Carefully review the use of contract resources in your environment as in some cases the cost of contractors is higher than the cost of a salaried employee. However, in some cases temporary labor costs less than employees do. There are obvious benefits to using contractors, such as fewer employment liabilities and costs and a more variable cost structure. To determine if you should use contract resources, look at the role. Assess the relative costs of contracting out the work versus retaining full-time, in-house staff. If it is a permanent role and long-term need, do not pay the premium for a contractor and hire an employee. If the need is temporary or part-time, contract resources are more cost-effective. Reduce costs by reviewing your use of contractors and make adjustments as necessary. If it is more cost-effective, reduce your reliance on contract resources. In light of cost reduction needs, consider reducing contracting hours.
Top Tip 1: Staff augmentation
"We do not use the really large, high-cost consulting companies. We bring in staff augmentation to do certain things for a short duration, use small boutique firms, and our own staff. We are very selective about outsourcing as we must prove it is more cost effective than doing it internally."
—Beth Nordin
CHS Inc.
CHS Inc.
Renegotiate contract agreements and labor rates. Ask for vendors supplying your contract labor for assistance in meeting cost reduction goals. Evaluate if you can get by with less experienced and less expensive resources for some needs. Consider negotiating single source agreements if you can get a lower rate while still guaranteeing the quality of resources. If contract labor is out-of-town and is charging travel and expenses, consider locating a more cost-effective local resource.
Top Tip 2: Master services agreements
"We have changed our hiring practices by using master service agreements with local firms. This allows us to quickly flex up and down as the business needs change. We rely on the partners to supply highly specialized and experienced people. We emphasize local to reduce travel costs."
—Anonymous CIO
- Have a specific, defined need. It can be common for managers to know they need additional help on a project and send a request out for it. That request for help many times contains few details; for example, it may state, "need Java developers." Ambiguous and general requests will create many questions or produce a large number of unqualified candidates.
- Work with a few partner organizations for contract resources. Get to know the companies that supply your contractors and let them get to know you. The way vendors get to know their clients is usually an indication of how they will work with you. If they see no need to meet and understand your organization, then it is likely they will see no need to truly understand your project, which means they may send you unqualified candidates. If you are working with good vendors, they will have qualified the candidates in the areas of skills, communication, organizational fit, and role match. This should help in minimizing the amount of time that you would spend reviewing and interviewing candidates.
- Consider using a contracting consolidator or broker. While there is an overhead charge, the consolidated contracting company knows every position available and obtains competitive bids to offer the best rates.
- Have clear roles and responsibilities. Many organizations will want to bring on only very experienced consultants to their project. This can create problems in that everyone wants to be the leader and very few want to be the workers. Knowing the roles that need to be filled and setting expectations ahead of time can help resolve this confusion.
- Manage and ensure that contractors meet the objectives.
- Terminate contract resources when the defined need is complete.
"We get better rates on consultants by purchasing a block of time rather than standard hourly rate. We also get a reduced rate by being flexible in timing and getting a bench rate when consultants are between projects."—Haseen Alam
Johnson Brothers Liquor Company
- Make sure you have an appropriate amount of work to keep the consultant fully utilized. This will require on-going interaction with the consultants to understand their workload. Many times the work expands to fill the contractor's time. Periodically ensure the contractor and work are still necessary and that the work has not expanded inappropriately. If you know that the workload will be light for a period, discuss this with the consultant and his or her company so you only pay for the time needed. An underutilized person will likely create issues down the road affecting others’ productivity levels, or they may become bored and quit.
- Manage consultant travel costs which can be significant for out-of-town consultants. Have them use your travel agency, stay in discounted hotels, and place caps on meal expenses.
Less Expensive Labor
Consider hiring less expensive labor. The following are some methods that companies have used to reduce labor costs:
- Use interns for entry-level positions.
- Hire new graduates instead of experienced resources.
- Explore part-time resources if you can address the needs with less than full-time work.
- Consider retired workers, particularly for older technologies because their cost is less.
- Think about hiring IT resources from the business and then training them in IT. Their business skills can be extremely valuable and it can cost less than hiring people with expensive IT skills.
- Consider hiring independent consultants rather than a large firm of consultants.
Top Tip 4: Independent contractors
"Rather than using companies for temporary consulting resources, consider creating your own temp service with HR. By hiring independent contractors, consulting costs can be cut significantly."
—Peter Bellavance
Tastefully Simple
Tastefully Simple
Top Tip 5: People are critical
"Whether you are doing work on-shore or off-shore, people are critical. You don't get work done with countries or companies, but with people. Getting the right people on staff is critical, you can't just throw things over the wall and expect to be successful. You need to use the same strategy for an engaged off-shore employee as you would in the U.S."
—Mike Degeneffe
Ceridian
Ceridian
