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GantryGroupTCO White PaperTCO Comparison:ADP vs. UltimateSoftwarePayroll/HRMSSolutionsJune 2005TCO DriversUltimate Software’s Workforce Managementsolution – UltiPro – is a payroll/HRmanagement offering that is rich withfunctionality. The all-inclusive pricing resultsin a low TCO. In a study of three Ultimatecustomers and three similar ADP customers,ADP’s average 3-year NPV TCO was 52%higher than UltiPro.The Gantry Group, LLC30 Monument Square, Suite 214Concord, MA 01742Top Ultimate TCO Advantages Single fee for all HRMS & Payroll services Lower internal labor costs for serviceadministration and delivery Rich functionality, particularly for managersand administrators, without sacrificingflexibility and control Integrated payroll and HRMS supports realtime analytics for business intelligence andstrategic decision making.
www.gantrygroup.comContentsCONTENTS .2ABSTRACT .3TCO COMPARISON OF ULTIMATE AND ADP PAYROLL/HR MANAGEMENT SOLUTIONS.4CHALLENGES IN BENEFITS AND HR WORKFORCE MANAGEMENT.4SOLUTION OPTIONS .5IN-HOUSE OR HOSTED MANAGED SERVICES – ULTIMATE SOFTWARE’S SOLUTION .5SERVICE BUREAU OUTSOURCING – ADP’S SOLUTION .6ULTIPRO/ADP COMPARISON .7TCO STUDY OBJECTIVES.7TCO COMPARISON RESULTS & DISCUSSION.8OVERVIEW OF CUSTOMER IMPLEMENTATIONS .8TCO COMPARISON RESULTS & ANALYSIS .9ADP TCO IS 28% HIGHER THAN ULTIPRO TCO .9ULTIPRO CUSTOMERS GET MORE FUNCTIONALITY FOR THE VALUE .10PERSONNEL COSTS ARE HIGHER WITH ADP .10CONCLUSIONS.12ABOUT THE GANTRY GROUP, LLC.13ABOUT ULTIMATE SOFTWARE, INC. .13APPENDIX .14METHODOLOGY .14TCO CALCULATION APPROACH .14HR Solution TCO ComparisonMarch 20052
AbstractUnlike other recent studies comparing payroll and HRIS automation solutions that have focusedon return on investment (ROI) by assigning monetary value to benefits received, this studyfocused on measuring the Total Cost of Ownership (TCO) of comprehensive solutions for HR,benefits, and payroll functions. Ultimate Software (“Ultimate”) sponsored a direct “apples toapples” comparison of the TCO of ADP solutions with the TCO of Ultimate’s complete HRmanagement solution. ADP was selected for comparison because most industry analysts havegiven little coverage to ADP as an HR workforce provider, preferring to compare Ultimate’ssolutions with ERP vendors like SAP and PeopleSoft. To address the lack of third-partycomparison with ADP, Ultimate engaged the Gantry Group, LLC, to conduct a direct TCO study ofcustomers of both vendors.Gantry Group identified a set of three companies with ADP HR/payroll implementations. Eachcompany was carefully selected to “match” with one of three of Ultimate’s customers. Threeindustries were chosen including healthcare, manufacturing, and consumer retail/banking.Company sizes ranged from 1,000 – 1,500 employees, 3,000 – 5,000 employees, and 12,000plus employees. ADP and Ultimate customers were matched by industry and by size.Because Ultimate’s offering is all inclusive – providing automation for virtually all HR functions,including payroll, benefits, compensation and performance management, HRIS/HRMS, training &development and more – and ADP’s offerings were discrete modules, Gantry measured thevarious cost components of the same functions – even if not provided by ADP.The study revealed that the average 3-year Net Present Value TCO for ADP was 52% higher thanfor Ultimate.A key driver to the TCO difference is due to:The primary reason for this is due to key differences in the two solutions, including: UltiPro monthly fees include more features and functions; ADP charges separately andadditionally for items that are included in UltiPro. ADP’s solutions require greater internal personnel support in HR than does UltiPro.HR Solution TCO ComparisonMarch 20053
TCO Comparison of Ultimate and ADP Payroll/HRManagement SolutionsChallenges in Benefits and HR Workforce ManagementAcross enterprises of all sizes, the primary business missives facing HR departments is the same:to reduce time spent on administrative tasks, and to reduce/control the costs of HR servicedelivery.1 As they attempt to execute on these missives, HR executives’ biggest challengescontinue to be retention and development of key employees, decreasing the costs of benefits,and increasing the quality of service levels.Increasingly HR departments are seeking solutions for these challenges based on technology oroutsourcing for functions like benefits enrollment, workforce management, performancemanagement