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HR Spend Optimization

HR Spend Optimization

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Published by tps5970
Human Resources
Human Resources

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Categories:Types, Research
Published by: tps5970 on Dec 23, 2012
Copyright:Attribution Non-commercial

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05/14/2014

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 1 
HR 
 
S
PEND
O
PTIMIZATION
 
H
OW TO
E
LIMINATE
U
NNECESSARY
HR 
 
E
XPENSE AND
 
ETURN
M
ONEY TO THE
B
USINESS
 
HR-related costs continue to climb. Everywhere, organizations are looking for waysto minimize the impact of double-digit premium increases and more effectively dealwith the heightened complexity of HR compliance and administration.The problem is particularly acute for small to mid-sized companies. A study done byPrice Waterhouse Coopers (P
W
C) found that these companies spend on average$2,000 per employee per year to handle payroll, workforce administration, time & attendance, and health & welfare. In contrast, larger companies only spend $1,400per employee to accomplish the same things.The extra $600 per year spent by smaller organizations quickly adds up. You might
call it the “smaller company penalty” –
if they could tap into the economies of scaleavailable to larger companies, some of this money could be returned to the business.But even then, there are other HR expenses that are being incurred needlessly.While some costs are unavoidable, top executives are often surprised to find out howmuch of the HR budget is spent unnecessarily. No company sets out to waste HRdollars, but, without realizing it, most end up doing exactly that. P
W
C found thathidden costs account for over 50% of the cost of administering HR programs.
At CheckPoint HR, we’ve worked with hundreds of 
small to medium-sized companies,and have seen similar excessive costs. By finding and eliminating these unneededexpenses, HR can return money to the business. This white paper identifies the keysfor doing so.It is vitally important to note that we are not advocating a reduction in benefit planquality, shifting excessive costs over to employees, or eliminating HR programs. Infact, when our recommendations are adopted, companies are often able to broadenplan options and increase employee satisfaction.
How is it possible to “find money” in HR and increase emplo
yee satisfaction at thesame time? It all begins with a small but crucial shift in mindset.
The Silo Surcharge
HR “silo
s
” are t
he root cause of unneeded expense. The subtle but vitally important
change in mindset is to eliminate “silo thinking.” 
 
 2 Figure 1: HR SilosFigure 1 shows some of the typical HR silos. Past thinking was that the best way tomanage HR Spend was to optimize each individual program in the different silos. Buttoday perceptive managers are challenging that thinking
and they are gettingbetter results.There may be good historical reasons for the existence of HR silos, but if we weredesigning a HR strategy from the ground up, we would not have them.Whenever you have silos, there are inherent inefficiencies. Opportunities forsynergies are missed.
The result is the “Silo Surcharge” –
extra money paid by thecompany unnecessarily. There are 3 kinds of wasted HR spend:
 
Hidden costs. These are costs that are not transparent, because they arebundled into the price paid for a product or service. Examples are
brokers’ 
commissions and 401k asset management fees.
 
Errors, omissions, & avoidable costs. Many costs fall into this category. Someare the direct result of having duplicated data and processes that spanmultiple silos. Just one example is overpaying insurance premiums due toerrors in deductions, synchronization between systems, and setup issues.
 
Opportunity costs. Some opportunity costs translate into hard dollars
suchas missing out on available tax credits
because HR doesn’t have the
bandwidth or expertise to put tax-advantaged programs into place. Other
costs are “soft” dollars –
but still very real
springing from the time that HRprofessionals have to devote to researching issues, answering questions, andtracking down errors that arise when HR systems are in silos.
There is a Silo Surcharge, but companies don’t recognize that they are paying it.
These unnecessary costs go undetected for months or years, because they are partof the business-as-usual approach to HR Spend.
 
 3 
The HR Cost Continuum
To find wasted money and return it to the business, we need a simple yet powerfulchange in mindset. We need to stop dealing with silos, and we need an approach foraddressing the HR Cost Continuum.The HR Cost Continuum comprises all the direct and indirect costs for systems andservices that do recruiting, onboarding, provide benefit plans, administer benefits,perform payroll, provide and manage HR technology, ensure compliance, and handleretirements, resignations, and terminations.The perspective of the HR Cost Continuum is the
employee lifecycle
, not individualHR
silos
. The first step toward eliminating unneeded expense happens when werecognize that virtually all of the silos need the same data, and that efficiencies canbe gained by breaking down the walls that kept the silos apart. But we also needexpertise and tools to succeed in eliminating the silos.
HR Spend Optimization Platform
To most effectively manage the budget across the HR Cost Continuum, a HR SpendOptimization Platform (HR/SOP) is needed. A HR/SOP is a new resource for HRexecutives, because it is the only platform that addresses HR spend in a way thateliminates the Silo Surcharge.A HR/SOP is a combination of services and technology designed to eliminate all of the duplicate, unnecessary, and wasted expenses.Figure 2: A HR Spend Optimization Platform

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