Quantifying Soft Cost Savings in a VMS/MSP Implementation

1. WHITEPAPER Quantifying Soft Cost Savings
Quantifying
Soft Cost
Savings in
a VMS/MSP
Implementation
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2. WHITEPAPER Quantifying Soft Cost Savings
Talent management is becoming the most criƟcal Hard savings are typically realized through volume
differenƟaƟng factor for success in today’s rapidly chang- aggregaƟon related discounts, supplier raƟonalizaƟon and
ing economic, business and demographic environment. Ɵering, early invoice payment discounts, and subsƟtuƟon
In an average American organizaƟon today, between of high cost resources with alternaƟve talent pools. Each
one-quarter to one-third of its workforce consists of of these factors by itself has the potenƟal to give a 10%
temporary labor (agency contractors, independent saving on the overall spend.
freelancers, interns, consultants, etc.). Handling such
huge numbers in a tradiƟonal way typically yields a Such high returns on investment (ROIs) through hard
diminishing margin of returns. Under these circumstances, savings oŌen preclude the necessity for idenƟfying the
an effecƟve ConƟngent Worforce Program is no soŌer benefits. Another reason for limited emphasis on
longer a strategic advantage but an imperaƟve for most esƟmaƟng the potenƟal soŌ savings is the obvious
organizaƟons. challenge associated with its quanƟficaƟon. In this
paper we intend to present you with a simple and effecƟve
Gone are the days that demanded an elaborate framework that helps you calculate the actual savings
business case jusƟficaƟon to invest in a vendor manage- associated with each element of the overall MSP/VMS
ment system (VMS) or managed services program (MSP). program.
It is now an accepted fact that within the first 18-24
months, an effecƟve MSP/VMS program can result in a
savings of 10 – 25% of the overall spend. Owing
to such huge benefits, both hard and soŌ in nature, a
conƟngent workforce management program supported
by a VMS is being recognized as a de-facto benchmark
element for being a “Best-In-Class” organizaƟon.
WHAT CONSTITUTES A SOFT SAVING?
Depending on how one looks at it, SoŌ Savings come in many forms. Following is a comprehensive list in the context of
VMS/MSP implementaƟons:
Efficiency gains generated by effecƟve resource uƟlizaƟon (HR, Procurement, Finance and IT
personnel). Time is saved due to defined workflows, re-use of requisiƟons, more efficient and
effecƟve on-boarding, and reducƟons in contractor ‘Ɵme to contribuƟon’.
Reduced risk through compliance with regulaƟons regarding employee screening and corporate
policies.
Reduced legal liabiliƟes (worker classificaƟon, co-employment, compensaƟon regulaƟons, etc.).
BeƩer quality of service to internal stakeholders.
Reduced maverick spend due to approval-driven workflows.
Visibility, control and business intelligence readily available to senior management.
Cost avoidance triggered by mistakes – invoice discrepancies etc.
Ability to scale up to any spend level without increasing infrastructure and resources.
Flexibility of workflows and integraƟon with other systems.
StandardizaƟon across units, locaƟons or groups of companies.
CoordinaƟon through a single point of contact.
Process reengineering, benchmarking and best pracƟces.
Tighter processes for supplier selecƟon, contracƟng and monitoring.
Improvement in the quanƟty and quality of supplier relaƟonships.
Workforce performance measurement and training intervenƟons.
Ability to procure and manage a more diverse workforce.
High degree of automaƟon – from requisiƟoning to payment approval.
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3. WHITEPAPER Quantifying Soft Cost Savings
Volume & Early Co-Employment Contract Compliance Order Creation and
Payment Discounts Approval
Alumni Management Supplier Rationaliza-
Contract Compliance tion and Tiering Candidate Sumittal
Classification and Screening
Rate Negotiation Compliance Supplier Enrollment
Time Management
Market Rate Regulatory Supplier Manage-
Monitoring Compliance ment Invoice Payment
Process
Bill Rate SOW Management Supplier Payment
Management Administration Expense Reinburse-
ment Processing
Statutory Limit Auditing
Management Reporting Process
Tenure Management Quality Process
Conversion Timing
UNEARTHING THE TANGIBLE ELEMENTS OF SOFT SAVINGS
Method 1
Like an oyster hiding a lustrous pearl inside itself, every soŌ benefit hides within itself ‘hard’ benefits, the kind that execuƟves
love to hear about. To find the pearls, however, we need to dig deeper and deeper into heart of the soŌ benefit.
