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Managing HR Cost in this Economy

Employers should also capture internal costs associated with other HR functions including payroll processing, HR information systems, recruitment, retention, on-boarding, talent management, succession planning, training and development. Comparing these costs and processes to best practices can lead to cost-reduction opportunities and an overall improvement in service delivery.

Although this list of data collection items seems onerous at first, it should be information that is readily available and obtainable. Organizations that find this process difficult may have even greater opportunity for cost reductions than those that have the information readily available. As W. Edwards Deming said, “What can’t be measured can’t be managed, and what can’t be managed can’t be improved.” Lack of ready access to this important information can be just one sign that the HR function is ripe for non-disruptive cost-reduction opportunities.

The next step is to conduct an assessment of all this relatively high-level information. Typically, employers will not look further unless the high-level data suggests an opportunity of significance; further review is warranted in order to validate the concept for implementation.

This high-level review provides the ability to assess opportunities quickly, move away from areas not likely to generate cost savings, and focus attention within the organization where needed. This process of collecting data and identifying value should take only about four to six weeks. This rapid assessment approach allows for the process to keep moving without losing steam or interest by key stakeholders.

The third component of a successful process to value identification is the inclusion and coordination of key leaders or stakeholders from outside the HR department. Using the talents and skills of individuals from other departments or organizations often leads to opportunities for cost reduction that might not otherwise be considered. Individuals with financial, tax, legal, actuarial and risk management skill sets can provide insights into aspects of the HR function that may not be possible if the review is conducted only by HR personnel. These individuals can bring their unique perspective to the process and improve the opportunity for transparent cost savings.

The review should also be conducted independent of any advice that might be considered self-serving or not in the best interest of the organization. If the company is considering using outside consultants to assist in the process, those consultants should be scrutinized for any possible conflicts of interest. Consultants who accept commissions or override payments from vendors may lead an employer toward an idea or opportunity that, in the end, also benefits them.