Realizing Cost Savings with Workforce Management

Why is workforce management important (especially with large workforces)?

Workforce costs are the largest expense for most businesses – proper management helps control these costs by efficiently allocating resources, identifying areas for improvement, and streamlining processes to eliminate waste.

Managing a workforce properly optimizes productivity and lifts overall performance – large workforces are especially susceptible to inefficiencies that impede financial performance and reduce synergy. When the right people are in the right roles at the right time, productivity improves, minimizing downtime, reducing unnecessary labor costs, and maximizing output.

Employee experience drives retention and productivity – prioritizing engagement, training, and career development contributes to higher retention rates and a more skilled workforce. Employees also generally perform better when they feel valued, motivated, and treated fairly.

Workforce analysis and best practices inform decision-making – organizations leverage workforce management metrics such as turnover rates, performance indicators, and skills gaps to make strategic planning decisions. When workforce management practices encourage flexibility and agility, organizations are able to respond more quickly to changing market conditions and customer demands.

What constitutes a large workforce? What are key indicators that you need to start taking a more intentional approach to workforce management and planning?

A large workforce typically refers to organizations with hundreds to thousands of employees – however, factors such as industry norms, geographic scope, and organizational structure determine what constitutes a large workforce for a specific organization.

Key indicators of need for formal workforce management include:

Workforce growth – growth can strain existing processes and necessitate more strategic planning to effectively manage the workforce. Compliance requirements also become more complex as organizations grow.
Complex HR needs – HR processes become more complex when multiple locations, diverse employee roles, varying work arrangements, and challenges related to scheduling, payroll, compliance, and talent management come into play.
High turnover rates – these can signal underlying issues within the organization, such as dissatisfaction among employees or inadequate talent management strategies. Workforce management can proactively decrease turnover by providing a better employee experience, help retain top talent, and maintain organizational stability.
Workforce decisions begin to impact business performance – this might be solved by aligning workforce strategies with broader business goals, leveraging data analytics for decision-making, and implementing proactive measures to address workforce challenges.

What are the different levers for controlling workforce spend?

There are four key workforce management levers…
Lever	Key cost-optimization tools
1. Labor cost management	Salary & compensation structure – review and adjust compensation structures to ensure they are competitive yet cost-effective. This can involve conducting market research to benchmark salaries against industry standards. Benefits & perks optimization – evaluate employee benefits to ensure they align with organizational goals and budget constraints. This can involve renegotiating contracts with providers or introducing cost-sharing measures. Overtime management – implement policies to manage overtime costs. For example, consider setting limits on overtime hours, offering alternative work arrangements, and improving workforce planning.
2. Workforce planning & optimization	Demand forecasting – use data and historical trends to forecast workforce demand. Proactively adjust staffing levels to avoid over- or under-staffing. Resource allocation – match staffing levels to workload demands. This can involve cross-training employees, implementing flexible scheduling arrangements, and utilizing contingent or part-time workers during peak periods. Outsourcing & vendor management – consider outsourcing non-core functions or specialized tasks to reduce labor costs.
3. Talent management	Employee retention strategies – career development programs, recognition and rewards systems, and fostering a positive work culture can improve retention. Retaining top talent reduces recruitment and training costs associated with turnover. Training & skill development – upskilling and reskilling employees can save costs by reducing reliance on external hiring for specialized roles. Development programs also enhance productivity and performance. Succession planning – groom internal candidates for future leadership roles to reduce external hiring costs and minimize disruptions during leadership transitions.
4. Compliance & risk management	Labor law compliance – avoid costly penalties and legal disputes by complying with labor laws and regulations. This can involve conducting regular audits, staying informed about legislative changes, and providing training to HR personnel and managers. Health & safety practices – robust health and safety practices minimize workplace injuries and illnesses, which in turn reduces workers’ compensation costs and productivity losses associated with absenteeism.

Where do organizations typically find the largest opportunities to reduce workforce spend?

Errors in Overstaffing:

Overestimating demand – inaccurate forecasting, data, or market/ seasonality assumptions can lead to excessive staffing levels.

Underutilizing technology – organizations that don’t leverage workforce management software to help identify staffing gaps, forecast demand, and streamline scheduling processes leave staffing strategies unoptimized.