Step 1: IdenƟfy the Nearest Related Tangible Benefit (NRBT)
Once the soŌ benefit is idenƟfied, ask a simple quesƟon: ‘so what?’ With the answer you get, again ask ‘so what?’ ConƟnue
the process unƟl you arrive at a benefit that can be quanƟfied. This is the Nearest Related Tangible Benefit (NRBT) of a soŌ
saving. It is similar to the ‘5 Whys’ technique used in root cause analysis.
© 2012 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912

4. WHITEPAPER Quantifying Soft Cost Savings
UNEARTHING THE TANGIBLE ELEMENTS OF SOFT SAVINGS
Method 1 (Continued)
For example, let’s take one of the soŌ savings that a conƟngent workforce management program offers, “reduced hiring cycle
Ɵmes”.
What if the cycle Ɵmes are reduced?
Answer: we can onboard a conƟngent worker faster.
So what? He/she can start producing earlier.
So what? We will start geƫng the output and associated revenue faster.
Hmmmmmm….revenue: that’s our NRTB.
Step 2: QuanƟfy the Cost/Revenue Drivers
What effect does absence of this soŌ saving have? In our example, what will be the cycle Ɵme in ‘days’ without an MSP/
VMS program? How long will it take with MSP/VMS implemented? The difference is the savings in days (let’s call this ‘D’).
ConƟnuing the example, calculate the revenue per day that a conƟngent worker makes for the company (’RPD’ for revenue per
day). Note that in the case of some other soŌ saving, the measure may be different.
MulƟplying the savings in days and revenue per day will give you the actual extra revenue earned because of a reducƟon in
cycle Ɵme for one conƟngent hire (Extra revenue per worker hired (‘ERPW’) = difference in days mulƟplied by revenue per day,
or ERPW = D * RPD).
MulƟply the extra revenue per worker with the average number of workers hired in year (‘AH’ for averaged hired), and you get
the total revenue earned because of the MSP/VMS program for this parƟcular area of savings (TR = AH * ERPW).
Method 2
Not all soŌ benefits will lend themselves to such an easy analysis as above. A beƩer way to analyze such benefits is to examine
the chain of actual ‘measures’ that lead to the end benefit, then quanƟfy each step.
Example 1: Benefits of ReallocaƟng Resources
Faster cycle Ɵmes -> ProducƟvity improvement -> Greater number of transacƟons processed per resource -> Fewer resources
needed to complete transacƟons -> Lower operaƟng costs
In this example, when employees entered hours worked directly into the VMS system, the VMS compared hours entered to
work schedule, calculated pay and benefits, and forwarded to the appropriate approval manager. PotenƟal errors, missing
Ɵmecards, and potenƟal budget overruns were flagged for correcƟon by the hiring manager prior to submission to Human
Resources. The Human Resources received error-free, approved Ɵmesheets. When the HR review was complete, the records were
automaƟcally forwarded to finance and HR reports were automaƟcally generated and forwarded to all specified recipients.
Prior to the VMS implementaƟon, four payroll administrators would take three days to process the weekly payroll. Using the
VMS system, one payroll administrator completed the weekly payroll run in one day. At an average annual salary of $43,000
per payroll administrator, the company realized a savings of $129,000 in reduced salaries and a producƟvity increase of 40%
(represenƟng $17,200 annually) from the remaining benefits administrator who then reallocated 2 days of Ɵme per week to
other tasks.
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5. WHITEPAPER Quantifying Soft Cost Savings
UNEARTHING THE TANGIBLE ELEMENTS OF SOFT SAVINGS
Method 2 (Continued)
Example 2: Task SimplificaƟon
Centralized InformaƟon –> Visibility -> Line staff saves Ɵme previously spent looking for informaƟon.
In this example, if there are 10 staff members, each geƫng paid $50k/year, and each reduces the Ɵme spent searching for infor-
maƟon by 25%, there is a saving potenƟal of $125k per year through the indexed search feature in a VMS.
