October 13, 2021

CFOs: Tell expensive, contingency- based cost savings schemes to kiss your SaaS!

Chris White
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The Problem | Q4 Budget & Spend Shenanigans

‘Tis the season. For most companies following an annual budget cycle, the enterprise spending graph goes up like a hockey stick for a variety of reasons—some good, some not so good. Q4 spend spurred by business growth is good. Great, even. Q4 spend spurred by “use it or lose” perverse-incentive tomfoolery? Not so good. The root cause is not rocket science; it’s data science. For the CFOs who have the Street’s number knocked for the year, good for you and your teams. However, for the 75% of organizations that will otherwise see EPS-impacting upticks in Q4 spending—and who typically turn this time of year to smash-and-grab consulting or Finance-led X% company-wide haircuts—there’s a (much) better way.

The Solution | Run Your Extended Workforce Program as a Business  

Enterprise extended workforce programs (contingent labor and services) represent a top-3 spend category in most large organizations. Indeed, data shows that almost 50% of total labor hours are now handled externally and not by the full-time employee talent base. And, the trend toward contract labor and services is only accelerating, with the growing acceptance of “work from anywhere” policies and increasing demand for highly coveted technical skilled roles, including Software Developers, AI/ML Technologists, and seemingly anything tagged “Digital” or “Robotics.” Rather than exacting peanut-butter smear give-backs from departments across the enterprise, smart companies are examining their extended workforce spend for cost savings that can be re-deployed.

Key Questions for CFOs to Ask:

What % of our overall workforce is comprised of contract labor and services?
How much are we spending on the external workforce annually?
Where are our extended workforce resources located (onshore, nearshore, offshore, anywhere)?
What are the OpEx/CapEx impacts of that resource mix?
How do we ensure we are paying enough to get the best resources, but not too much?
Why is it so much easier to get an external resource approved at 3-4x the cost of an FTE?
And, what undesirable cost-affecting behavior might flow from that economic reality?

Next Steps | CFO Punchlist for Driving Action

#1. Above all else, just do it.

· This is not rocket science, it’s data science—with outcomes achievable at basis points on the dollar.

·  Category consultants use your GL data and sort in descending order for the targets to bang on. What is the lifetime value of scorched partnerships including balance of trade or resource quality impacts?

#2. Ensure clear accountability for the extended workforce program in your enterprise.

· Who makes resource allocation decisions, who does the requisitioning? HR? IT? Procurement? Finance? If everyone’s accountable, no one’s accountable.

· Identify and empower one single authority to oversee the program, and give it executive representation—preferably with line of sight to the CFO/CEO.

#3. Be the Chief Extended Workforce Officer and manage the extended workforce “checkbook”

· Common-sense approach to managing the financials of the extended workforce, including accruals.

· List of all suppliers providing time and materials(T&M) and statement of work (SOW) services.

· List of all active and committed T&M and SOW work, both current-year and go-forward.

· Lay out the budget ownership of each resource/SOW, including OpEx vs CapEx.

· Consider supplier rationalization and work location rationalization to vet operating model.

· Advance the program with market-centric taxonomy, unit cost benchmarking, and automation.

 

To learn more about how Brightfield’s TDX can answer the questions above and help drive smarter extended workforce program decisions as you plan for 2022, request a demo or contact us.

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