exposing the hidden costs - adp the hr budget, which makes them easy to overlook when calculating hr

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  • Exposing the Hidden Costs

    CEO Executive Brief

  • 3

    How much is HR really costing? People are not just a company’s most valuable asset, they are also its biggest cost. But business leaders often have little idea of the Total Cost of Ownership (TCO) of people-related processes such as payroll, time and attendance, HR data administration, and talent management.

    Do you know your big number?

    CEO Executive Brief

    familiar with the concept of TCO

    believe their company spends the right amount on TCO

    66%

    £ £ £

    58%

    consider all factors when estimating TCO

    27%

    formally analysed TCO accurately in the past

    12 months

    22%

  • 54

    Clearly visible costs include the initial investment in payroll and other HR systems, along with the salaries and benefits of employees who operate these systems. But these costs are just the tip of the iceberg.

    CEO Executive Brief

    Breakdown of TCO by Cost Type

    Look below the surface and you will find other, less obvious costs. System maintenance costs, for example, are more likely to come out of the IT than the HR budget, which makes them easy to overlook when calculating HR costs. In fact, a study by PwC , sponsored by ADP, found that hidden costs account for well over half - 63 percent - of the TCO of payroll and related processes.

    Without a complete view of all its current costs, can a business make the right decisions when choosing new HR solutions?

    More than meets the eye

    Without a complete view of all its current costs, can a business make the right decisions when choosing new HR solutions?

    Visible costs

    37%

    63%

    Hidden costs

    System upgrading

    Direct labour

    System installation

    Outsourcing

    Seams costs

    Training

    Quality- related costs

    System maintenanceData

    consolidation

    Indirect labour

    Direct non-labour

  • 76

    A holistic approach is needed When trying to increase productivity, many businesses automate HR processes. But automation alone will not reduce HR TCO. Nor will outsourcing isolated processes.

    Companies trying to cut costs often implement technological solutions in separate HR administrative areas, such as payroll or time & attendance. In many cases they also outsource processes to different providers, while keeping some in-house. They then discover that they cannot achieve significant savings because of the hidden costs of integrating and managing multiple systems.

    Benchmarking data collected by ADP for more than a decade reveal that companies achieve far better results when they outsource HR administrative tasks to a common provider who manages technology, people and processes holistically. That means looking at the way people use technology, at the processes themselves and how they work best with new systems.

    The PwC report already mentioned found that the cost of payroll, time & attendance and HR administration was £750 per employee per year for companies that performed those tasks in-house on multiple platforms. This fell to £640 for those using a single platform in-house. But when companies achieved an HR transformation, based on a holistic approach to people, processes and technology, the cost dropped to just £570.

    Cost savings on this scale allow companies to re-direct resources to activities that support their core business objectives.

    CEO Executive Brief

    £750 Cost of in-house payroll per employee

    £

    Cost savings help re-direct resources to activities that support their core business.

    CEO Executive Brief

    Gaining a competitive advantage For most businesses today, attracting, developing and retaining talent are key objectives.

    According to the Deloitte Global Human Capital Trends 2014 report, the biggest challenge facing businesses today - cited by 86 percent of respondents - is leadership development, followed by retention and engagement (79 percent) and reskilling the HR function (77 percent). However, most respondents thought their businesses were not ready to address these challenges.

    That could be because many HR teams still spend much of their time on routine administrative work. But before a business can free up HR to focus on strategic objectives - perhaps by automating or outsourcing administrative tasks - it first needs to understand the true costs of its HR processes. New research commissioned by the ADP Research Institute, however, shows that most companies are doing very little to measure HR TCO. Just over one in three of the mid- sized companies surveyed had done a formal cost analysis of any of their key HR processes, while very few had examined all these processes in the recent past.

    A cost analysis, also known as a TCO study, will reveal the true costs of operating HR systems and allow the business to develop programs that optimise HR performance.

    According to Olivier Parent du Chatelet, Head of HR Consulting at Bearing Point, these programs can deliver the following key benefits:

    • Globally consistent HR policies

    • A more flexible, responsive HR function

    • Harmonised HR processes that treat all employees fairly

    • Real integration of HRIS with other systems

    • Improvements in the quality of HR services

    • Reallocation of HR resources to activi- ties with higher added value

    Only 1 in 3 companies have done a TCO analysis to optimise HR performance

    All currency conversion rates used are pre-UK referendum to the European Union held in June 2016.

  • 98

    Providing new perspectives on HR performance ADP carries out TCO studies to help clients calculate their end-to- end HR processing costs and overall HR performance. For example, KPIs provide an understanding of the structure of the HR processes: IT, people, variable, fixed cost, visible, and hidden costs. The study will also assess current HR productivity: data accuracy, process quality, risks and reporting capacity.

    Measuring TCO and HR performance gives businesses a clear picture of their current – ‘as is’ – state. They can then compare themselves with other businesses, spot opportunities for making improvements and pursue ‘future state’ scenarios that will give them a competitive advantage.

    You can either lower the amount of time spent on administrative tasks or manage Payroll with less Payroll Managers and with better data quality.

    CEO Executive Brief

    A TCO study help organisations calculate:

    BPO increases productivity of the Payroll Manager by

    86%

    86%

    end-to-end HR processing costs

    HR productivity data accuracy

    risks and reporting capacity

    Understanding your TCO Comments from the ADP Research Institute survey reveals how poorly people understand their TCO:

    CEO Executive Brief

    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.

    “The top people keep some of that confidential...”

    “That is a cost that is very hard to track...”

    “The cost analysis is too complicated with our current system...”

    “We do not keep track of TCO...”

    “I’d have to look into QuickBooks to figure it out...”

  • 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.

    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.