards, D. The Strategic Workforce Planning Handbook. Kogan Page.
3. Kaufman, R. and Guerra-Lopez, I. Needs Assessment for Organizational Success. ASTD Press.
4. Alzate, V. M. Building a Culture of Evaluation. ATD Press.
From the system
Trusted Talent Advisor sets out the full method: seven components, 51 tools, The Talent Template Pack and The Prompt Library.
See the system
Questions this answers
How do you write a business case for an HR initiative?
State the problem in the business's own numbers, price the cost of the gap, compare the options including doing nothing, recommend one with its cost, and name a measure, baseline, owner outside HR and review date. Agree the cost basis with Finance before the paper is written.
What should an HR business case include?
Six elements: the problem in the business's own words, the cost of the gap with its sources, the options including do nothing, the recommendation with its cost, the measure with baseline and review date, and an owner who works outside HR. A named internal comparable is optional.
How do you build a business case for leadership development?
Choose the business measure the programme is expected to move, put a unit cost on it that an operating leader confirms, and state how much of the improvement would repay the programme. Finance can then test the attribution and not only the total.
How do you calculate the cost of doing nothing?
Add the consequences of the gap that already appear in business records: replacement cost for regretted exits, vacancy cost, rework, days of delay and external spend covering the gap. Price them over the same period as the other options so Finance can compare them.
How do you get the CFO to fund a people programme?
Enlist Finance to build the case with you, and do not present to the CFO until someone in Finance has positioned it. Agree how benefits are attributed, and halve the quantities and double the timeframes you have in mind before presenting a forecast.
Is there a template for an HR business case?
A one-page template needs seven headings: the problem, the cost of the gap, the options including do nothing, the recommendation and its cost, the measure with baseline and review date, the owner outside HR, and an optional internal comparable.
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