and compensation planning to help them reduce administrative costs and providemore strategic support to their organizations. Enterprises clearly view solutions that automate oroffload HR business processes to be important tools that address their challenges.Solutions that help HR organizations to meet their objectives have been emerging in recent yearsout of the category of business process management. According to Gantry research of hundredsof HR managers and executives in the U.S., over 60% of respondents believe employee andmanager self-service are important goals within the next two years. "Self-service" broadly refersto a range of transaction-based processes related to benefits administration that leverage Webbased automation. Using Internet browsers, individuals throughout an enterprise canelectronically enroll in health plans, view 401(k) and retirement transactions, and perform avariety of tasks that used to be accomplished manually by an HR administrative employee.Self-service benefit functions available across the entire employee base of an organizationinclude items like entering life event changes, 401(k) benefits calculations, retirementcontribution and transaction reports, claims transactions, reporting, and many more.Traditionally each time a company employee wanted to review their benefits, had a questionabout applicable benefits or needed advice, they would make a call to the HR department. Herean HR staff member would answer questions, research issues, retrieve information, enter lifeevent changes and enroll employees in benefits as appropriate. HR employees could spend amajority of time just performing administrative tasks in support of employee benefits.Self-service functions available to executives, managers, and administrators include, forexample, comprehensive reporting tools for business trend analysis and daily operations, abilityto approve staff requests for training online, and Internet-based processing for new hires, jobchanges, and salary upgrades. It’s no surprise that companies look to streamline and automatethese processes to reduce administrative costs and enable HR to perform more strategic, highervalue work.1Annual Gantry Group HR Executive Study, 2003, 2004HR Solution TCO ComparisonMarch 20054
Solution OptionsAs HR departments struggle to transform themselves into strategic organizations that supportand help to shape corporate goals, they look to technology solutions that promise to aid in theautomation and streamlining of non-core business processes. Several years ago, their optionswere limited to costly, cumbersome ERP systems or smaller niche offerings that automated onlyone or two HR functions. Today there are many more options including robust andcomprehensive HR management/payroll solutions, which are available as in-house or outsourced(remotely hosted) solutions.While the market forecasts for HR outsourcing of people, processes, and technology areprojected to be rapidly on the increase, payroll may be less likely to be outsourced – particularlywith large enterprises (by number of employees on the payroll) with economies of scale. GantryGroup research conducted between 2004 and 2005 indicates that 64% of companies with over1,000 employees are managing payroll administration in-house. The percentage of in-housepayroll operations increases to 75% for companies with over 10,000 employees. With today’shosted solutions, companies can retain in-house control while outsourcing the IT functions forsupporting and maintaining the system.In-house or Hosted Managed Services – Ultimate Software’s SolutionAs HR technology has advanced, new functionality has made in-house management of HR andpayroll more cost effective than at any time in the past. This option, being increasingly used bymedium- to large-sized enterprises today, automates payroll/HR management through thedeployment of solutions that are either licensed and implemented on an in-house server, orhosted remotely and purchased through a “per employee per month” fee structure. Aside fromthe ability to maintain control that results from keeping HR and payroll functions in-house,another key advantage includes improved integration resulting from all payroll and HR functionsbeing managed on one single system. UltiPro from Ultimate Software is one such solution.Ultimate Software’s UltiPro – the company’s payroll, employee management and Web-based selfservice solution - is available under either a license model or a