Building a Business Case for Shared Services or Outsourcing

The business case in favor of shared services and outsourcing is well documented. The projects that I have seen have never failed to increase productivity, improve customer service, and reduce cost. My individual projects have delivered from hundreds of thousands to millions of dollars in savings. However, the implementation approach must be professionally solid. You cannot just "throw it over the fence."

In my last article , we briefly touched on the business case component of the shared services and/or outsourcing decision. In this article we will review the business case in more depth. Itâs important to understand the degree of analysis needed for the business case, in order to collect the correct depth of information.

The first step is to find out what your organizationâs "typical" business case format is, and what it needs to contain. This article will cover the sections that I use for a business case. Some of these may already be in your template, but hopefully youâll see others that youâll want to include, as well.

The sections are:

Project Overview Solution Scenarios Financial Analysis Risk & Mitigation Solution Recommendation Appendix I will also include some examples from actual projects.

Project Overview The Project Overview usually contains: Problem Statement, Benefits Expected and Project Definition.

Problem Statement

Describe the current situation as background information for the purpose of the project. Describe the core problem to be solved.

Example: The organization is moving to incorporate best practices in all of its operations. Currently, we have the following issues:

Processes are not standardized Processes are inefficient We are overstaffed in our back offices, and Our employee skill-set needs upgrading Benefits Expected

At a high level, describe the benefits to be received. This should tie into the current issues.

Example: The benefits expected from this project are to:

Standardize processes with waste removed Performance standards and optimized staffing in place for maximum efficiency, and A more skilled workforce Project Definition

In this section include:

Objectives Scope Staffing required Describe the project management and controls approach or method Describe the governance process you will use Solution Scenarios

In my previous column I listed three decision options: "Do Nothing," "Develop a Shared Services Center," and "Outsourcing." In this section, some scenarios to consider are:

Do nothing but detail the cost / benefit Improve the processes only and the cost / benefit Develop a Shared Services Center with cost / benefit Outsource and the cost / benefit Or a combination of the above In most organizations itâs common to include a few scenarios in the business case. Personally, I like to use three. I narrow the field of possible options to the three that will best fit into the organization given readiness, culture, and technical feasibility. So, determine what is required in your organization.

Financial Analysis For this section I suggest that you prepare a detailed spreadsheet for each scenario, and then summarize the scenarios in a single side-by-side sheet. The recommended tabs in each spreadsheet would include:

P&L Effect Capital Requirements People Plan (headcount, positions, and timing) Salary and Benefit Costs Project Travel and Miscellaneous Costs Hardware and Software Costs Project Savings The challenge here is that you will need to get detailed current cost numbers and projected future cost numbers. The biggest issue I have seen with current cost is the allocation of current shared departmental services (overhead). For future costs, the best way to tackle this is to make and document assumptions so that if the assumptions change, the numbers can easily be changed also.

Risks & Mitigation

It is very important to demonstrate that you have considered risks, and how to mitigate against them. Show that youâve considered "what could go wrong" and that youâve developed a plan to handle this. It requires that you dig deep to consider all possible scenarios. For each identified item, include:

The item Description Impact (dollars, people, customer service, etc.) Mitigation Solution Recommendation

By this time it should be obvious which scenario is recommended, but donât assume! Spell it out. Include for the recommended scenario:

Description Assumptions Rationale Benefits Numbers Operational Plan (this is the "how are you going to do it?") Appendix

Youâd usually want to include the lower level of detail in the Appendix, that you did not include in the business case body. This could include:

Detailed project plan Process details and flows Job descriptions Location floor plans You get the idea.

Case Studies Company A â Shared Services

Developed a shared services center for back office HR processing A 20% gain in productivity $1.2M in savings Company B â Outsourcing

Outsourced customer service function to the Philippines, Poland, and India A 30% gain in productivity $22M in savings Summary

Shared services and outsourcing can be very successful for Small and Medium-Sized Enterprises, when planned correctly. If you develop a comprehensive business case the probability of success will increase. Itâs not the single key to success, but it is an important one.