soft cost savings in a vms/msp implementation

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QuantifyingSoft CostSavings ina VMS/MSPImplementation

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Quantifying Soft Cost Savings

WHAT CONSTITUTES A SOFT SAVING?

Talent management is becoming the most cri! cal

diff eren! a! ng factor for success in today’s rapidly chang-

ing economic, business and demographic environment.

In an average American organiza! on today, between

one-quarter to one-third of its workforce consists of

temporary labor (agency contractors, independent

freelancers, interns, consultants, etc.). Handling such

huge numbers in a tradi! onal way typically yields a

diminishing margin of returns. Under these circumstances,

an eff ec! ve Con! ngent Worforce Program is no

longer a strategic advantage but an impera! ve for most

organiza! ons.

Gone are the days that demanded an elaborate

business case jus! fi ca! on to invest in a vendor manage-

ment system (VMS) or managed services program (MSP).

It is now an accepted fact that within the fi rst 18-24

months, an eff ec! ve MSP/VMS program can result in a

savings of 10 – 25% of the overall spend. Owing

to such huge benefi ts, both hard and so$ in nature, a

con! ngent workforce management program supported

by a VMS is being recognized as a de-facto benchmark

element for being a “Best-In-Class” organiza! on.

Hard savings are typically realized through volume

aggrega! on related discounts, supplier ra! onaliza! on and

! ering, early invoice payment discounts, and subs! tu! on

of high cost resources with alterna! ve talent pools. Each

of these factors by itself has the poten! al to give a 10%

saving on the overall spend.

Such high returns on investment (ROIs) through hard

savings o$ en preclude the necessity for iden! fying the

so$ er benefi ts. Another reason for limited emphasis on

es! ma! ng the poten! al so$ savings is the obvious

challenge associated with its quan! fi ca! on. In this

paper we intend to present you with a simple and eff ec! ve

framework that helps you calculate the actual savings

associated with each element of the overall MSP/VMS

program.

Depending on how one looks at it, So$ Savings come in many forms. Following is a comprehensive list in the context of

VMS/MSP implementa! ons:

Effi ciency gains generated by eff ec! ve resource u! liza! on (HR, Procurement, Finance and IT

personnel). Time is saved due to defi ned workfl ows, re-use of requisi! ons, more effi cient and

eff ec! ve on-boarding, and reduc! ons in contractor ‘! me to contribu! on’.

Reduced risk through compliance with regula! ons regarding employee screening and corporate

policies.

Reduced legal liabili! es (worker classifi ca! on, co-employment, compensa! on regula! ons, etc.).

Be* er quality of service to internal stakeholders.

Reduced maverick spend due to approval-driven workfl ows.

Visibility, control and business intelligence readily available to senior management.

Cost avoidance triggered by mistakes – invoice discrepancies etc.

Ability to scale up to any spend level without increasing infrastructure and resources.

Flexibility of workfl ows and integra! on with other systems.

Standardiza! on across units, loca! ons or groups of companies.

Coordina! on through a single point of contact.

Process reengineering, benchmarking and best prac! ces.

Tighter processes for supplier selec! on, contrac! ng and monitoring.

Improvement in the quan! ty and quality of supplier rela! onships.

Workforce performance measurement and training interven! ons.

Ability to procure and manage a more diverse workforce.

High degree of automa! on – from requisi! oning to payment approval.

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Like an oyster hiding a lustrous pearl inside itself, every so! benefi t hides within itself ‘hard’ benefi ts, the kind that execu# ves

love to hear about. To fi nd the pearls, however, we need to dig deeper and deeper into heart of the so! benefi t.

Step 1: Iden� fy the Nearest Related Tangible Benefi t (NRBT)

Once the so! benefi t is iden# fi ed, ask a simple ques# on: ‘so what?’ With the answer you get, again ask ‘so what?’ Con# nue

the process un# l you arrive at a benefi t that can be quan# fi ed. This is the Nearest Related Tangible Benefi t (NRBT) of a so!

saving. It is similar to the ‘5 Whys’ technique used in root cause analysis.

Volume & Early Payment Discounts

Contract Compliance

Rate Negotiation

Market Rate Monitoring

Bill Rate Management

Statutory LimitManagement

Tenure Management

Conversion Timing

Co-Employment

Alumni Management

Classifi cation Compliance

Regulatory Compliance

SOW Management

Contract Compliance

Supplier Rationaliza-tion and Tiering

Supplier Enrollment

Supplier Manage-ment

Supplier Payment Administration

Auditing

Order Creation and Approval

Candidate Sumittal and Screening

Time Management

Invoice Payment Process

Expense Reinburse-ment Processing

Reporting Process

Quality Process

UNEARTHING THE TANGIBLE ELEMENTS OF SOFT SAVINGSMethod 1

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For example, let’s take one of the so! savings that a con" ngent workforce management program off ers, “reduced hiring cycle

" mes”.

What if the cycle " mes are reduced?

Answer: we can onboard a con" ngent worker faster.

So what? He/she can start producing earlier.

So what? We will start ge$ ng the output and associated revenue faster.

Hmmmmmm….revenue: that’s our NRTB.

Step 2: Quan� fy the Cost/Revenue Drivers

What eff ect does absence of this so! saving have? In our example, what will be the cycle " me in ‘days’ without an MSP/

VMS program? How long will it take with MSP/VMS implemented? The diff erence is the savings in days (let’s call this ‘D’).

