What's Your Risk Factor?

Rhonda Marcucci, founder of Gruppo Marcucci (GPM), is a respected industry, observer, speaker and author of articles on topics pertaining to the HR and Benefits Administration technology and outsourcing industry. For up-to-the-minute insights from industry conferences, follow Rhonda on Twitter.

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What's Your Risk Factor?

Posted on 10/28/2011

Technology and industry regulation are change agents in Human Resource technology and benefits administration. Yet many employers think it’s business as usual. It’s not! Here’s a few things you need to know about the Human Resource Technology “risk factor” and how to evaluate a service provider in the context of risk assessment. The following article was commissioned by ADP to aid employer groups with the selection of service providers for outsourcing HR technology and benefits administration functions.

The HR Technology Risk Factor

by Rhonda P. Marcucci

Health care reform—three little words that have changed how employers think about HR technology and benefits administration. The 9th Annual MetLife Study of Employee Benefits Trends revealed that 32 percent of all employers report that they still do not know what they will do in response to Patient Protection and Affordable Care Act (PPACA) legislative requirements.

Also changing is the use of benefits outsourcing technology, on which companies are increasingly reliant. According to the Towers Watson Annual Benefits Enrollment 2011 survey, the number of companies still using paper-based enrollment dropped by more than five percentage points in 2010 and is now down to less than nine percent among the large and mid-size companies surveyed. The technology associated with this industry is changing rapidly—perhaps as fast as the coverages it was designed to manage.

In spite of this, for many companies it’s been business as usual even though the business is changing. Companies that view the industry as a static one may find themselves at risk in today’s benefits administration environment. Let me share a few observations based on nearly 15 years in the industry.

The role of the industry advisor is changing. Thanks to new technologies and health care reform, employers are increasingly looking to their industry advisors more as a partner. A recent survey of business decision makers by Benefits Selling revealed that 33 percent view brokers as their “trusted advisor” and 30 percent use brokers to “provide value through knowledge,” which means that the majority view their broker as something more than a middleman offering insurance. The research also indicates that the decision-maker/broker relationship is changing in view of health care reform; with 48 percent of decision makers surveyed reporting the roll of the broker will become “more important” by 2014, and another 27 percent saying “much more important.” But there’s more.

Employers are increasingly looking to outsource their benefits enrollment and administration platform.According to the Towers Watson survey, nearly half of midsize companies insource their enrollment process but a whopping 78 percent of that group are planning to outsource. Companies that outsource report a higher level of satisfaction. The top reasons for dissatisfaction among companies that manage enrollment in-house are all technology related—enrollment and self-service technology, followed closely by reporting technologies.

Understanding the new technologies (and their providers) can be a near-impossible task, which is why employers often look to advisors to guide them through the evaluation process. Whether working with an advisor or traversing the RFP and selection process on your own, you need to understand the questions that will provide you with necessary information to make the most informed decision when outsourcing HR technology and benefits administration functions.

Let’s imagine for a moment that you move ahead, business as usual. You’ve selected a service provider based on a basic RFP and budget analysis. Perhaps you went with the least expensive provider even though price should never be a sole consideration in your selection. Yes, there were demos, but the bells and whistles got in the way of asking the hard questions…the sometimes boring, technical, tedious and complex questions. Two months into the implementation you’re not happy with your platform—your implementation team is spending half the day identifying and reporting new problems and your employees are frustrated because the promised ease of open enrollment didn’t materialize—all because you didn’t ask the right questions in order to understand and manage the risk associated with bringing the wrong partner to the table.

To understand the potential fit between your company and a service provider, and to better understand and manage the risk factors, you need to ask the right questions and to understand how to interpret the responses. To give you a better sense of what I mean, let me lay out six   areas that together make up a framework developed following thousands of hours of consulting by the GruppoMarcucci team for evaluating a service provider and the associated risk in selecting that provider for your organization.

