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

For midsize businesses getting their arms around the total cost of ownership in human resources can be easily overlooked.

learn more about Anish Rajparia

By Anish Rajparia

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

Anish Rajparia

President of Major Account Services at ADP

Anish Rajparia is ADP’s president of major account services, which focuses on businesses with 50 to 1,000 clients, and ADP Canada. 

Related Topics

Editor's Pick

The Dark Side of Pay Transparency — And What to Do If You Find Out You're Being Underpaid
Thinking of a Career Change? Here Are 4 Steps You Can Take to Get There.
A Founder Who Bootstrapped Her Jewelry Business With Just $1,000 Now Sees 7-Figure Revenue Because She Knew Something About Her Customers Nobody Else Did
Everything You Need to Know About Franchise Law
Business Plans

5 Things to Know and Do Before Writing Your Business Plan

If you need a business plan, there are certain things you need to know and do before you sit down to create it. In this article, you'll learn five things to complete before writing your plan to ensure you get the best results.


Streaming TV Is the Future of Advertising — Without Breaking the Bank

Today's consumers expect personal, impactful ads. There's an advertising method that can get you there for half the price, making it the next frontier in digital advertising.

Growing a Business

Scaling Made Easy: How to Scale Your Business like a Fortune 500 Company

Once you have the night-vision skills of Fortune 500 restaurants, scaling becomes effortless. Here are 3 ways to scale, hidden in plain sight.

Business Ideas

55 Small Business Ideas To Start Right Now

To start one of these home-based businesses, you don't need a lot of funding -- just energy, passion and the drive to succeed.

Business News

A Mississippi News Anchor Is Under Fire for Quoting Snoop Dogg

WLBT's Barbara Bassett used the rapper's "fo shizzle" phrase during a live broadcast, causing the station to let her go.