service model. The license modelincludes an upfront fee and 20% annual maintenance fee; software can be deployed in-house onthe customer’s own server or hosted remotely, by Ultimate. In the service model, customersbenefit from fees based on a charge per employee/month. Additionally, remote hosting of thesolution by Ultimate (UltiPro Intersourcing) enables enterprises to avoid internal IT support costs.No matter the business model selected, the UltiPro Workforce Management solution offerscomprehensive, integrated automation. Because there is a single database driving all HRfunctionality, information and data is highly accessible through fully customizable ad hocreporting capability. Business analytics, included as an integral part of the solution, are anotherbenefit of UltiPro’s integrated approach and draw on timely information from all HR and payrollprocesses. Ultimate’s Intersourcing solution includes:HR Solution TCO ComparisonMarch 20055
Ultimate’s licensed or per/employee/month solutions also offer enterprises a wide range ofchoices with respect to outsourcing HR/payroll functions, such as tax filing, check printing, andW-2 preparation. The Ultimate solution includes the capability for calculating paychecks, andtaxes. Customers can choose to have these items sent to a service bureau for execution, or theycan keep these functions in-house.Service Bureau Outsourcing – ADP’s SolutionAn alternative to an in-house (or remotely hosted) HR management solution is the servicebureau approach where portions of HR functions are taken over by the vendor as part of theservice. ADP - one of the most established and oldest service bureaus - became synonymouswith payroll processing well over a decade ago. As technology has advanced and markets haveshifted, ADP has now expanded beyond payroll transaction processing, offering HR managementand administration solutions as well. HR Enterprise is ADP’s primary service offering foroutsourced HRIS – providing enterprises with the ability to streamline and automate HRprocesses with a service bureau model. Technology solutions are hosted by ADP (olderimplementations include a client piece as well), and certain functions such as check printing, taxcalculation and filing, and W-2 preparation and fulfillment are included in the service.ADP’s approach to HR workforce management comes from a service bureau perspective, whereasUltimate’s history is software development. Both companies offer solutions that reflect theirrespective histories.HR Solution TCO ComparisonMarch 20056
UltiPro/ADP ComparisonPre-formatted out-ofthe-box reportingReal-time databaseWeb QueryBusiness AnalyticsReady-for-use BICProcess AutomationCustomized ReportingEnterprise IntegrationSelf-Service WorkforcePortalSingle database designAvoided IT SupportOff-cycle Check RunsPayroll AdjustmentsMultiple TaxJurisdictionsUltiPro/Intersourcing 600 reportsADP Payroll/Enterprise limited Fully interactive added costadded costlimited added cost added costadded costadded costDesigned from the perspective of HR business processes, UltiPro has some clear advantages thatare reflected in the average 3-year TCO (see TCO Comparison Results & Discussion): HR management workflows – out-of-the-box, no separate configuration required, no extracost Robust workforce portal (managers, administrators, employees, broader workforce) Multiple FEINs handled with ease, including instant reporting on multiplelocations/divisions separately or on the company as a whole Hundreds of customizable HR, payroll & benefits reports any time from the Web Ready-to-use workforce analytics on topics such as turnover, overtime & benefits costs All workforce data accessible at any time, in seconds Real-time access to payroll results Total control & flexibility over payroll processing schedule One all-inclusive low monthly fee, no extra chargesTCO Study ObjectivesGantry Group set out to systematically compare the quantitative TCO of Ultimate Software’sIntersourcing HR management solution with that of ADP’s HR solutions. Consistently apply a TCO study methodology to quantify and compare TCO outcomes ofpayroll and HR solutions deployed by Ultimate customers and customers of an Ultimatecompetitor.HR Solution TCO ComparisonMarch 20057
