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Managing an Organisation’s Most Significant Cost – the Workforce

By / October 29, 2009 / / 0 Comments

contributed by Jeff Higgins, CEO and Principal, and Grant Cooperstein, Sr. Consultant and Principal, Human Capital Management Institute

 

Today’s economy has finance professionals and CFOs in organisations large and small focused on efficiencies and costs. When revenue growth flattens or even declines, profit maintenance and increases must come from cost efficiencies. In most organisations, including large organisations such as the Fortune 500™, total human capital cost, also known as total cost of workforce, average nearly 70% of operating expenses (for source and definitions, see notes one and two below). While an organisation’s total cost of workforce percentage may vary, with few exceptions these costs remain the single biggest organisational expense. Given their fluid and rapidly changing nature, workforce costs are extremely difficult costs to manage and control, however organisational charts provide a surprisingly simple solution to the challenge.

Effectively controlling or managing the total cost of workforce often proves difficult because the tools for the job – budgets or approval processes when growing or layoffs when times are tough – lack the up-to-the-minute flexibility or detailed insight that companies need. Simply put, organisations lack tools with which to surgically manage, tune or optimise their workforce.

The net result is often a general inability to effectively control and manage workforce costs during growth periods. Over time, costs get out of control and management is forced to turn to their last (and not particularly attractive) line of defense – directives such as “hiring freeze”, “reduction in force” or “layoff.” The problem with layoffs it that is they are both expensive in the short term (termination costs), and potentially even more expensive in the long term if either the wrong amount of labor is cut or the wrong positions or individuals are cut.

Simply put, organisations lack tools with which to surgically manage, tune or optimise their workforce.

What seems missing from this picture is the capability of top management, finance and HR to systematically assess and surgically implement workforce cost management practices at a level below the company-wide mandate but above the individual manager level. If there were a simple way to review, evaluate and adjust workforce headcount and cost information frequently or on a near real-time basis, perhaps finance and HR could truly control workforce costs.

While there is justifiable reluctance to add yet another tool to the organisation, what if it were possible to use or expand the use of an existing tool that every organisation already has and which is specifically created to focus on and clearly illuminate workforce issues.

Organisation charts have aggregated headcount and clearly illustrated the formal supervisory structure for decades, but today’s digital technology means they can also be utilised to aggregate workforce costs and other metrics as well. With a new window into detailed workforce costs – finer than the traditional department/cost center structure – HR and finance can work together to analyse costs and proactively identify solutions to issues organisations face.

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