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Potential Cost Savings for Contingent Workforce Programs – What Every CFO Needs to Know

Jul 18, 2019 3:11:59 PM

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CFOs typically weigh the potential for cost savings heavily when deciding whether investment into new services and technologies makes sense for their organization. When it comes to deciding whether or not to invest in managed services programs (MSP) for contingent workforce management, it is critical that a CFO consider both the hard and soft cost savings that are commonly captured through outsourcing a non-core business function to a provider with specialized expertise in the relevant processes. Here’s a basic explanation of how both the hard and soft savings are captured in significant measure by engaging an MSP for contingent workforce management.

Hard Savings Yielded by an MSP
MSPs for staffing are proven effective at relieving HR departments from the specialized tasks and labor-intensive processes associated with fielding a contingent workforce. A successful MSP program derives savings by effectuating efficient sourcing and rate benchmarking. This is accomplished by ensuring proper practices and processes are standardized and enforced across the entire enterprise.

Those low hanging fruits are the cost savings most frequently discussed when an organization first embarks on outsourcing of contingent workforce management. The lion’s share of hard cost savings yielded by an MSP come from the expertise the staffing MSP brings to the process of rate benchmarking. An MSP makes the following comparisons in the benchmarking process:

  • Historical rates vs. engaged rates for like/kind skill sets
  • Direct source rates vs. competitive bid rates
  • Approved supplier rates vs. non-approved rates
  • Market rates vs. competitive bid

The MSP also reduces hard costs by replacing high-cost embedded and direct source contractors with those sourced via competitive bid. In some cases, the MSP will renegotiate on behalf of the client to capture negotiated rate savings and by securing volume discounts, right-to-hire conversion fees, elimination of third-party suppliers and other areas where rates can be negotiated down.

For CFOs, the hard savings data is always front and center. However, there are significant soft savings to be captured and which aren’t always weighted as heavily by the CFO when outsourcing to an MSP is discussed. These should not be overlooked.

A successful MSP delivers soft cost savings which, while a little harder to quantify, are no less significant. These soft cost savings are harder to estimate because they represent costly events which the MSP helps the customer to avoid. These include all the liability and risk avoidance strategies a solid MSP provider knows how to deploy on behalf of their customer. These savings are based on the reduction of risks associated with the use of contingent workers like co-employment claims, improper worker classification fines/penalties, workers’ comp, general and automotive liability claims and even costly intellectual property theft. All of which can add up to serious costs to your organization if left unaddressed.

On top of these regulatory compliance issues—in the absence of an MSP—these tasks would fall to internal personnel to address on top of their regular workload. Outsourcing the entire process to an MSP ensures these tasks receive the proper attention while also reducing administrative costs. The MSP can help reduce man-hours dedicated to workforce management (or even reduce headcount) in areas including HR, accounts payable/invoice processing, bids and proposals and more. Plus, the MSP typically provides A/P invoice auditing services which helps avoid unauthorized payments, rate increases or other charges.

Overall, the MSP is exceptional at driving both hard and soft cost savings through the efficiencies it brings to the process and the metrics and controls it brings to bear on preventing costly compliance issues. To find out if an MSP is right for your contingent workforce plan, contact nextSource today for an assessment.

To read more on this subject, turn to nextSource for expert guidance and visit our managed services program page.

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Topics: Blog, MSP/VMS, Cost savings

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