Effective workforce management means securing the right talent, at the right time, for the right price. Today, that almost always means tapping into multiple categories of external talent – independent contractors, consultants, freelancers, statement of work (SOW)-based service providers, and temporary workers – engaged either directly or through staffing vendors or other providers. The real cost of this extended workforce goes well beyond pay rates: it includes vendor markups, hidden costs like rework and turnover, and compliance risk when contracts aren’t managed properly.
To achieve the benefits of an extended workforce strategy, you need a deep understanding of the real cost of every category of your contingent workforce and the ability to manage both the talent and the organizations that supply them.
Done well, this delivers measurable results: higher productivity, faster product delivery, better quality, and lasting process improvements – all of which ultimately improve your profitability.
Do you have visibility of your contingent workforce?
Before these benefits take effect, you need full visibility into every category of external talent that contributes to your business. Visibility here means insight into your total spend, not just what’s easily available. You need to know the answer to all of these key questions:
- How many non-employees work in your company - by category?
- 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?
- How much of your contingent spend do you have zero insight into because it's happening outside your approved provider list and your normal budgeting process
If this knowledge is not centrally located, tracking and managing contingent workforce costs and personnel becomes time-consuming and inefficient. Without full visibility and control, you won’t realize all the benefits a contingent workforce can provide.
What constitutes your non-employee workforce cost?
To track the true costs of your extended workforce, you need visibility into each supplier's pay rates, bill rates, and markups – and cost structures differ meaningfully across categories. Agency temps, ICs, consultants, and SOW-based providers are all priced and billed differently, and markups can range from the 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 curation team's costs? Is your process scalable? Alongside the cost data, it’s important for you to understand the processes used. Are your talent acquisition and management methods efficient and automated, or unproductive and manual, relying on spreadsheets and email?
Finally, look at hidden costs. Is a vendor consistently supplying poor-quality workers who rapidly become ‘do not re-hires’? Are your project deliverables lower quality, costing you more in rework and requiring employees to fix contractors’ mistakes? Is there frequent turnover of SOW project personnel? Churn costs money because every worker incurs onboarding and offboarding costs. Poor-quality service also carries a reputational cost – for your program and your company.
Are you tracking and managing contracts and SOWs?
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 SOW? Or are they simply sending regular bills for time and materials expended, with no milestones or deliverables ever set? In that case, the SOW is simply functioning as disguised staff augmentation. This may be costing you money due to higher rates and exposing you to misclassification risk.
How do you know what you’re receiving for what you’re spending? A favorite ploy of many service providers is to continually change 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 seems to be doubling, and what you are getting for the additional spend?
How a vendor management system helps you understand and manage real costs
A vendor management system (VMS) makes it incredibly easy to track and manage the entire lifecycle of each contingent work assignment. You can also manage the lifecycle of SOW contracts from competitive bid through negotiation and execution. It enables the management of milestones and progress payments, final payment, and worker offboarding, ensuring the termination of access to facilities or networks.
Visibility, cost transparency, and contract discipline are the foundation of a well managed contingent workforce, and a VMS is what makes it possible at scale. Download our free guide to see how a VMS helps you capture and control the real cost of your contingent workforce, and simplify planning, forecasting, management, and procurement along the way.
