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Total Cost of Workforce Provides Insights Beyond Expense

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With labor costs approaching two-thirds of the budget in some companies, there is a growing movement to fully understand the expenses and benefits associated with spending on all types of worker compensation and management. While the primary goal of total cost of workforce (TCOW) analysis has been to optimize the costs of payroll and contingent talent against productivity and profit, this has led to overreliance on head count. In most organizations, investment in talent – through additional workers, higher wages, better benefits, or more training – results in a positive return on investment up to a point. Whether to add talent, therefore, is not the important question. TCOW’s real value comes from the significant insights it can deliver into the composition of an enterprise’s workforce, the efficacy of its recruitment methods, the effects of salary on turnover, the relationship between training and productivity, and a host of other variables that contribute to (or detract from) the bottom line.

As if the workforce model needed a push, the COVID-19 pandemic and greater awareness of the need for and benefits of diversity brought on by Black Lives Matter demonstrations have proven that hiring managers today require more robust data and metrics to give them the forecasting, analysis, and correlation-identification power they need to craft more efficient workforces. All these benefits are possible when a company fully accounts for and understands the total cost of its workforce.

Talent Connects to Tasks

“Organizations must begin to ask fundamentally new questions to find relevant, actionable workforce metrics that can inform bold decisions around critical human capital risks and opportunities, even as uncertainty about the future of work, the workforce, and the workplace remains.”

To accomplish this mandate, companies require better understanding of how work tasks relate to workers and their productivity, as well as how workforce costs correspond to profitability. Armed with this information, they can make strategic talent decisions who to hire and when, whether to engage a full-time employee or a contractor, how resource allocation could affect revenues, and more.

Silos Fall

Workforce cost visibility enables companies to segment the tasks required to accomplish business objectives. Departmental silos and jurisdictional battles become moot as workers are allocated to the tasks they perform best. Knowing which tasks need to be completed for each initiative opens the door to improved scheduling, working group composition, budgeting, etc.

Segmenting tasks helps prioritize skill acquisition and development based on the frequency and importance of their use within the organization. Companies may be able to save money by hiring part-time or freelance help for some tasks. That savings could be used on higher salaries to attract, hire, and retain people with the mission critical skills the firm needs often.

Trends Emerge

Calculating TCOW quarterly will give you a longitudinal view of your full-time and non-traditional workers. You will be able to overlay those results on other variables to illuminate the effects of a hiring surge, major project launch, or even a pandemic. HR can then determine whether a policy change or remedial action is required. Monitoring changes in TCOW also helps establish patterns of workflow that can be used to project future needs, shifts in market forces that can present new opportunities, and productivity issues that must be addressed.

Short-term anomalies may show the need to hire contingent workers to fill in talent gaps that cause bottlenecks in a project’s progress. Consultants and contractors often can be onboarded more quickly than full-time employees, expediting solutions to talent shortages while controlling fixed costs.

Vision Clears

Asking the right questions of your data will yield greater transparency into your operations as they relate to workforce costs. Including all costs for both in-house and external workers will give you a clear view of the alternatives available. For instance, a manufacturing firm may want to know how to cut costs while improving delivery times. Depending on the data, the answer may be to outsource delivery, or it may be to increase drivers’ wages in order to reduce turnover and the expenses associated with advertising for, interviewing, and training replacements.

Decompose all the tasks to be completed for each project or job function and visualize their nexuses to skills and resources needed to perform them. This will provide insights into all components of workforce cost. From there, you can determine the best course of action for any problem, whether it involves contingent worker management, full-time hiring decisions, productivity, worker benefits, or any other area.

Scenarios Come to Life

With the cost of each task fully quantified, the best combination of skill sources can be assembled for every project. You can easily see which task-accomplishing skills your employees possess, which ones you can easily obtain from contingent workers and temps, and which you may need a managed service provider or other vendor to help you acquire. Your human capital becomes a set of keys, with each person possessing a different set of skills that can unlock different doors.

You can create different scenarios to see the ramifications of substituting one person with skills A, B, and C with another whose skills include A, C, and D. Whatever workforce cost-related problem you have, you can design a variety of possible responses and then watch how each plays out in your model.

Demand Becomes Predictable

As the cost for acquiring and/or mobilizing the skills needed to finish tasks becomes known, production, finance, and HR can work together to schedule the people they need far in advance. These colleagues now will have the power to foresee and control costs on a daily, weekly, quarterly, and per-project basis. For long-term projects, this will enable better budgeting for the next quarter or fiscal year. For shorter projects, the team can determine the freelance contract lengths, milestones, and deadlines more accurately. And, they can secure outside workers well in advance to reduce the risk of missing out on the talent they need.

Finally, TCOW gives companies control over headcount by illuminating the best type of worker to hire when an unaccounted-for skill becomes necessary. Hires can be made based not on who is available and what portion of the project budget remains, but on whose skills are most adaptable to the task and who can fill the need most completely and economically.

Metasys managed services gives CHROs and CFOs the data analysis and insights they need to make informed workforce cost and composition decisions. Our experienced professionals and powerful algorithms make workforce planning and management a weapon in the fight for competitive advantage and talent procurement. Contact us to start a conversation about how our customized services can make your workforce more productive and cost efficient while streamlining and illuminating your talent sourcing, acquisition, onboarding, training, and management.

Metasys

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