How to track and manage the real cost of a contingent workforce

Effective workforce management means securing the right talent at the right time for the right price. To achieve this, you will almost certainly utilize the extended workforce, either directly or via vendors and outsourced providers.

For your organisation to benefit from your extended talent management strategy, you need a deep understanding of the real costs of your contingent workforce and effectively managing the vendors who provide them.

Effective management delivers a range of potential benefits, which include improving productivity, accelerating project progress, increasing quality, and introducing long-lasting process improvements. Ultimately, all these benefits improve your profitability.

Do you have visibility of your contingent workforce?

However, before these benefits take effect, you need full visibility of all categories of the extended workforce that contributes to your business. You need to know the answer to all of these key questions:

• How many non-employees work in your company?
• How many service providers, contractors, and freelancers are under contract using a statement of work (SOW)? Are you measuring these workers’ performance against the terms of their statement of work?
• How many different vendors are supplying contingent and non-traditional workers?
• If you manage your extended workforce in-house, what is the size of the talent acquisition team?

If this knowledge is not centrally located, tracking and managing contingent workforce costs and personnel becomes time-consuming and inefficient. You won’t realize all the benefits a contingent workforce can provide.

How much is your non-employee workforce costing?

To track the true costs of your extended workforce, you need visibility into each supplier's pay rates, bill rates, and markups. With markups varying from low tens to as high as 60%, this knowledge is essential, particularly when comparing and negotiating with vendors. If you directly source contingent workers, what are the team's costs? Is your process scalable? Alongside the cost data, it is important for you to understand the processes used. Is your talent acquisition and management team efficient, automated, unproductive, and manual, such as using spreadsheets? Finally, look at hidden costs. Is a vendor consistently supplying poor quality workers who rapidly become ‘do not hires’? And in turn, are your organization’s deliverables lower quality, costing you more in rework and requiring employees to fix mistakes? Churn costs money because every worker has an onboarding and offboarding cost. Poor quality service also brings with it a reputational cost.

Are you resource tracking and managing contracts and SOWs?

So, you have established the non-extended workforce, supplier, and vendor base within the organization, and you know how much it costs, but what are you doing with this information? How are you managing the real cost of your contingent workforce? For example, a consultant could typically provide services and deliver a project. Are they meeting milestones and working in accordance with the statement of work (SOW)? Was the consultant ever set any milestones or are they simply sending regular bills for time and materials expended? How do you know what you are receiving for what you are spending? A favorite ploy of many service providers once they have a contract is continually changing the scope of work, resulting in your organization writing more purchase orders (POs). This is scope creep, and without visibility, it can keep getting bigger and bigger. Is anyone in the company confirming that there is a legitimate reason to modify the SOW? Are you asking why the cost of this project seemed to double, and what did we get for the spend?

How a vendor management system helps you understand and manage real costs

A vendor management system, VMS, makes tracking and managing the entire lifecycle of each worker providing contingent work incredibly easy. You can also manage the lifecycle of SOW contracts from competitive bidding through to construction and negotiation of the SOW. It enables the management of milestones and progress payments all the way to the final payment and offboarding of workers who have had access to facilities or networks.

To learn more about what a vendor management system is, what its key features are, and what benefits it can bring to your organization, download our free guide. It’ll give you all the necessary information to understand how they can aid in contingent workforce planning, forecasting, management, and even procurement.