Poor workforce planning practices – inadequate communication, lack of coordination between HR and operational teams, and failure to align staffing levels with business objectives cause inefficient resource allocation and unnecessary labor costs.

Failure to cross-train – without cross-training, organizations have fewer ways to mitigate disruptions from absences or workload fluctuations.

Short-term focus – prioritizing immediate labor cost reduction over long-term productivity, employee morale, and customer satisfaction can lead to rash staffing decisions.

Resistance to change – fear of job loss, reluctance to adopt new technologies, and cultural norms can make it difficult to get buy-in for more efficient staffing practices.

How organizations can find efficiencies in staffing:

Analyze workforce demand – use data analytics and forecasting to determine optimal staffing based on market trends, seasonality, project pipelines, and business objectives.
Consider alternative work arrangements – explore flexible scheduling, remote work, part-time employment, or contingent labor to handle fluctuating demand without relying solely on full-time employees.
Implement lean practices – streamline processes, eliminate waste, and improve efficiency by redesigning workflow and standardizing procedures.
Focus on talent development – invest in training, upskilling, and career development to enhance workforce capabilities and minimize the need for external hiring.

Paying for higher skill sets than necessary

Inadequate job analysis and generic job descriptions – if you can’t understand and clearly communicate job requirements, you’ll have more hiring mismatches.

Overemphasis on credentials – prioritizing credentials that might not be necessary can result in paying for higher skill sets than you need.

Lack of skills assessment – failing to conduct thorough skills assessments during the recruitment process can result in hiring candidates who are under- or overqualified.

Failure to promote internal talent – overlooking internal talent and defaulting to external recruitment for high-level positions undermines morale and increases hiring costs.

Ignoring market trends – failing to stay updated on market trends, technological advancements, and industry best practices can result in hiring candidates with outdated or irrelevant skill sets.

How organizations can hire at the right skill level:

Competency-based assessments – use assessments to objectively evaluate utilize candidates’ skills, knowledge, and abilities during the recruitment process.
Offer training and development – upskill and reskill existing employees to meet evolving job requirements to promote internal mobility and reduce the need to hire external candidates with higher skill sets.
Strategic outsourcing – delegate non-core functions and specialized tasks to external vendors or contractors.
Review and adjust budgets – adjust budget allocations for staffing, recruitment, and training expenses based on current market conditions and organizational priorities.
Prioritize essential roles – reduce expenditures on non-essential positions while protecting recruitment and retention budgets for roles and functions that are critical to business operations.

Unnecessarily staffing in expensive markets

Lack of market research – organizations that fail to conduct adequate research end up hiring in more expensive and/ or competitive areas.

Overemphasis on prestige – prioritizing candidates due to factors like brand reputation, proximity to clients, or access to talent pools can increase costs without commensurate benefits.

Limited remote work options – failing to embrace remote work options can restrict organizations to hiring in expensive markets where their physical offices are located.

Inefficient recruitment strategies – overreliance on traditional strategies results in overstaffing in expensive markets and overpaying for recruitment costs.

How organizations can hire in the right markets:

Conduct market analysis – analyze factors influencing staffing decisions, including labor market dynamics, cost of living, talent availability, regulatory environment, infrastructure, and quality of life indicators.
Implement flexible work arrangements – offer hybrid schedules, telecommuting options, and flexible hours to accommodate diverse employee preferences and lifestyle needs.
Cultivate talent pipelines – proactively cultivate talent pipelines in target cities/regions and internationally through partnerships with educational institutions, professional associations, industry networks, and talent sourcing platforms.
Tailor compensation packages – each individual package should reflect regional differences in cost of living, market competitiveness, and local salary norms.
Provide relocation support – incentivize employees to relocate for job placements by assisting with housing, transportation, immigration, cultural adaptation, and family support services.

High turnover/unnecessary training and replacement costs

Poor recruitment practices – by not thoroughly vetting candidates, organizations hire individuals who are not a good fit for the organization’s culture, values, or job requirements.

Lack of employee engagement – employees who feel disengaged, undervalued, or unfulfilled in their roles are more likely to leave.

