Capturing and Classifying Statement of Work Spend

Workforce development is taking on greater importance, according to McKinsey. Companies across the globe are identifying current skills within their organization, assessing the talents they will need in the future, and considering the extent of the gaps.

These organizations must consider the viability of indirect hiring - risking inflated headcounts - or turn to their procurement officers to leverage contingent staffing, particularly for more specialized digital talent. Speed and agility in undertaking these initiatives are vital and requires adept change management in addition to diligent tracking of actual spend for contingent workforces.

Your Workforce: Talent or Commodity?

A whopping 94 percent of net jobs created from 2005 to 2015 were impermanent jobs - freelancers, contractors, on-call workers, and temp workers. Today, contingent, contract, and part-time workers make up almost one-third of the workforce.

A trend has been to view these workforces as simple commodities to be purchased, but more and more businesses are leaning back towards talent acquisition as their primary short and long term goals.

Automation and digitized practices are changing the way workers fit into the business plan, and the demand for skilled employees and contractors is driving procurement to find contingent staffing that provides high value over cheap volume labor.

Staff Augmentation

Staff augmentation is one of the most common forms of service contracting. It is an extremely flexible hiring model providing expertise on demand but can cost as much as 80 percent more than in-house employees. The pressure to gain full-time employee (FTE) status can be intense, and procurement officers can find it hard to retain talent and still maintain FTE headcounts under tight budgetary constraints.

However, staff augmentation can be ideal when there is a short term gap in an otherwise smoothly running department, and the need is for someone with the same skill sets and knowledge of operational expectations to step in and assist in scaling or meeting a spike in demand. It's also easier to track and account for spend for these workers.

Statement of Work

Where staff augmentation focuses primarily on the skills and expertise of the individuals hired, an SOW (Statement of Work) focuses on project parameters and completion. If procurement is cut out of the process, and an SOW begins before scope and expectations are properly laid out, the cost can quickly spin out of control.

An SOW can reduce exposure to potential misclassification of contractors used for staff augmentation, but can carry its own built-in pitfalls along with it.

While an SOW can allow for instances of unsatisfactorily completed work - resulting in clients canceling the contract or demand work be redone to meet specifications - this can lead to missed deadlines and associated cost overruns or revenue losses.

However, using an SOW for different projects with a clear map of work to be performed can prevent employee morale from cropping up. Existing employees can see it as less threatening for an outside team to be assigned a specific complex project with a set start and end dates than to be nudged aside by additional staff (who may or may not pose a threat to their own job security).

Capturing and Classifying SOW Spend

The most significant difficulty facing organizations that routinely use SOW options to manage contingent staffing needs is controlling and accounting for spend. Unlike staff augmentation, which can be readily tracked on an individual basis, an SOW may involve multiple parties working independently and largely without supervision on a specific task or series of tasks.

A project budget can easily conceal how much the bottom line is affected by an SOW, sliding your contingent workforce under the umbrella of service provided by a vendor, rather than the time and efforts of a worker. Procurement efforts should include mindfulness of when, where, and why using SOW options may cause project bloat. Otherwise, maverick spend can balloon along with scope.

Creating an SOW that includes a breakdown of expenses for each contractor or subcontractor involved, in addition to a time estimation for each task and subtask, can reveal true staffing costs and allow a more precise picture to be built. Contract lifecycle management is critical.

Procurement officers can use this information to capture and classify spend appropriately. If necessary, they can then consult with HR departments on whether keeping the costs of workers under a project SOW or moving them into a staffing budget makes more sense for the organization's bottom line.

Staff augmentation and Statement of Work spend, contract lifecycle management, and the debate on the commodification of the workforce are all topics to be covered at the upcoming ProcureCon Contingent Staffing 2020, to be held March 31 - April 01, 2020, in Phoenix, Arizona.

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