I agree with the idea that the effects of combat on units in a game should mostly be morale effects; and that separating morale and casualties into separate tests is avoidable and probably best avoided.
That does not mean that there are not cases - many cases - in the war in which the primary effect really was physical. The 52nd Brandeburg regiment, for example, during the battle of Mars-La-Tour, lost a third of its strength mostly in the attack on Flavigny. In the same battle Cuirassier of the Imperial Guard lost more than a third of its numbers in a single charge.
Still, while dead men cannot advance morale is still an important effect. It was the remnants of the 52nd that the Cuirassier charged; they stood their ground and decimated their attackers.
Still, the morale of a unit is not always clear to its officers -- or to the men in the unit themselves. Patry, in The Reality of War, describes an incident during the defense of St Privat. His battalion was pinned down, tanking casualties but shooting back and apparently in reasonable shape. The commander stood, gestured, encouraged his men -- it was time to move into a more forward position. Party describes himself a standing up, certain he was about to advance -- then he and everyone else in the battalion heading for the hills.
On the other hand the Prussian Guard, which lost a quarter of its strength in about 20 minutes in front of St. Privat, and was pinned down for an hour, was able to stand and advance as the Saxons turned Canrobert's right and the French defense started to break down.
Here's roughly the mechanism I want to use. A moving, active unit accumulates hits which are resolved immediately and have their effects which may include degradation in capability or an unwillingness to move. If enough hits are take, the unit breaks and will probably just be removed from the table. Some hits should probably be reversible with a deliberate effort to rally the troops. Some proportion will not.
Once a unit goes to ground - either voluntarily or pinned as a combat result - fire will not cause immediate hits, but potential hits. Those hits will be accumulated until a unit faces a "test" - a "moment of truth" (I like the second phrase better, since it does not have the baggage of "morale test") and then they will be resolved and the actual hits applied and resolved. Potential hits may still cause effects such as a slacking off of fire (are they dead, or conserving their ammunition?).
I have two moments of truth in mind at the moment.
- The player attempts to move the unit, either forward or back.
- The unit comes under close assault