Comparatively analyze and highlight the specific areas of TCO outcome differences andcost drivers of three (3) pairs of “apples to apples” deployments (3 Ultimate customers, 3ADP customers) of Web-based payroll and HR management solutions. Calculate the annual average TCO experienced by 3 Ultimate Software customers and 3similar ADP customers. Quantify and differentiate the TCO of Ultimate’s Web-based payroll and employeemanagement solution from the equivalent TCO of ADP’s offering.TCO Comparison Results & DiscussionOverview of Customer ImplementationsSmall Company Pair:Product Description: UltiPro/Intersourcing (per employee per month pricing option)remote hosted solutionImplementation Time: 4 months.Modules not used: Recruitment and Training modules not yet in use.Modules in current use: Payroll Processing, Benefits Administration/enrollment,Web Self-service, Workforce Management, and Business Analytics and Reporting.Product Description: ADP Payroll/HR Enterprise, eTimeImplementation Time: 2-3 months.Modules not included: No self-service, online management or enrollment.Modules included: Hosted HRIS, Time and Labor management, ReportSmith for reporttemplate programming. COBRA outsourced to ADP under separate contract.Mid-Sized company pair:Product Description: UltiPro/Intersourcing (per employee per month pricing option)remote hosted solutionImplementation Time: 4 months.Modules not in use: Performance management, Compensation management modulesnot yet in use.Modules currently in use: Training module implemented in 2005. Currently using Webbased manager and employee self-service, payroll, tax filing, recruiting and workforcemanagement.Product Description: ADP Payroll/HR EnterpriseImplementation Time: 18 months.Modules not included: No manager or employee self-service or Web-based enrollment.Modules included: Hosted Enterprise HRIS and ReportSmith for report templateprogramming. FSA contracted separately with ADP and has its own associated employeeWebsite. Separate databases for payroll and HRIS.HR Solution TCO ComparisonMarch 20058
Large-Sized company pair:Product Description: UltiPro/Intersourcing (license fee plus annual maintenance pricingoption) Implementation Time: 17 monthsModules not in use: NoneModules in use: All product features including payroll, HRIS, HR benefits, FSA, COBRAand employee and manager self-service, workforce management, business analytics.Product Description: ADP Payroll/Enterprise hosted remotely with client softwarecomponent.Implementation Time: 24 months.Modules not included: eTime or interfaces to financial service providers. Separatedatabases for HRIS and benefits.Modules included: Currently using payroll administration, tax services, HRIS. H&W,FSA, COBRA on separate ADP application being phased out, with customer serviceWebsite, online enrollment, billing and administration of all benefit plans.TCO Comparison Results & AnalysisADP TCO is 28% Higher Than UltiPro TCOBased on Gantry Group’s research of six companies (3 using UltiPro and 3 using ADPPayroll/Enterprise HRIS) the 3-year Net Present Value of TCO across these firms was 52% higherfor ADP or over 1,000,000 more annually.While the TCO in the first year of implementation is comparable between UltiPro and the ADPsolution, this changes in the years following. The primary reason for this is due to key differencesin the two solutions, including: UltiPro monthly fees include more features and functions; ADP charges separately andadditionally for items that are included in UltiPro. ADP’s solutions require greater internal personnel support in HR than does UltiPro.HR Solution TCO ComparisonMarch 20059
UltiPro Customers Get More Functionality for the ValueThe total monthly costs including both basic per employee fees and additional ongoing costs overand above those fees were, on average across the 6 companies, higher for the ADP customers.Ongoing additional fees levied by ADP include the following items: Support for customized reports formore than 3 reports ( /yr) Multiple tax jurisdictions( /additional jurisdiction) Adjusted payrolls ( /adjustment) Wage garnishment ( /garnishment) COBRA administration ( /event/ee) Monthly GL interface fees ( /mo) Tax services ( /ee/pay) Customized communication( /letter)Monthly fees for customers of ADP forbasic payroll processing and benefitsadministration again are higher than forcustomers of Ultimate due to thebreakout of service components intoindividual line items. These includemonthly fees for eTime (ADP time andexpense management), FSA, and fees percheck (in addition to the monthly payrollprocessing charges).While the basic monthly fee for hostingand payroll/HR administration are similarbetween the two offerings, UltiPro’s feeincludes items for which ADP chargesextra.Personnel Costs are Higher with ADPOn average, across the 3 customers for each solution vendor, UltiPro customers are able toaccomplish payroll and administrative tasks in less time than ADP customers. In the first year,the amount of personnel time required for training and system proficiency ramp was about thesame for both vendors. Over time, however, the amount of time required by personnelinteracting with the system is less for UltiPro customers.HR Solution TCO ComparisonMarch 200510
