Sunna Arnardottir

Cost-Benefits analysis

Cost-benefits analysis are great for human resources initiatives as this analysis helps compare the cost versus the benefits of the initiative. The results from the analysis can help HR build a case to their superiors as to why the suggested initiative is the best course of action.

The cost-benefits analysis follows four (4) steps.

1. Establish a framework for the analysis

Identify what goals and/or objectives the initiative is trying to accomplish. List what resources are needed so the initiative is successful, and decide on what metrics can be used to measure each listed item.

Make sure that for each listed item has the same type of metric so that the final tally can be easily done.

This step can also include setting goals of the expected tally of a cost/benefit, as well as preferred tally of a cost/benefit in order for the initiative to be considered efficient or cost-effective.

2. Identify costs and benefits

Take the list from the established framework and separate into two categories, costs and benefits.

Costs

Keep in mind:

• Direct costs
• Indirect costs
• Intangible costs
• Opportunity costs
• Etc.

Benefits

Keep in mind:

• Direct benefits
• Indirect benefits
• Intangible benefits
• Competitive benefits
• Etc.

3. Assign value to costs and benefits

Once all possible costs and benefits have been listed, the next step is to assign value to each cost and benefit.

• Direct cost/benefit can easily be assigned a monetary amount.
• Other types might need additional research to get as close of an accurate value as possible, and can possibly even include guesswork for some.

4. Tally total value of costs and benefits and compare

Once every cost and benefit has been assigned value, tally up each item and compare the two.

If the total amount of benefits outweigh the total amount of costs, the results of the cost-benefits analysis can easily be used to showcase why the initiative is important.

The total amount can also answer whether an initiative’s cost/benefit is acceptable depending on goals set in the first step.

Decision matrix

A decision matrix is good to use when working with several options, and you need an overview of what option to pick. A decision matrix helps by breking big choices into criteria based scoring.

A decision matrix can be set up using the following seven (7) steps.

1. Identify alternatives

Before building the matrix, identify and write down a list of all the options that will be chosen from.

For example, the plan is to recruit a new CEO, and three executive head hunter agencies have been identified.

2. Identify important considerations

It’s also important to list all criteria that are important in the decision making.

Following the previous example, the cost behind the recruitment, experience of the agency, and reviews from other customers are important for the final decision.

3. Create decision matrix

Now take the above list and criteria, and set up into a matrix. It’ll look something like this:

	Cost efficient	Experience	Reviews	Total Score
Agency 1
Agency 2
Agency 3

4. Add weight

Sometimes one category is more important than another. Evaluate all categories, and give weight to ech, depending on their importance.

Decide on a scale, depending on the amount of categories you have, and give weight to each criteria.

Using the above example, a scale of 1-3 is given to each criteria as such, with 1 being the least important and 3 being most important:

	Cost (1)	Experience (2)	Reviews (3)	Total Score
Agency 1
Agency 2
Agency 3

5. Fill in the decision matrix

Decide upon a scale to use to determine fit into each criteria.

For simple decisions, a scale of 1-3 is enough, for more complex decision a scale from 1-5 or even 1-7 could be used. Make sure to use the same scale for all criteria.

Continuing with the above example, let’s say a scale of 1-5 was chosen, with 1 being least and 5 being most in each category.

	Cost (1)	Experience (2)	Reviews (3)	Total Score
Agency 1	3	4	4
Agency 2	1	4	2
Agency 3	4	3	4

6. Multiply scores with weight

Once initial rating has been inserted into the matric, multiply them with the decided weight for each category.

	Cost (1)	Experience (2)	Reviews (3)	Total Score
Agency 1	3 * 1 = 3	4 * 2 = 8	4 * 3 = 12
Agency 2	1 * 1 = 1	4 * 2 = 8	2 * 3 = 6
Agency 3	4 * 1 = 5	3 * 2 = 6	4 * 3 = 12

7. Calculate the total score

Finish by calculating the total score.

	Cost (1)	Experience (2)	Reviews (3)	Total Score
Agency 1	3 * 1 = 3	4 * 2 = 8	4 * 3 = 12	23
Agency 2	1 * 1 = 1	4 * 2 = 8	2 * 3 = 6	15
Agency 3	4 * 1 = 4	6 * 2 = 6	4 * 3 = 12	22

By using a spreadsheet software, it is possible to set up the matrix and simply follow steps 1-5, making the software finish steps 6 and 7 automatically.