Inadequate onboarding, training and growth opportunities – new hires who feel ill-prepared, unsupported, or unable to internally advance their careers have higher turnover rates.

Poor management – ineffective leadership contributes fosters a negative work environment, lack of trust, and communication breakdowns.

Steps to limit turnover and training costs:

Promote career development and advancement – establish clear career paths and development opportunities for employees to advance within the organization. Provide mentoring, coaching, and professional development resources to help employees achieve their career goals.
Empower and recognize employees – empower employees to take ownership of their work and contribute ideas for improvement. Provide opportunities for recognition, appreciation, and rewards to acknowledge employees’ contributions and achievements.
Provide competitive compensation and benefits – regularly review and benchmark compensation and benefits packages to ensure they remain competitive within the industry and align with employee expectations. Consider offering performance-based incentives or rewards to recognize and incentivize top performers.
Implement work-life balance initiatives – offer flexible work arrangements, wellness programs, and employee assistance programs to support work-life balance and overall well-being. Recognize the importance of employee health and personal fulfillment in job satisfaction and retention.

Overspending on benefits

Failure to conduct regular audits – organizations that don’t regularly assess cost-effectiveness, utilization rates, and compliance often end up overspending on benefits that might not align with employee needs or business priorities.

Limited employee education and communication – inadequate employee education and communication about benefit options, coverage details, and cost-sharing arrangements can result in underutilization of benefits or inappropriate utilization of services.

Failure to address healthcare inflation – healthcare inflation rates often outpace general inflation rates, leading to escalating benefit costs over time. Organizations that do not proactively address healthcare inflation through cost containment measures, negotiation with providers, and utilization management strategies may struggle to control benefit costs.

Ineffective vendor management – inadequate negotiation of vendor contracts, lack of oversight of vendor performance, or failure to periodically reassess vendor relationships can contribute to overspending on benefits.

How to manage benefit costs:

Comprehensive benchmarking – conduct thorough benchmarking of benefit costs compared to compensation benchmarks to ensure alignment with industry standards and market trends.
Implement cost-effective benefit designs – design benefit plans that balance cost-effectiveness with employee needs and preferences. Consider options such as high-deductible health plans, health savings accounts, and wellness incentives.
Leverage technology solutions – invest in benefits administration software, online enrollment platforms, and self-service portals to streamline benefit administration processes and reduce administrative costs.
Centralize benefits administration – consolidate processes, eliminate redundancies, and improve efficiency by leveraging economies of scale, standardizing procedures, and enhancing oversight of benefit programs.
Outsource non-core functions – consider outsourcing benefits administration functions, such as COBRA, retirement plan, or wellness program management to specialized vendors or third-party administrators.

Poor Compliance management

Inadequate infrastructure – a lack of dedicated resources, systems, and processes for managing compliance can lead to difficulties in tracking and enforcing requirements.

Complexity of regulations – navigating complex and evolving regulations is challenging, particularly in highly regulated industries or multiple jurisdictions. Failure to fully grasp the intricacies of applicable regulations can result in inadvertent non-compliance and associated costs.

Overreliance on manual processes – paper-based documentation or spreadsheets increase errors. Manual processes are time-consuming and lack the scalability needed to manage compliance effectively.

Silos and lack of collaboration – siloed organizational structures and lack of collaboration between departments leads to inconsistent interpretation and implementation of compliance requirements.

Non-compliance culture – prioritizing short-term gains over long-term compliance can foster behaviors leading to compliance failures. A culture of ethical behavior, accountability, and transparency is crucial.

How to improve compliance management:

Centralize compliance oversight – establish a centralized compliance function or designate a compliance officer responsible for overseeing compliance efforts across the organization. Use compliance management software to automate tasks and streamline reporting.
Implement robust training programs – educate employees at all levels about relevant compliance requirements, policies, and procedures.
Promote cross-functional collaboration – foster collaboration between compliance, legal, HR, finance, and operational departments to address compliance issues holistically.
Stay abreast of regulatory changes – stay informed about law and regulation changes that may impact the organization’s compliance obligations. Establish processes for monitoring regulatory developments, assessing their potential impact, and implementing necessary updates to compliance practices and procedures.
Engage external compliance experts – utilize external consultants for specialized expertise and independent assessments to navigate complex compliance requirements.