Gantry found that the drivers of this differentiation in labor requirements are due primarily tospecific benefits that result from UltiPro: Tight integration of UltiPro with its time clock solution, improving the accuracy of itspayroll; less time spentcorrecting errors Web-based Manager Self-Servicedistributes the employee-relatedadministrative workload Real-time, sophisticatedworkforce analytics for strategicdecision making readily availableinstead of manipulating manualspreadsheets. Out-of-the-box workflowprocesses for managers,executives, administrators enableinterface with HR to beaccomplished quickly via the Webportal.None of the three ADP customers had access to Web-based self-service, requiring workforcemanagement tasks to be executed through manual emails and electronic document transfer.Overall the degree of automation and integration of HR functions was relatively low, with mostcapability and automation focused on the payroll part of the solution.HR Solution TCO ComparisonMarch 200511
ConclusionsWhen companies of similar size and industry are compared, the TCO of UltiPro averages ½ of theTCO of ADP’s HR/payroll solutions when considered over a three-year period. While UltiPro’s firstyear costs are slightly higher than those for ADP, the trend for the years post-implementationshows significantly lower TCO. Extrapolating from this trend, Gantry estimates that over a 5-yearperiod the NPV TCO for UltiPro would be even lower. The solutions are comparable for the 3-yearNPV TCO components of training and hosting costs, however on a yearly basis postimplementation, ADP costs in both areas are considerably higher than UltiPro.The primary drivers for ADP’s higher TCO derive from: the demands on internal personnel required by the solution; individual pricing for each solution module; and, the compounding of extra costs charged by ADP for items outside of the base offering.UltiPro’s HR/payroll solution is comprehensive, providing multiple services (including web-basedemployee and manager self-service) for one monthly fee. While the ADP offering was developedfor each function separately (beginning in payroll processing), UltiPro’s was designed as a singlesolution right from the start and developed with HR business processes as a focal point. ADP’smodular expansion into other HR processes beyond payroll has resulted in an offering that – inthe three cases examined in this study – is less effective at reducing internal personnel costs andis priced for “units” of functionality that add up considerably.HR Solution TCO ComparisonMarch 200512
About The Gantry Group, LLCThe Gantry Group is a research and consulting firm specializing in technology ROI. With over 300technology clients, 4,000 business process interviews and profiles in our knowledgebase, andmore than 1,000 ROI business processes and value drivers modeled, we offer our clients thegreatest depth and breadth of ROI experience and invaluable objectivity.The Gantry Group uses analysis drawn from practiced operational experience, supported bycustom primary research, to help IT vendors and enterprises forecast accurate ROI and TCO.Gantry Group translates the business process enhancements that result from IT solutions intoenterprise bottom-line impact. This analysis helps vendors to sell their solutions morepersuasively and enterprises to make more informed buying decisions. Through a rigorousinterview approach, Gantry Group profiles real enterprises with solution deployments to isolateand capture actual business performance metrics before and after implementation. Gantry Groupdevelops predictive ROI tools that measure and quantify the effect of the technology on businessperformance prior to investment. Using these results, technology vendors can substantiate theirsolutions’ real ROI and expected payback horizons to increase revenue. Enterprises canrealistically evaluate and forecast the likelihood of net financial benefit derived