Gap analysis

Gap analysis are great to use when trying to figure out where the initiative is at right now, what results the initiative should have, and what’s missing in between.

A gap analysis has four (4) discovery phases.

1. The current state

The first phase discovers the current state, and it shows where the initiative is at now. The first phase asks the question “where is the initiative now” and is to identify all possible problems and friction points that the initiative is experiencing.

These friction points can include, but are not limited to:

• Budget
• Market (e.g. for recruitment)
• Performance
• Resources
• Etc.

2. The future state

The future state shows where the initiative should lead to. The second phase in the gap analysis is to answer the question “What results should the initiative give?”

It is important to get specific in the future state, include numerical goals, percentages, and/or dates so identifying when the future state is reached can be easily identified.

Techniques such as SMART goals* can assist in setting up ideas on what the future state should look like, as well as contribute to further phases of the gap analysis.

* SMART goals will not be covered in this article.

3. The gap

The gap shows all discrepancies between the current and future states. The purpose of the third phase is to list all details as to why the initiative in its current state isn’t successful, and what issues there are with the process.

Using information from other analyses is possible, e.g. a SWOT or PESTLE analysis can assist here, as well as some information from SMART goals.

4. Ideas and improvement

The fourth and final phase is where ideas for changes and how to implement them to fill in the gap are brainstormed and logged. The purpose of the last phase is to create actionable items that can be done in order to reach the future list.

Having set SMART goals is helpful here, as the action items should follow the same SMART setup.

PESTLE/PESTEL analysis

The PESTLE analysis focuses on what external factors can possibly affect initiatives. A PESTLE analysis helps determine how external factors will affect perfromance and strategy in the long term, and gives context of the big-picture.

Political factors

All relevant factors that have to do with:

• Change in leadership.
• Related to the government.
  • General political issues.
  • Regulations.
  • Trade and tax policies.
  • Political trends.
• Etc.

Economic factors

All relevant factors that have to do with:

• Economic growth.
• Exchange rates.
• Inflation.
• Interest rates.
• Unemployment levels.
• Etc.

Social factors

All relevant factors that have to do with:

• Age distribution.
• Applicable behavior (employee, management, third parties).
• Cultural trends.
• Lifestyle trends.
• Societal customs.
• Etc.

Technological factors

All relevant factors that have to do with:

• Innovation.
• Scientific breakthroughs.
• Technological advancements.
• Technological developments.
• Etc.

Legal factors

All relevant factors that have to do with:

• Consumer laws.
• GDPR.
• Health and safety policies.
• Labor laws.
• Market and import/export regulations.
• Etc.

Environmental factors

All relevant factors that have to do with:

• Climate change.
• Consumer environmental awareness.
• Environmental regulations.
• Waste management policies.
• Etc.

Root cause analysis

Root cause analysis is a good tool to use to fix problems that keep repeating themselves. This analysis is helpful to avoid band-aid solutions that waste resources on fixing symptoms.The focus of the analysis is to help ask “why” something is happening until the real issue shows up.

A root cause analysis is an advanced analysis that requires a deep business and industry understanding, demanding several diagnostics and analyses in order to be properly finalized.

The root cause analysis follows eight steps.

1. Identify performance or opportunity gaps

Performance gaps are failures or short falls with own capabilities, and opportunity gaps show something new or innovative that can create value.

These gaps are identified by diagnosing the organizational architecture using what ever method that identifies both internal and external factors.*

* An example is the congruence model.

2. Create a challenge statement.

This step simply requires a written statement that explains the identified gap and why it is important. The statement shouldn’t be too long – a paragraph of 3-4 sentences, which explains the essence of the challenge.

3. Analyze findings with stakeholders

The third step is to work with all applicable stakeholders on the findings from the first two steps, to gain necessary different perspectives on the problem and its causes.

4. Formulate action points

Use the information gathered in the third step, and apply to the challenge statement from step 2. Try and establish several action points that create value by closing the performance or opportunity gaps that were identified in step 1.

