One of the primary reasons organizations create contingent workforce programs is to gain cost savings, but then, the program must find a way to quantify savings delivered, this is usually done using guidance from their finance function. As such often savings assessments may miss some material value levers. Cost savings assessments typically do not take into account whether the requisition was for a credible business need in the first place. Was a contingent necessary and are we procuring the right level of resource. Could the job have been performed using existing in-house resources? Was the right type of worker used; SOW vs. staff augmentation, for example, or a level 1 resource as opposed to a level 3. Nor do assessments consider whether the CW performed to expectations after the fact (ie., did you get your money’s worth?). Sometimes savings measures miss the fact that saving money on the front end in the form of rates may end up costing more. As we often say: “Cheap is expensive.”
What we mean by “Cheap is expensive” is that often what may look like the least expensive option in terms of a contingent worker may well end up costing your organization more in other ways in terms of time to fill, lost productivity or a less experienced resource may take more time to do what an experienced and hence more expensive resource could do in significantly less time. Taking this into account when we talk about cost, we need to consider not just cost savings, but the level of cost correction. Cost correction is about getting the right value for the money spent. Such as not paying too much for a poor resource and level of support, but getting the appropriate level of each based on the right price. Each company may have a different perspective on what constitutes value and cost correction for your program. It is for the most part more art than science and can often be tied to program ROI or strategic account value.
That being said, some companies manage demand for CW resources at the front end and consider that a form of hard trackable savings. For example, defining the types of roles that can be filled by contingents, or creating limiting criteria for when overtime is allowed. While these policies can yield very real value to the organization you would need to validate the savings calculation prior to implementing to ensure any savings captured is tracked appropriately.
This reference guide, produced by Staffing Industry Analysts and available to CWS Council members, explores various means of generating and calculating savings and provides an overview of their benefits and risks.
Any cost saving strategy must be sensibly balanced against quality, efficiency and risk issues. Traditionally, the most common way to look for hard savings is through driving rate savings. The methodology used to calculate rate savings is important to consider and examples of these are outlined in this report.