Uncovering the Hidden Costs of Human Capital Management
Human Capital Management

Uncovering the Hidden Costs of Human Capital Management

Sixty-six percent of HR professionals at midsized companies believe they spend the right amount on their total cost of ownership, but only 27% consider all factors in their estimates.*

Today’s midsized companies are growing ever more lean and agile. HR professionals continue to take on more responsibility with less support, transforming them into strategic analysts who must prioritize business goals parallel to human capital management. But as senior HR managers juggle the tasks of an entire department, their ability to focus on accurately analyzing all that goes into managing their workforce is increasingly diminished.

HR leaders are looking for ways to effectively manage the cost associated with their workforces, a concept identified as the Total Cost of Ownership of Human Capital Management (TCO of HCM). But a recent TCO study from the ADP Research Institute® (ADPRI) found that a growing number of HR managers are grossly underestimating their TCO.

The ADPRI study showed that while well over half (58%) of HR leaders expressed familiarity with the concept of TCO, roughly only a quarter (27%) considered all five pillars that comprise HCM — payroll, employee benefits administration, human resources administration, talent management, and time and labor management — when estimating these costs.

Without a clear picture of these costs, HR may be costing the company its competitive advantage. While two thirds of HR leaders at midsized companies believe they’re spending the right amount on their TCO, just 22% formally analyzed those costs accurately in the past 12 months, the study showed.

tco midsize businessIdentifying this number — a company’s “big number” — empowers HR to focus more heavily on their vital roles in their company’s mission, such as developing and maintaining a talented workforce.

“We have the ability to impact the bottom line,” says Ronald Moore, vice president of HR at Safe Horizon, a crime and abuse victims’ services agency based in New York. “We have done things in ways that have saved the organization money. Whether it’s health care costs, unemployment costs, worker’s compensation costs, we have done things in a way that has reduced the amount of expenditures that had to go to these things, which frees up our ability to help clients.”

At Safe Horizon, noticing the benefits of the counselors partnering with clients to find the right solutions enabled them to better manage their workforce and help blaze a trail for their organization. They now follow a similar model for handling employees.

“HR has very much adopted and absorbed its own version of client-centered practice in how we support and sustain the talent in the organization.” says Allen Gruenhut, Safe Horizon’s senior director of compensation and benefits. “It’s not as if we tell people what they need to do. We partner and collaborate with supervisors, managers, and directors in brainstorming with them to flesh out the options, the potential solutions, and what works best for that manager, short term as well as long term.”

Safe Horizon is just one organization where HCM is their HR department’s business. If they were only concerned with lowering costs for the organization and making sure its benefits are meeting federal requirements, they’d be ignoring half of the picture of successful human capital management.

For a deeper breakdown of the five pillars of HCM, download ADP Research Institute’s Total Cost of Ownership: How Midsized Companies Can Find Competitive Advantage whitepaper.

*These statistics were derived from the 2014 ADP Research Institute® (ADPRI) Total Cost of Ownership: How Midsized Businesses Can Find Competitive Advantage study.

This article originally appeared on the ADP@Work Blog.

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