Today, contingent workers-temps, skilled consultants and/or independent contractors-comprise an increasing proportion of the total workforce for many companies. Contingent staffing has been estimated to be a $63 billion industry in the United States[1], and $300 billion worldwide. Thousands of staffing agency offices and numerous other purveyors of products and services vie for contingent workforce dollars.

For large corporations, comprehensive Contingent Workforce Management (CWM) programs can deliver significant results. In many companies, though, there is little or no control on both the hard costs and soft costs associated with contingent workers. One of the key goals of an effective Contingent Workforce Management program is controlling cost, and leveraging spending.

In analyzing the cost of the procurement of contingent workers, companies must evaluate costs comprehensively and consider hard costs (direct, negotiated fees and rates), soft costs (hidden and operational expenses), and cost avoidance.

Hard Costs

In managing hard costs, the company, rather than individual managers, must leverage overall spend to accomplish the following:

• Negotiate the lowest possible rates and margins
• Receive the highest possible volume (and other) discounts

Once the rate structure is established, the company must:

• Control the acquisition process to ensure receipt of negotiated rates and discounts
• Audit invoices and payments for accuracy

Specific ways to address hard costs include:

• Institute a formalized Rate Management Strategy, which immediately reduces vendor margins (historically, by as much as 15-90%).
• Introduce an aggressive Volume Discount Program that returns to the client the economies of scale realized by the vendors.
• Implement a proven "req-to-check" e-procurement tool that automates invoicing and reduces total spend by eliminating overpayments (which auditors estimate at 6% of spend in the average company).

Soft Costs

In assessing potential soft costs, companies must consider the administrative time spent on manual or other processes (which can frequently be offloaded to suppliers in a well-designed program). Gaining productivity through business process improvement, automation and migration of administrative responsibilities to suppliers/CWM program management, can significantly reduce soft costs.

While management of the data and processes once seemed daunting, there are currently a handful of cost-effective tools that automate all facets of administration, acquisition workflows, metrics compilation, auditing and reporting. The best of these tools can provide efficiency gains comparable to those recognized when corporations moved from hand-written account ledgers to computerized accounting systems.

Cost Avoidance

Cost avoidance is inextricably linked to risk mitigation. Risk must be mitigated in all key areas in order to avoid:

• Potential penalties and fines, as well as retroactive payments imposed because of misclassification of employees and/or co-employment liabilities.
• Regulatory fines associated with contingent worker related issues.
• Theft of intellectual property by contingent workers.
• Security breaches by contingent workers.
• Non-compliance with Sarbanes-Oxley reporting requirements related to contingent worker expenses.

Impact on Revenue

Temporary and contract labor is one of the fastest growing line items on many corporate operating statements, and the contingent workforce is rapidly becoming a key focus for cost reduction strategies. On average, companies spend 7% of their revenue on contingent workers. At iLogos, our Contingent Workforce Management consulting engagements have shown a potential for better cost control, with impact ranging from 4% to 22+% in the hard costs category alone.

Current economic realities are forcing companies to recognize that cost savings achieved through better management of staffing and consulting vendors are significant contributors to improved earnings per share. Now, more than ever, it is critical that responsible corporations establish comprehensive, well-designed Contingent Workforce Management strategies. The costs of failing to do so are substantial.

Elaine Taylor is the Director of Contingent Workforce Strategies for Taleo Research (www.taleo.com). Ms. Taylor, a subject matter expert in the area of contingent workforce management (CWM), consults with large companies worldwide on strategies and best practices for effectively managing the contingent workforce to reduce costs and legal risks, and increase enterprise productivity. Taleo Research is the strategic research and consulting division of Taleo, a worldwide leading provider of on demand talent management solutions.