Other Methods
In addiƟon to these methods, consider alternaƟve strategies to uncover the true value realized by your MSP/VMS program.
Benchmark your program. Before your MSP/VMS program becomes operaƟonal, isolate and measure a cost element over
a specified period of Ɵme. Then, compare those results to general industry results as reported by a reputable industry analyst.
Conduct a pilot. Automate a single process, measuring the benefit over a specified period of Ɵme. Either run a parallel
process for that Ɵme period, or use the date gathered prior to the VMS ‘Go Live’ for comparison. For accurate results, be sure
you can control any other factors that might affect the outcome.
Benchmarking is parƟcularly effecƟve when aƩempƟng to measure savings achieved through regulatory and policy compliance.
Classifying an individual as an independent contractor decreases an employer’s payroll costs by 15 to 30%. However, Federal
laws state that employers that knowingly misclassify their employees face penalƟes in the amount of $50 to $1,000 per day per
misclassified worker. In addiƟon, the employer will be held liable for unemployment taxes for that worker.
A large manufacturer was employing 600 light industrial workers who were classified as independent contractors. AŌer im-
plemenƟng a consistent worker classificaƟon process, credenƟaling system and audit capability, the MSP demonstrated to the
company that 320 of these workers had been misclassified. PotenƟal exposure had the manufacturer been audited by the IRS
and the look-back period had been 90 days?
Federal Fine: $100/day x 90 days x 320 workers = $2,880,000
Back Taxes: $96/day x 90 days x 20% tax rate x 320 workers = $552,960
Total Exposure: $3,432,960
© 2012 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912

6. Conclusion
WHITEPAPER Quantifying Soft Cost Savings
SoŌ savings usually fall into one of the following categories:
Efficiency gains achieved through process improvements, producƟvity improvements and lower operaƟng costs
Increased visibility and control, leading to faster and beƩer decisions
Cost avoidance through risk miƟgaƟon
Stronger relaƟonships and beƩer quality of service, leading to program expansion and renewal
Like a magician conjures up a rabbit from a hat, you can surprise your management by bringing out the harder side of soŌ ben-
efits by adopƟng one or more of the suggested methods.
© 2012 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912

7. ABOUT DCR
Smart Track Vendor Management SoŌware
Smart Track, DCR’s innovaƟve Cloud-based suite of workforce supply chain management applicaƟons, redefines the role of
vendor management systems – expanding from conducƟng transacƟons to supporƟng criƟcal interacƟons and decision-mak-
ing. Through Smart Track, we forge networks of business managers, suppliers and indirect workers, creaƟng an insƟtuƟonal
memory of best pracƟces, and a means of sharing them.
• Unlimited Visibility into Workforce Lifecycles
• ForecasƟng Tools and Wizards
• “On demand” ReconfiguraƟon CapabiliƟes
• Advanced Compliance Support
• Automated AdministraƟve Processing
• Device-Independent Access
• Pre-built Connectors
• Robust Management ReporƟng
• Embedded Business AnalyƟcs
• Highly Reliable, Scalable, Cloud CompuƟng Plaƞorm
• “Always On” Technical Support
About Us
DCR Workforce is, quite simply, dedicated to helping you maximize the contribuƟon of your extended workforce. For DCR,
achieving highly efficient workforce procurement and management transacƟons is just the starƟng point. We also provide
the knowledge and technology required to analyze, understand and act on all aspects of your conƟngent talent management
program.
We serve global F1000 and mid-Ɵer clientele. RepresentaƟve clients include Lockheed MarƟn, Program Controls, Savi Tech-
nologies, Meads InternaƟonal, and Raytheon Javelin Joint Venture. Our proprietary cloud-compuƟng plaƞorm (Smart Track)
assists in providing customizable VMS and MSP soluƟons to manage, procure and analyze your talent with complete trans-
parency, real-Ɵme control, high performance and decision-enabling business intelligence.
For more informaƟon call +1-888-DCR-4VMS or visit www.dcrworkforce.com
7815 NW Beacon Square Blvd. #224
Boca Raton, FL 33487
Phone: 561 998 3737
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© 2012 DCR Workforce, Inc. All Rights Reserved. DCR Workforce and Smart Track are Registered Trademarks. CCO — 082912