With an increasing percentage of most large organizations' workforce now made up of contingent workers, achieving greater control and visibility of these temporary workers is a necessity for the health of your bottom line.
Unfortunately, that’s easier said than done. A study from Deloitte found that while some large companies estimate that up to 30 percent of their procurement spend goes towards contingent workers, many organizations are not skilled at managing it effectively.
The study cites the lack of an integrated workforce management strategy, ad hoc (and at times high-risk) managerial behaviour, poor data management and inadequate technology as the major challenges.
To truly optimize your company’s contingent workforce management program and to ensure that all non-employee workers are visible, properly managed and accounted for, it’s crucial that you gain control and visibility of your contingent workforce.
If your organization has a solid contingent workforce management program in place, yet you are still experiencing rogue spend and a lack of visibility that’s hurting your bottom line - you probably need to look into your SOW spend.
What is statement of work (SOW) spend and why can it become an issue?
Contingent labor comes in a wide range of forms, from temporary employees, consultants, freelancers, independent contractors and other non-employee workers. These workers are typically sourced directly or through third-party vendors such as staffing agencies.
The problem is, many organizations forget these workers are not exclusively sourced under time and material engagements. Instead, contingent workers are often packaged and hidden inside agreements known as statement of work (SOW).
A statement of work is essentially a document that explains the activity, deliverables and timelines expected from a service provider (or contingent worker, in this case). SOW is a way of procuring services, but it can be used to engage contingent workers without having to specifically ask for additional headcount.
If you want to learn more about SOW, then please read our blog titled ‘What is a SOW and how can SOW Management Benefit my Contingent Workforce Program?’
How to optimize SOW spend
The State of Contingent Workforce Management 2020 study from Ardent Partners states that organizations which ignore the impact of SPW optimization do so at their peril.
“Once billed as the ‘next frontier’ for businesses seeking to enhance total control and visibility over their non-employee workforce, statement of work (SOW) management and services procurement remain top priorities for businesses. SOW/services are often considered the largest area of contingent labor spend and volume for most organizations. For mid-sized or enterprise-level organizations, SOW and its related services can equate to millions of dollars per year. And, a majority of these organizations lack the necessary oversight to ensure cost control and compliance on what is considered the largest part of their contingent labor spend.”
Optimizing your organization’s SOW spend is a crucial component of a successful contingent workforce management strategy. By doing so, you will gain full visibility of your entire contingent workforce, which will allow you to make informed hiring decisions, improve program efficiencies, reduce spend and boost your bottom line.
To help your business optimize SOW spend management, HCMWorks has listed a few important tips below:
Ensure SOW is not being used to circumvent your contingent workforce program
Statement of work spend isn’t officially classified as headcount, meaning managers can use SOW spend to circumvent your organization's contingent workforce program policies. This would allow managers to get around policies such as using approved vendors, rate card restrictions or tenure restrictions.
Not only does this result in increased compliance risks for your organization, it also ends in rogue spend. With departmental managers going rogue and engaging contingent workers outside of organizational policies, they will be making poor vendor decisions and paying higher rates for temporary workers.
Centralizing your SOW spend management and ensuring it is visible within your organization will prevent hiring managers from spending more than they should by circumventing your contingent workforce program policies. Think about creating a plan that explains who can approve SOW and when.
Make SOW spend visible with a VMS solution
To gain full visibility into your SOW spend, it’s important you have the technology in place to centralize, measure, and analyze it properly. Managing SOW spend on paper-based or manual spreadsheets is simply not enough to gain control of your company’s contingent workforce.
Instead, look for a vendor management system (VMS) that has specialized SOW capability. By centralizing your SOW spend in one location for all of your organization’s managers and by keeping track of SOW spend data, you will be able to ensure your entire SOW spend is visible across all areas of your business.
Work with an MSP
Planning, designing and implementing a SOW spend management program isn’t an easy task. It requires specific experience, knowledge and experts that your company is unlikely to have unless you already have a team of SOW experts employed in-house.
If you don’t have this team of experts, consider strategically partnering with a managed services provider (MSP). An MSP will help you to become more strategic as an organization by creating a tailor-made SOW spend management strategy that helps you work towards your goals and expectations.
Are you interested in learning more about SOW spend and how you can improve your management of it to improve the visibility and control of your contingent workforce? Contact HCMWorks today. One of our contingent workforce advisors would love to discuss your approach to SOW.