How do you ensure leaders are trained and incentivized to think and act efficiently regarding the human capital outlay of their function?

Invest in leadership development and continuous learning – training programs focused on workforce management provide leaders with the skills, tools, and knowledge to effectively manage HR and optimize staffing resources. For lasting impact, foster a learning culture that exposes leaders to emerging trends, training workshops, innovations in workforce management, and opportunities to learn from their peers.

Drive accountability with performance metrics – leaders need clear human capital management goals to keep their progress on track. Hold leaders accountable for achieving targets related to productivity, employee engagement, turnover rates, and cost control.

Incentivize workforce management outcomes – design incentive structures that reward leaders for achieving the goals mentioned above. Consider incorporating performance-based incentives, bonuses, or rewards tied to measurable outcomes such as reduced turnover, increased productivity, or optimized staffing levels—and regularly provide constructive feedback to leaders as they develop these skills.

Company-wide alignment empowers leaders and facilitates holistic decision-making – open communication between leaders and senior management makes it possible to make better decisions that impact workforce management. Transparency helps align individual leaders’ priorities with broader organizational priorities.

Lead by example – senior leadership should demonstrate a commitment to efficiency and cost-effectiveness in human capital management. This strategy normalizes your commitment to workforce management and provides invaluable learning opportunities for leaders who are still developing their skills.

What are best practices for forecasting and planning for future workforce costs and needs?

Invest in data analysis and technology – utilize historical workforce data, including employee turnover rates, hiring trends, demographics, and performance metrics, to identify patterns and trends. Leverage workforce planning software, predictive analytics tools, and data visualization techniques to facilitate data-driven decision-making and scenario modeling.

Regularly conduct scenario planning and risk management – develop multiple scenarios based on different assumptions and variables such as business growth projections, economic trends, and industry changes. Evaluate potential risks and uncertainties, such as regulatory changes, economic downturns, or technological disruptions. This should happen regularly, in conjunction with a general review of your workforce plans to ensure that your plan remains aligned with evolving business needs.

Collaborate and drive alignment across the organization – stakeholders from every department should participate in the forecasting and planning process to ensure that the inputs for workforce planning are accurate. Then, reconcile each department’s understanding of their needs with the organization’s strategic objectives. Consider long-term goals, expansion plans, market dynamics, and the competitive landscape before finalizing your forecast.

Conduct skills gap analysis and talent pipelining – identify current and future skill requirements within the organization, then develop strategies to address skill gaps through training, recruitment, or talent development. Build talent pipeline strategies and succession plans to identify and cultivate high-potential employees for future leadership roles while minimizing disruptions to business operations.

Make diversity part of the conversation – incorporate diversity and inclusion considerations into workforce planning efforts to promote a more equitable workforce.

What are the pros and cons of outsourcing vs. in house staffing?

Organizations decide whether to outsource based on a combination of strategic and logistical factors – the nature of the function and its relevance to the organization’s strategic priorities often determines whether it is outsourced. Cost considerations, risk tolerance, and capacity to manage external relationships are also important factors. Many organizations adopt a hybrid approach that combines outsourcing with in-house staffing to maximize the benefits of both options while mitigating their respective drawbacks.

	Outsourcing	In House Staffing
Pros	Cost savings –often more cost-effective, especially for non-core functions or specialized tasks. Access to expertise – organizations can access specialized skills and expertise that may not be available internally. Flexibility – organizations can scale resources up or down based on fluctuating demand or project requirements.	Greater control – more control over hiring, training, performance management, and strategic direction. Cultural alignment – employees are more likely to be aligned with the organization’s culture, values, and goals. Intellectual Property Protection – helps protect intellectual property and proprietary information.
Cons	Loss of control – less ability to manage quality, timelines, or strategic direction, particularly if vendors fail to meet expectations. Communication – language barriers, cultural differences, or geographic distances can make managing relationships challenging Dependency risks – over-reliance on partners can make organizations vulnerable to disruptions or contractual disputes.	Higher costs – more expensive than outsourcing, particularly for non-core functions or specialized tasks. Also requires upfront investments in recruitment efforts, onboarding processes, and ongoing development. Limited scalability – harder to quickly scale resources up or down in response to changing demand or market conditions.