Con" nuing the example, calculate the revenue per day that a con" ngent worker makes for the company (’RPD’ for revenue per

day). Note that in the case of some other so! saving, the measure may be diff erent.

Mul" plying the savings in days and revenue per day will give you the actual extra revenue earned because of a reduc" on in

cycle " me for one con" ngent hire (Extra revenue per worker hired (‘ERPW’) = diff erence in days mul" plied by revenue per day,

or ERPW = D * RPD).

Mul" ply the extra revenue per worker with the average number of workers hired in year (‘AH’ for averaged hired), and you get

the total revenue earned because of the MSP/VMS program for this par" cular area of savings (TR = AH * ERPW).

Not all so! benefi ts will lend themselves to such an easy analysis as above. A be& er way to analyze such benefi ts is to examine

the chain of actual ‘measures’ that lead to the end benefi t, then quan" fy each step.

Example 1: Benefi ts of Realloca� ng Resources

Faster cycle " mes -> Produc" vity improvement -> Greater number of transac" ons processed per resource -> Fewer resources

needed to complete transac" ons -> Lower opera" ng costs

In this example, when employees entered hours worked directly into the VMS system, the VMS compared hours entered to

work schedule, calculated pay and benefi ts, and forwarded to the appropriate approval manager. Poten" al errors, missing

" mecards, and poten" al budget overruns were fl agged for correc" on by the hiring manager prior to submission to Human

Resources. The Human Resources received error-free, approved " mesheets. When the HR review was complete, the records were

automa" cally forwarded to fi nance and HR reports were automa" cally generated and forwarded to all specifi ed recipients.

Prior to the VMS implementa" on, four payroll administrators would take three days to process the weekly payroll. Using the

VMS system, one payroll administrator completed the weekly payroll run in one day. At an average annual salary of $43,000

per payroll administrator, the company realized a savings of $129,000 in reduced salaries and a produc" vity increase of 40%

(represen" ng $17,200 annually) from the remaining benefi ts administrator who then reallocated 2 days of " me per week to

other tasks.

UNEARTHING THE TANGIBLE ELEMENTS OF SOFT SAVINGS

Method 1 (Continued)

Method 2




Example 2: Task Simplifi ca� on

Centralized Informa! on –> Visibility -> Line staff saves ! me previously spent looking for informa! on.

In this example, if there are 10 staff members, each ge# ng paid $50k/year, and each reduces the ! me spent searching for infor-

ma! on by 25%, there is a saving poten! al of $125k per year through the indexed search feature in a VMS.

In addi! on to these methods, consider alterna! ve strategies to uncover the true value realized by your MSP/VMS program.

Benchmark your program. Before your MSP/VMS program becomes opera! onal, isolate and measure a cost element over

a specifi ed period of ! me. Then, compare those results to general industry results as reported by a reputable industry analyst.

Conduct a pilot. Automate a single process, measuring the benefi t over a specifi ed period of ! me. Either run a parallel

process for that ! me period, or use the date gathered prior to the VMS ‘Go Live’ for comparison. For accurate results, be sure

you can control any other factors that might aff ect the outcome.

Benchmarking is par! cularly eff ec! ve when a' emp! ng to measure savings achieved through regulatory and policy compliance.

Classifying an individual as an independent contractor decreases an employer’s payroll costs by 15 to 30%. However, Federal

laws state that employers that knowingly misclassify their employees face penal! es in the amount of $50 to $1,000 per day per

misclassifi ed worker. In addi! on, the employer will be held liable for unemployment taxes for that worker.

A large manufacturer was employing 600 light industrial workers who were classifi ed as independent contractors. A( er im-

plemen! ng a consistent worker classifi ca! on process, creden! aling system and audit capability, the MSP demonstrated to the

company that 320 of these workers had been misclassifi ed. Poten! al exposure had the manufacturer been audited by the IRS

and the look-back period had been 90 days?

Federal Fine: $100/day x 90 days x 320 workers = $2,880,000

Back Taxes: $96/day x 90 days x 20% tax rate x 320 workers = $552,960

Total Exposure: $3,432,960

UNEARTHING THE TANGIBLE ELEMENTS OF SOFT SAVINGS

Method 2 (Continued)

Other Methods




So! savings usually fall into one of the following categories:

Effi ciency gains achieved through process improvements, produc# vity improvements and lower opera# ng costs

Increased visibility and control, leading to faster and be$ er decisions

Cost avoidance through risk mi# ga# on

Stronger rela# onships and be$ er quality of service, leading to program expansion and renewal

Like a magician conjures up a rabbit from a hat, you can surprise your management by bringing out the harder side of so! ben-

efi ts by adop# ng one or more of the suggested methods.

Conclusion


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About Us

DCR Workforce is, quite simply, dedicated to helping you maximize the contribu� on of your extended workforce. For DCR,

achieving highly effi cient workforce procurement and management transac� ons is just the star� ng point. We also provide

the knowledge and technology required to analyze, understand and act on all aspects of your con� ngent talent management

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We serve global F1000 and mid-� er clientele. Representa� ve clients include Lockheed Mar� n, Program Controls, Savi Tech-

nologies, Meads Interna� onal, and Raytheon Javelin Joint Venture. Our proprietary cloud-compu� ng pla� orm (Smart Track)

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For more informa� on call +1-888-DCR-4VMS or visit www.dcrworkforce.com

7815 NW Beacon Square Blvd. #224

Boca Raton, FL 33487

Phone: 561 998 3737

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