  1. Security: This is a huge risk in today’s market for service providers. Any service provider will tell you that his or her platform has strong cyber security measures in place, but no doubt the developers of systems for the large multinational companies that make the news for being hacked would have said the same. Ask for detail about security in the RFP and then follow up with questions: What types of risk assessment tools are you using? What are the encryption levels? What is the authentication and access process? Do you have Technology E&O and Cyber Security insurance in place and what are its limits?
  2. Technology/Infrastructure: This is one of the most critical areas of questioning to potential providers. This can also be one of the most difficult areas to understand so it’s easy for providers to hide things or inflate their service in an area. Types of questions to ask include: What processes do you employ to make sure that you can support the heightened level of activity inherent during fourth quarter open enrollments? How big is your IT team? Can we speak to other clients regarding your integration standards with carriers?
  3. Financial Attributes: Many companies in this space are privately held and not very well capitalized. To ensure adequate resources to allow for platform updates in response to regulatory changes and introduction of new technologies, you’ll want to explore the company’s financial position. At the very least, ask to review a balance sheet. What is the source of your financial backing? What are your year-over-year growth projections and profitability? Is the company being targeted for possible acquisition?
  4. Business Attributes: Understanding a service provider’s business attributes covers a broad range of competencies, including business and leadership maturity, market reputation, market conduct, the breadth of services and business focus, operational excellence and more. There are a lot of moving parts in the benefits administration business—operational controls are key to making sure those moving parts work together to achieve your objectives. You will want to review their standard contract for fairness to both parties. How do you ensure operational excellence? What are your top five competitive attributes? What does success “look like” from your perspective as the provider, and also from my company’s perspective? What is the size of your typical client? How do you monitor and comply with changes in government regulations?
  5. Client-Specific Attributes: This area of questioning is also varied. It’s gets to the heart of whether a service provider is a good fit with your company—culturally, geographically, experientially, financially, and more. What tools are in place to facilitate communications between the company and service provider team? Have you previously worked with companies of similar size and focus as ours? What is your expectation of our company’s role in the system rollout? (If not in the same time zone) How will your team accommodate our company’s standard business hours?
  6. Platform Attributes: Here’s where you get to the nitty-gritty of the system. Along with asking questions, be sure you have the opportunity to take a hands-on test drive of platform features. Admittedly, it can be easy to get distracted by the bells and whistles of a platform but you’ll benefit from a deep line of questioning to explore transparency, configuration versus customization capabilities, development methodology and more. While the GruppoMarcucci team is not from Missouri, we highly recommend a “show me” demonstration that allows you to see that the platform can support your requirements. Who owns the technology? (If not the service provider then you may be at the mercy of the folks who do.) How often is new functionality released? How does new functionality get prioritized? What is the recommended testing plan with our data before going live?

These six areas provide a framework for asking the questions that will allow you to evaluate a service provider and understand the associated level of risk. Within this framework, you should be able to understand not only the obvious elements of the service provider’s offering, e.g., the platform’s technology, standard services and associated cost, but also the more subtle and “hidden” areas of risk such as cultural fit, communication style, experience with companies similar to yours, etc.

If you hadn’t thought about some of these areas of risk previously that’s understandable. It’s a vast and fast-changing marketplace and it can be difficult for even the experts to be expert. By using this framework to develop and pose detailed questions you will be better able to make informed decisions on service providers and products that best suit your culture, benefit program and employees while mitigating overall risk and alleviating the administrative burden of benefits administration and government compliance. Further, it will allow you to focus on more strategic issues such as retaining top talent through the best healthcare offerings and managing the health of your employees.

The consequences of selecting the wrong service provider are considerable. On an individual level you may be held accountable for the decision and will likely need to defend your decision to the C-Suite. Beyond having failed at successfully managing the project, you could be facing the loss of your job. As painful as that may be, you need to understand that the possible consequences go well beyond the personal level. The potential impact on the organization is significant.

The entire company may be affected—from accelerated levels of liability to employee satisfaction, right down to the bottom line. The company’s selection of a benefits administration service provider can, literally, be a life or death situation. I know of an instance where an employee was initially refused emergency medical service until the service provider corrected an error on the carrier file (which had been ignored for weeks). Luckily the error was corrected in a timely manner but the company could have been facing a major lawsuit had the outcome not been so fortunate.

While no outsource decision is 100 percent risk-free, a decision made within the framework described in this paper is a risk most are happy to take. Companies interested in accessing a complete set of questions that pertain to the service provider evaluation and risk framework described in this paper can request these questions by emailing Amy.Osterhagen@adp.com and putting “RFP Questions” in the subject line.

Access and download the full report here. (pdf)

About the Author
Rhonda Marcucci is a 25-year veteran financial and operations executive with a record of success in identifying strategy and executing against it to achieve client goals. Her firm, GruppoMarcucci, is a nationally recognized HR and Benefits Administration technology outsourcing consulting practice which focuses on strategy and partnership work for entities wishing to understand, enter, or penetrate the benefits administration market. GruppoMarcucci provides solutions for all aspects of HR and benefits administration technology challenges, including providing sourcing advice and service provider capability audits. The GruppoMarcucci team is on call to respond to clients’ request to “Help me Rhonda.”

About ADP
Automatic Data Processing, Inc. (Nasdaq: ADP), with about $10 billion in revenues and approximately 570,000 clients, is one of the world’s largest providers of business outsourcing solutions. Leveraging over 60 years of experience, ADP offers a wide range of human resource, payroll, tax and benefits administration solutions from a single source. ADP’s easy-to-use solutions for employers provide superior value to companies of all types and sizes. ADP is also a leading provider of integrated computing solutions to auto, truck, motorcycle, marine, recreational vehicle, and heavy equipment dealers throughout the world.

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About Gruppo Marcucci

Gruppo Marcucci (GPM), a division of Gallagher Benefit Services, Inc., provides outsourcing intelligence and associated consulting to stakeholders in the Benefits and HR Technology & Outsourcing industry. Our in-depth understanding of the service provider market and our vast experience sourcing and implementing solutions is key to our clients achieving full operational success.


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