What tools and/or third parties can help you manage workforce costs?

Tool/ Third Party	Examples	What They Do
Human Capital Management (HCM) Software	Workday, SAP SuccessFactors, Oracle HCM Cloud, ADP Workforce Now	Manage various aspects of workforce costs including payroll, benefits administration, time and attendance tracking, performance management, and talent acquisition.
Workforce Planning and Analytics Tools	Visier, Tableau, IBM Watson Talent, Anaplan	Analyze workforce data, forecast future needs, identify cost-saving opportunities, and optimize resource allocation.
Compensation and Benefits Management Software	Compensation Management: PayScale, CompAnalyst, Salary.com Benefits Management: Zenefits, Gusto, BambooHR	Assist in designing, benchmarking, and managing compensation programs to ensure competitive compensation programs and streamline benefits management while controlling costs
Vendor Management Systems (VMS)	Beeline, SAP Fieldglass, Workforce Logiq	Facilitate the management of contingent workforce resources, including temporary workers, freelancers, and independent contractors, allowing organizations to track costs, compliance, and performance effectively.
Expense Management Software	Expensify, Concur, Certify	Simplify the tracking, reporting, and reimbursement of employee expenses, helping organizations control costs and improve expense visibility and compliance.
Employee Engagement and Recognition Platforms	Kazoo, Bonusly, Achievers	Boost employee morale, productivity, and retention while minimizing turnover costs through recognition programs, feedback mechanisms, and performance incentives.
Outsourced HR and Payroll Services	Axis HR Solutions, ADP, Paychex, TriNet	HR and payroll services, including payroll processing, tax compliance, benefits administration, and HR consulting.
Legal and Compliance Consulting Services	—	Provide expertise and guidance on compliance matters, including employment law, regulatory compliance, labor relations, and workplace safety.
Financial Advisory Services	—	Offer strategic guidance and financial analysis to help optimize workforce costs, manage budgeting and forecasting processes, and improve financial performance through cost-saving initiatives and efficiency improvements.

What are the most important things to get right?

Building data accuracy – workforce data must be accurate, reliable, and up-to-date. Conduct a thorough analysis of historical workforce trends, market dynamics, economic indicators, and industry benchmarks to identify patterns and anticipate future developments.

Alignment with business strategy – align workforce forecasting and planning efforts with the organization’s strategic objectives, goals, and priorities. Pay special attention to factors like technological advancements and regulatory changes when projecting future workforce needs. If your overall business strategy and workforce management strategy aren’t compatible, you run the risk of hamstringing your business and/or creating a dysfunctional work environment.

Legal compliance should be considered non-negotiable – businesses that fail to comply with labor laws, regulations, and industry standards risk facing legal issues, fines, and reputational damage. Beyond creating a poor working environment, noncompliance can create long-standing challenges for hiring, partner relationships, and valuations. Individual issues will always come up in companies with large workforces, but workforce management mitigates the risk those instances pose.

What are common pitfalls?

Over-reliance on historical data – relying too heavily on historical workforce data can lead to inaccurate forecasts and planning. You must also consider external factors such as economic trends, regulatory changes, industry disruptions, and the risk driven by competitor actions or geopolitical events.

Neglecting talent dynamics – companies often instill workforce management metrics without using those metrics to inform future actions. If you ignore KPIs such as turnover rates, skills shortages, or demographic shifts, your workforce plans are no longer able to address important skill gaps and support your high-level business priorities.

Prioritizing the short-term at the expense of the long-term – it can be tempting to focus solely on short-term workforce needs and cost-saving initiatives. However, the impact this type of decision has on long-term talent development, succession planning, and strategic workforce investments can hinder future growth and competitiveness.

Lack of flexibility – effective workforce plans must be able to adapt to changing conditions or emerging opportunities. You must have both the culture component and the workforce planning expertise to build plans that can accommodate change while still keeping the company on track.

Overpaying leadership – many organizations end up with inflated management ranks that are too expensive and don’t actually improve company performance. Create clear definitions for every leadership role, promote based on merit rather than tenure, regularly benchmark compensation, and simplify the organizational structure as much as possible.