A Drake International white paper said that in most organisations, people costs are the single biggest component of overall cost, yet top executives are oblivious to the total amount it eats up.
"The difficulty lies not with how much organisations spend but with the fact that very often, top management don't know the extent of this spend. This often leads to the unnecessary event of cost cutting exercises, which provide short-term relief, however ultimately leads to diminished business unit productivity," the white paper said.
A client, who is part of the Top 500 company, was interviewed by Drake for the white paper. According to the client, they did not "accurately know within a million dollars, what the overall flexible workforce costs were."
Another large multinational oil company reviewed its flexible workforce costs and found it was spending US$100 million a year. The number of contractors, the duration they worked for the company and what rates they were paid were all unknown.
"As flexible staffing was a de-centrally managed spend category in this organisation, pay rates for similar jobs were not only inconsistent, they were all over the map. In addition, the company didn't have adequate systems for tracking the length of contractor assignments," the paper said.
Drake's white paper suggests that companies start adopting a "managed services" solution which "assists organisations to monitor and control these otherwise hidden flexible staff costs."
The solution provides a standard set of processes and systems through which all recruitment orders are placed and managed. "These savings are created by supplying; accurate role profiling and candidate selection, electronic timesheeting and processing, electronic order processing, batched invoicing and e-billing, detailed reporting and information visibility, successful integration of sub-vendors and data integration in to the existing ERP."
The white paper claims the combination achieves savings between 35 to 75 percent.
Drake International found that in large organisations, top executives found it difficult if not impossible to be aware of the total flexible workforce costs. "This has been exacerbated in recent years by the proliferation of 'multiple supplier' panels, the de-centralisation of hiring decisions, and localised profit and loss reporting."
Drake said conventional cost management of people resource are under great scrutiny. Businesses are now moving towards new ways of understanding the composition of people costs using methods which includes "managed vendor supply arrangements, e-procurement systems and traditional workforce management techniques."
"A managed services approach bundles technology and services to provide a true end-to-end recruitment solution that enables an organisation to achieve a more efficient and optimised human capital supply chain," the paper said.
Drake International also stated outsourcing as one common alternative of companies for reducing rising labour costs. The risks, according to Drake, for outsourcing includes bringing unwanted controversy to business and affecting employee morale.
It also cited that "organisations often fail to budget for the high administrative and management costs involved in managing a complex overseas outsourcing arrangement" and that the control over core business functions is diminished in this situation.