Employees

3 Keys to Examining One of the Most Overlooked Business Costs: Workforce Management

Guest Writer
President of Major Account Services at ADP
3 min read
Opinions expressed by Entrepreneur contributors are their own.

For midsize businesses (those with more than 50 employees and less than 1,000) getting their arms around their total cost of ownership (TCO) in human resources -- what they are actually spending on employees and the cost of managing them -- can be easily overlooked.

In fact, more than half of midsize-business owners (54 percent) say managing their company's employees is a daily concern, second only to overhead costs (64 percent), according to a recent ADP Research Institute study. So, it would follow that executives keep close tabs on TCO and know the "big number" of all direct and indirect costs for managing their employees. But do they really?

According to the 2014 Total Cost of Ownership Study, on average, only one in three leaders have done a formal cost analysis of at least one of the five human capital management (HCM) pillars: payroll, employee benefits administration, talent management, human resources administration and time and labor management.

Related: The Basics of Employee Benefits

Below are three points to follow in order to understand that "Big Number" and find the true TCO of your workforce.

Follow the five pillar rule.

The best way to find the TCO of a workforce is to look into the five aspects of HCM listed above. Why not just four or three? It's the one way to find the true cost of your workforce. It's imperative that a business has an accurate assessment of its workforce cost control, and the best way to do that is to evaluate every pillar to see the full picture.

Conduct a formal cost analysis.

Within the last year, only about four in 10 mid-market companies have conducted a formal cost analysis on payroll, time and attendance and employee benefits administration alone, according to the 2014 TCO study. Very few have analyzed costs across all five pillars. This frustrates HCM professionals like me. We all go to the doctor to see how our body is functioning and we speak with retirement professionals to see what life after work will look like, so why not give your business that same kind of assessment for your most important asset -- your people?

Related: Drive Success by Converging Employee's Goals With the Overall Organization

While most business leaders believe they are keeping TCO costs in check, most senior executives note in the study that cost analysis is too complicated, or that TCO is a cost that's very hard to track. In short, business owners do not have the insight they need to determine their TCO.

Take the leap from awareness to hard measurement.

It's no secret that visibility into your business helps everyone make better and faster decisions. Shifting from TCO awareness to understanding and measurement is critical for midsize business owners to gain insight into the dollars they're putting behind employees and their impact on the bottom line. By measuring these costs, executives gain a layer of intelligence on spending that can put them on the road to understanding their true TCO of HCM, allowing them to better lead their business.

Related: Letting Your Employees Review You Can Lead to Personal and Professional Growth

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