from a technologysolution.For more information about Gantry Group, visit www.gantrygroup.com or call 978-371-7557.About Ultimate Software, Inc.Ultimate Software, a leading provider of Web-based payroll and workforce managementsolutions, markets award-winning UltiPro as licensed software, as a hosted application throughIntersourcing, and as a co-branded offering to Business Service Providers (BSPs) under the“Powered by UltiPro” brand. The Company employs approximately 465 professionals who areunited in their commitment to developing trendsetting solutions and delivering quality service.Ultimate Software customers represent diverse industries and include such organizations asBenihana Restaurants, The Container Store, Elizabeth Arden, The Florida Marlins Baseball Team,The New York Yankees Baseball Team, Omni Hotels, Ruth’s Chris Steak House, SkyWest Airlines,and Trammell Crow Residential. More information on Ultimate Software’s products and servicescan be found at www.ultimatesoftware.com.UltiPro and Intersourcing are registered trademarks of The Ultimate Software Group, Inc. Allother trademarks referenced are the property of their respective owners.HR Solution TCO ComparisonMarch 200513
APPENDIXMethodologyTo meet the objectives, Gantry’s approach called for the identification of six companies, threethat were deployed customers of Ultimate and three customers of ADP. Care was taken to ensurethat each of the three pairs of companies to be compared were of the approximate same size andhad similar business models.The three Ultimate customers were selected first, and were selected on a “first come” basis.Customer selection criteria was founded on industry and size - their TCO experience withUltimate’s solution was an unknown. The selection criteria derived from Gantry’s desire for thefollowing respondent make-up:1 pair of companies with 1000 - 2000 employees in healthcare (providers)1 pair of companies with 3000 - 5000 employees in manufacturing1 pair of companies with 10,000 employees with branch/retail business modelsUpon identification of the Ultimate customers, Gantry researched and recruited a “matching” setof ADP customers. Aside from the criteria listed above, the ADP customers had to have beenusing an ADP solution for some combination of payroll plus at least one other HR function.The following table summarizes the final selection of study DP Payroll/EnterpriseHRUltimate/IntersourcingADP Enterprise/ADPPayrollUltimate/IntersourcingADP Enterprise, WinFlex(H&W)EE Size uring the recruiting selection process, Gantry developed a detailed interview session guide tobe consistently applied to all participating companies. The session guide was designed to captureTCO drivers at a granular level.TCO Calculation ApproachGantry’s objective was to calculate and compare the 3-year, Net Present Value (NPV) TCO foreach of the six companies participating in the study.The categories of cost that were considered for each participant included the following:HR Solution TCO ComparisonMarch 200514
Setup/implementation fees Consulting fees Recurring Hosting Costs Hardware Costs (check printers, printers & associated maintenance contracts) Monthly solution fees (Payroll, Benefits, HR workforce management) Personnel (HR, Payroll, IT) Cost Training and Expense Cost Other ongoing feesCustomized report maintenanceW-2 filing, disbursementCheck printing, disbursementFSA administrationCOBRA administrationWage garnishmentCustomized employee C&E (benefits enrollment, new hire letters) – development,disbursementCustom GL interface maintenanceCustom other interface maintenanceTax calculation and filingAdditional jurisdictionsPayroll adjustmentCheck paper stock/postageCosts for implementation, setup, configuration consulting were considered as one-time, upfrontcosts; if a company paid this cost in multiple payments over the three-year period considered,then that was reflected in the calculation.The 3-year NPV was calculated using the standard Net Present value equation with an assumeddiscount rate of 15% for all TCO evaluations:NPV cashflow/(1 discount rate)HR Solution TCO Comparisonn, where n 3.March 200515
ADP was selected for comparison because most industry analysts have given little coverage to ADP as an HR workforce provider, preferring to compare Ultimate's solutions with ERP vendors like SAP and PeopleSoft. To address the lack of third-party comparison with ADP, Ultimate engaged the Gantry Group, LLC, to conduct a direct TCO study of
