Exposing the Hidden Costs

Transcription

1 Exposing the Hidden Costs CFO Executive Brief 1

2 Back-office HR processes account for a huge slice of these. Often introduced one process at a time over many years, they are not only expensive to operate individually but also to integrate with each other. As a result, companies spend on average 1500 per employee per year managing payroll, HR administration, benefits administration and time & attendance in-house, according to research by ADP. For companies that need to manage disjointed systems across national frontiers, the are even higher. A study by the Ponemon Institute, an independent research centre, found that multinational companies spend an average of 2.5 million a year on global payroll compliance alone. Do you know how much HR is costing? These figures may sound exaggerated. But that is because spending on HR processes typically comes from several different budgets, including those held by IT, finance and HR functions. With no single function responsible for the Total Cost of Ownership (TCO) of HR processes, it is all too easy to overlook some. The financial case for HR transformation Businesses are under constant pressure to reduce their. The biggest relate to people - who are, of course, the drivers of any company s revenue. Cut people-related too far and there is a risk the business will not generate any revenue at all per employee per year to manage payroll All currency conversion rates used are pre-uk referendum to the European Union held in June

3 Executives are worried about: 54% The total of managing employees 64% Underestimating New research commissioned by the ADP Research Institute confirms that companies often have a poor grasp of their HR TCO. The cost analysis is too complicated with our current system, commented one of the 1,004 executives from mid-sized companies surveyed for the study. Another said: We do not keep track of TCO. While most respondents considered payroll and benefits administration when estimating HR TCO, many failed to include time & attendance. This meant that they grossly underestimated their companies HR. The Total Cost of Ownership Awareness study conducted by Harris Poll also found that senior executives generally thought they were doing a very good job of managing HR processes and containing. Yet at the same time 64 percent said that finding ways of lowering overhead was their top daily concern, while 54 percent were worried about the total cost of managing employees. The cost analysis is too complicated with our current system. Finding ways of lowering overhead 4 5

4 CFO Executive Brief Uncovering hidden Controlling HR TCO consists of visible items such as the cost of buying and installing new systems, as well as the hidden of maintaining, running and upgrading these systems with all the direct and indirect labour associated with those tasks. In fact, a PwC study sponsored by ADP found that hidden account for the bulk 63 percent - of spending on HR processes. Breakdown of TCO by Cost Type 37% ADP carries out TCO studies to help clients identify - and ultimately reduce - the total of running payroll and HR administration. But TCO studies are not just about cost cutting. The TCO journey is itself useful, providing information that helps businesses streamline and improve their HR processes to make them more flexible and compliant. System installation Outsourcing Direct labour System upgrading Visible By making the cost structure of HR processes more transparent, a TCO study also gives the finance function better control of spending on these processes. For example, once the exact of upgrading a payroll system have been revealed, it becomes easier to convert some of the fixed into variable - and so bringing them under control. We use some fairly standard KPIs, such as the ratio of HR staff to employees, to measure the performance of the function and its. Philippe Cuenot, Director, Executive VP HR and Internal Communication at Bouygues Telecom Hidden 63% Seams Qualityrelated Data consolidation Training Indirect labour Direct non-labour System maintenance 6 7

5 CFO Executive Brief 21% 21% extra average per paycheck with isolated systems than outsourced payroll Adopting a winning approach Using anonymous data collected from thousands of TCO studies over a period of more than 10 years, ADP has developed a unique benchmarking resource. This indicates that companies running their HR systems internally face the highest. Finance executives recently surveyed by ADP agreed that in-house solutions consistently failed to reduce the TCO of HR processes. But outsourcing isolated HR processes is not the answer. ADP has found that companies face software integration of around 150 per employee per year when they operate HR systems separately. In other words, even state-of-the-art technological solutions carry hidden when they are used in separate administrative silos. Even state of-the-art technological solutions carry hidden. Understanding your TCO Comments from the ADP Research Institute survey reveals how poorly people understand their TCO: The top people keep some of that confidential... I d have to look into QuickBooks to figure it out... That is a cost that is very hard to track... We do not keep track of TCO... The cost analysis is too complicated with our current system... The PwC study already cited confirms these findings. It found that companies needing to integrate isolated software systems spend on average 21 percent more per pay check than those outsourcing payroll, time and attendance and HRIS to a single provider. ADP s data suggests that companies need to take a holistic approach to managing HR processes. That means considering not just technological solutions but the processes themselves and the people who operate these processes. All the research shows that companies taking this approach have a clear edge over those that focus on technology or outsource isolated processes. Sounds familiar? Call ADP, it s time to know your big number. ADP has developed a dedicated approach to help you understand your real HR TCO numbers. You will benefit from more than 10 years of experience in building HCM TCO business cases, you will access a unique worlwide database of 926 audited HR organisations to benchmark your HR organisation against and will get your detailed numbers to start driving your HR performance. 8 9

6 About ADP (NASDAQ-ADP) Powerful technology plus a human touch. Companies of all types and sizes around the world rely on ADP s cloud software and expert insights to help unlock the potential of their people. HR. Talent. Benefits. Payroll. Compliance. Working together to build a better workforce. For more information, visit ADP.co.uk. The ADP logo and ADP are registered trademarks of ADP, LLC. All other marks are the property of their respective owners. Copyright 2016 ADP, LLC.