5. Identify necessary behavior changes

Make sure to identify what behavior needs to be changed in order to solve the initial challenge. Note that not all root cause analyses identify behavior that needs to be changed, but there is always some behavior that can be fostered internally to enhance the results from the analysis.

Root causes that are unrelated to behavior are for example:

• Systems and structures
• People (individual’s profile, workforce’s composition, experience, skills, etc.)
• Etc.

6. Plan to implement behavior changes

Refer to behavior management and change management to implement the necessary behavioral changes that need to be done in order for the root cause to be properly handled.

While planning on what behavioral changes can be implemented, take into account whether changes to said behavior can have negative or positive effect on the initial challenge, or the business as a whole. And keep the following in mind:

• Try and gauge if the workforce is motivated to act out the changed behavior.
• Is the workforce capable of changing their behavior? Does everyone have the necessary skills set?
• Can the applicable workforce collaborate effectively in order to properly see the behavior change?

7. Map root causes

Map out identified root causes to help adjust and/or change the workforce’s behavior successfully.

If the root cause cannot be fixed with changed behavior, list out what needs to be done in order to reach the desired future state.

8. Create an action plan

Using findings from all previous steps, create an action plan to address the root cause of the problem and consider who plays what role in it. Make sure to:

• Identify the problem’s root cause.
• Create measurable results.
• Ensure transparency and clear communications.
• Have roles known and understood.

Stakeholder analysis

When setting up an initiative, not everyone will want the same thing. A stakeholder analysis will help map out who is involved with the initiative, and what they care about.

Doing a stakeholder analysis isn’t time consuming, but can save th initiative from any last minute surprises or opposition, and aligns all stakeholders to the initiative from the get go. For a stakeholder analysis, simply follow these steps:

1. List all applicable stakeholders.
   • No matter their level of significance to the initiative, makes sure to list all stakeholders.
   • List stakeholders into two categories, thos who are affected and those who contribute to the initiative.
2. Analyze all stakeholders
   • List roles and expectations of all stakeholders.
     • Do stakeholders have a lot of interest, or low interest in the initiative?
       • High interest need to be kept informed of the initiative’s progress.
       • Low interest stakeholders need less contact.
     • Do stakeholders have a lot of influence, or no influence in the initiative?
       • High influence stakeholders need to be managed closely.
       • Low influence stakeholders need to be kept satisfied.
3. Prioritize stakeholders
   • List all stakeholders from highest importance to lowest.
   • Don’t forget – a stakeholder’s status can change throughout the project.
4. Engage stakeholders
   • Use the above information to properly engage all stakeholders to ensure success of the initiative.

Example

• Stakeholder analysis – Example.pdf

SWOT analysis

SWOT stands for Strengths, Weaknesses, Opportunities, and Threats. A SWOT analysis is often a good place to start when everything feels like a mess, and the general idea of what needs to be done, and why it needs to be done, is unknown.

In a SWOT analysis, all Strengths, Weaknesss, Opportunities, and Threats are listed, giving a visual representation of performance, risks, and potentials.

While setting up a SWOT analysis, it’s imperative to use both internal and external data, to get a full picture of all possibilities for the initiative. Taking all the information from the analysis, and setting it up in a simple table gives a visual representation of what the initiative has to work with, makes the analysis interactive as strengths can become weaknesses, opportunities can turn into threats, and vise versa. A visual table is also good to have when the SWOT analysis is repeated, as it shows in a simple way differences from before and after the initiative.

Strengths

Strengths are what the initiative excels at, and what makes it a strong choice against other possible choices. A strength for an HR initiative could be:

• Good employee reach.
• Ease of access to applicable resources.
• Low cost.
• Etc.

Weaknesses

Weaknesses are what stop the initiative from performing at maximum capacity. This is where the initiative needs to improve to remain viable:

• High cost.
• Lack of means to initiate initiative to all applicable employees.
• No access to necessary resources.
• Etc.

Opportunities

Opportunities are all favorable factors that could give the initiative an advantage.

• Can have a positive effect on employee relations.
• Doubles as a tax discount for employer.
• Can be utilized for workplace marketing.
• Etc.

Threats

Threats are all unfavorable factors that can harm the initiative, or the purpose of the initiative.

• Rising cost to resources.
• Management not willing to engage with the initiative.
• Known diversion from employees to initiative.
• Etc.