Contract Resources | WORKFORCE OPTIONS

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

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"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.

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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

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"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

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Carefully manage the use of contractors and consultants with the following tactics:

• 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.
  Top Tip 3: Consultants bench rate

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  "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

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• 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

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"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

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Top Tip 5: People are critical

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"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

Talent Management and Human Resources

Information on managing IT individuals through a cost reduction effort as well as specific cost reduction tactics relating to the organization that focus on organization size and structure, employee benefits and motivation, and workforce options. Specific cost reduction tactics related to the processes of managing human resources are:

• Labor is typically the largest portion of the IT budget. It is paramount to understand where you use the labor so you are able to make informed cost reduction actions. Use time reporting to understand the activities and accurately report costs by application, business area, or function. If you have not implemented accurate and detailed time reporting, do it now. Without good information on time, cost reduction efforts are a guess.
• Track productivity levels, employee metrics, and work hours. Using surveys, measure and report employee satisfaction. A motivated and highly productive employee actually saves you money. For example, the best employees can be ten times more effective than the mediocre ones, yet typically cost less than two times as much in salary costs. Therefore, a plan based on having fewer employees, but great ones, always pays off. Unfortunately, the larger the IT organization, the harder it is to find and deal with the worst performers.
• Get new employees productive as soon as possible with comprehensive new employee orientation and mentoring. Encourage and support the integration of new employees and new skill sets into the IT organization.
• Document employee skills in an inventory profile to optimize resources across the organization. In addition to managing resources, it is important to optimize efficiency by ensuring the appropriate resources are on the right projects. This is easier with visibility to skills. A skills inventory is also useful if you need to make organizational changes or changes in responsibilities or projects. Identifying gaps in skills is helpful when making outsourcing decisions and defining the need for cross-training. Have a formal training plan documented for each IT employee, as properly trained employees are more productive and effective.
• Review the skills necessary against your skills inventory to ensure you have primary as well as secondary backup coverage for each skill area. Invest in cross-training and backup for all key positions and knowledge areas. Being dependent on one person is costly in the event of turnover or if employee reductions are necessary.
• Unwanted turnover costs money in recruitment, retraining, and hiring. Standard industry estimates are that the cost of replacing a good employee is a full year of salary plus benefits. It is far less expensive to keep good employees. Ensure that you clearly document and communicate roles, responsibilities, and career paths. Conduct regular performance reviews providing employees with honest feedback and improvement goals. Do not let the annual performance review be the only feedback, but rather provide honest and sincere feedback, both positive and negative, on a regular basis. Conduct exit interviews for any terminations and resignations as they are a great source of information and can help identify areas needing attention.
• There is value in terminating bad employees and addressing poor performers. The worst employees have negative productivity as they distract others. You actually make money with their absence.
• Recruit employees through cost-effective methods. Consider using online web posting services as it may reduce recruitment fees and costs.
• Hiring mistakes cost money. There are many direct and hidden costs of a poor hire, such as the time spent in the hiring process, training, retraining, productivity impact of other staff, management coaching, and the termination process. Review your hiring process to determine improvements. Obtain multiple inputs when interviewing prospective employees and do thorough background checks. Consider doing skills and personality profiles or rating assessments to ensure a good fit. Develop an evaluation to clearly identify and rate the job requirements including both hard and soft skills. One example of how to improve the process and avoid hiring mistakes is to set up two back-to-back interviews. The first one with three key staff is to evaluate technical skills and provide feedback on personality fit. In the second interview, look for key characteristics, such as self-starter, motivation, and so on.

Project Management | MANAGE RESOURCES

In times of financial pressure, it is more important than ever to manage project efforts so your organization completes them on time and on budget. Do this through solid project management principles, disciplines, and processes. The following are specific project management recommendations that have an impact on overall costs:

• Make sure projects have short milestones and clear responsibilities to improve manageability of efforts.
• Establish a project steering committee with key IT and business staff to monitor progress and ensure proper resource allocation.
• Closely monitor, track, and communicate action plans, project costs, and project schedules. Project overruns during times of cost reduction can be disastrous. Have monthly (or more frequent) reviews of actions for all projects. If done honestly, project dashboards effectively avoid cost and project overruns. Complete project surveys and interviews to get the true project input as there may be variations from what you report.
• Make sure the business is actively involved in the governance process and in each project. The organization must view projects as business projects, not IT projects. Each one should have a sponsor from the business. If the business does not support a project, or if the project does not have a strong business sponsor, it may be a candidate for cancellation.
• Manage all projects with a consistent and understood project management process. A repeatable approach ensures sustainable delivery.
• Every project must have clear and documented business objectives, a project plan, and project goals. The project business case must be real, not inflated. The business will view even the best-executed project as a failure if it does not meet expectations. Manage expectations properly prior to the beginning of a project. Ensure costs and time frames are realistic and achievable from the beginning and all through the effort.
• If a project falls behind schedule or runs over in cost projections, re-evaluate it against the business case to determine if it should continue. As a project progresses, it often loses the value that was initially outlined. Also, re-evaluate the risks as the project continues.
• Kill or recharter any project that has drifted out of control or has gone off the rails, and do so quickly. Every day after a project goes awry means waste and lost revenue.
• Develop consistent reporting across all projects which roll-up to a high level to give a quick status of all copmany projects. For example, some companies identify projects as red if they are not meeting schedules and budgets, yellow if there are concerns, and green if all project indicators are fine. This will quickly identify areas on which to focus.

Strategic Planning | MANAGE RESOURCES

This section will not provide the process and details for developing an IT strategic plan. There are other texts that can provide this information. However, this section will outline the components that should exist in an IT strategic plan and planning process that are important to enable cost reduction in your organization.

Having a solid strategic plan helps a company quickly focus on where to reduce IT costs. It also identifies and prioritizes the ways that technology is used to enable cost reduction throughout the business. For IT, the plan is essential to get the company's infrastructure and application portfolio as a whole to a cost-effective state for on-going maintenance and support. The plan provides overall direction and priorities to help the entire organization make sure it is marching toward the end goal even in light of cost reduction needs and initiatives. The clarity and prioritization that the plan provides will set the stage for easier and quicker identification of needed cost reduction as both the business and IT will know what is important. The following are key components to use as a checklist or self-assessment for your IT strategic plan and planning process:

• The IT strategic planning process involves the business and is regular, rigorous, thorough, and complete.
• The IT plan identifies strategic business opportunities with a thorough review of the business direction and the industry; it is not just a list of requested projects. The strategic business opportunities include areas where the business is able to use technology to make cost reductions. Having identified these opportunities may actually help make the case to keep or increase IT investment as it is an enabler for cost reduction within the business. The plan will help identify how to make the business more agile to improve the ability to react when cost reductions are necessary.
• The IT plan clearly communicates the current IT situation and includes an objective assessment of strengths, weaknesses, opportunities, and threats in terms the business community understands.
• The IT plan outlines guiding principles that you use on a regular basis to evaluate options. Key business drivers are the foundation for the principles. Review these guiding principles when making cost reductions to ensure the reductions are in alignment with your principles and business drivers.
  Top Tip: Have an IT strategic plan

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  "Have an IT strategic plan in place before budgeting begins. Line up your budget over a three to five year time horizon. Use portfolio management and engage with the business to manage the demand."
  —Colleen Mlecoch
  Amherst H. Wilder Foundation

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• The IT plan includes a detailed plan, or roadmap, on how to get to the stated direction. The plan should not be only high-level glossy statements of direction but the specific prioritized projects and action plans. When cost reductions are required, go back to the prioritized projects and determine the impact in timing.
• The plan provides key IT metrics so you know where you want to get to and where you are on the path to the desired destination. These metrics are important when making cost reductions as you are able to ensure that you continue to provide value to the business and do not cut too much.
• You communicate the IT plan to all areas of the business and IT. When making cost reductions, it is important to communicate, discuss, and have common expectations. Conveying a detailed IT plan across the organization provides that basic understanding. As you start planning and making cost reductions, you are able to use the plan to communicate the impact of changes and reductions.
• Use the plan on a regular basis to determine direction; make sure it is not just a book on the shelf. Use the plan to identify cost reduction actions and determine the impact on your overall plan and direction. Having a plan as a framework will ensure that the organization does not get too reactionary in a cost reduction mode and cancel active projects that are critical for the strategic direction of the company.
• The applications, systems, and tools resulting from the plan are easy to use, meet the needs of the business, and provide key business metrics and information necessary to make business decisions.

After going through a cost reduction phase, be sure to go back to your IT strategic plan and update it based on your changes. The overall direction probably did not change substantially, but the timing to achieve some of the objectives and tactics may have due to cost reduction priorities. It is important to communicate and document these changes in expectations and plans.