Exposing the Hidden Costs CFO Executive Brief

Transcription

1 Exposing the Hidden Costs CFO Executive Brief HR.Payroll.Benefits.

2 The financial case for HR transformation Businesses are under constant pressure to reduce their costs. The biggest costs relate to people - who are, of course, the drivers of any company s revenue. Cut people-related costs too far and there is a risk the business will not generate any revenue at all. Back-office HR processes account for a huge slice of these costs. 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 over $2,000 per employee per year managing payroll, HR administration, benefits administrations and time & attendance in-house, according to research by ADP. For companies that need to manage disjointed systems across national frontiers, the costs are even higher. A study by the Ponemon Institute, an independent research center, found that multinational companies spend an average of $3.5 million a year on global payroll compliance alone. 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 costs. The cost analysis is too complicated with our current system. Underestimating costs 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 midsized 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 costs. 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 costs. Yet at the same time 64 percent said that finding ways of lowering overhead costs was their top daily concern, while 54 percent were worried about the total cost of managing employees. Executives are worried about: The total costs of managing employees 54% $2,000 per employee per year to manage payroll Finding ways of lowering overhead costs 64% 2 Exposing the Hidden Costs - CFO Executive Brief Exposing the Real Cost of HR - CFO Executive Brief 3

3 Uncovering hidden costs Controlling costs HR TCO consists of visible items such as the cost of buying and installing new systems, as well as the hidden costs of maintaining, running and upgrading these systems with all the direct and indirect labor costs associated with those tasks. In fact, a PwC study sponsored by ADP found that hidden costs account for the bulk 63 percent - of spending on HR processes. ADP carries out TCO studies to help clients identify - and ultimately reduce - the total costs 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. 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 costs of upgrading a payroll system have been revealed, it becomes easier to convert some of the fixed costs into variable costs - and so bringing them under control. Breakdown of TCO by Cost Type System upgrading Visible costs 37% Direct labour System Installation Outsourcing Seams Costs Data CONSOLIDATION Indirect Labour Training Direct Non-labour Quality- related costs We use some fairly standard KPIs, such as the ratio of HR staff to employees, to measure the performance of the function and its costs. Philippe Cuenot Director, Executive Vice President Human Resources and Internal Communication at Bouygues Telecom System Maintenance Hidden costs 63% 4 Exposing the Hidden Costs - CFO Executive Brief Exposing the Hidden Costs - CFO Executive Brief 5

4 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 costs. 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 costs of around $200 per employee per year when they operate HR systems separately. In other words, even stateof-the-art technological solutions carry hidden costs when they are used in separate administrative silos. 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. 21% extra average costs per paycheck with isolated systems than outsourced payroll Even state of-theart technological solutions carry hidden costs. 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... Sounds familiar? Call ADP, it s time to know your big number. The cost analysis is too complicated with our current system... That is a cost that is very hard to track... We do not keep track of TCO... ADP has developed a dedicated approach to help you understands 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 organizations to benchmark your HR organization against and will get your detailed numbers to start driving your HR performance. 6 Exposing the Hidden Costs - CFO Executive Brief Exposing the Hidden Costs - CFO Executive Brief 7

5 Employers around the world rely on ADP (NASDAQ: ADP) for cloud-based solutions and services to help manage their most important asset ñ their people. From human resources and payroll to talent management to benefits administration, ADP brings unmatched depth and expertise in helping clients build a better workforce. A pioneer in Human Capital Management (HCM) and business process outsourcing, ADP serves more than 610,000 clients in 100 countries. The ADP logo and ADP are registered trademarks of ADP, LLC. All other trademarks and service marks are the property of their respective owners ADP, LLC. MCTCOCFEB0415E