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

November 3, 2021

Effective workforce management means securing the right talent, at the right time, for the right price. To achieve this almost certainly means you will be utilising 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 you do not have this knowledge in a central location, then tracking and managing contingent workforce costs and personnel becomes time consuming and inefficient. You won’t be realising all the benefits that 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 pay rates, bill rates, and markups of each supplier. With markups varying from low tens to as high as sixty per cent, this kind of knowledge is essential, particularly when comparing and negotiating with vendors. If you directly source contingent workers, what are the costs of the team? 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 and automated, or 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 organisation’s deliverables lower quality, so costing you more in rework and requiring employees to fix mistakes? Churn costs money because there is an onboarding and offboarding cost for every worker. 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 organisation, 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, you could typically have a consultant providing services and delivering 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 favourite ploy of many service providers once they have a contract is continually changing the scope of work, resulting in your organisation 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 it incredibly easy to track and manage the entire lifecycle of each individual worker providing contingent work. You can also manage the lifecycle of SOW contracts all the way from competitive bidding through to construction and negotiation of the SOW. It enables the management of milestones and progress payments all the way to final payment and offboarding of workers that 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 they can bring to your organisation, download our free guide. It’ll give you all the information you need to understand how they can aid in contingent workforce planning, forecasting, management, and even procurement.