Tuesday, March 6, 2012

TCO Stories: “It’s OK, We Trust You!”

Numbers talk to me. Not in a Haley Joel Osmet / Sixth Sense way, but they talk to me nonetheless. And before you start to worry about me, let me assure you, there are no voices inside my head. 

That being said, if you pay attention and really listen, numbers can tell you stories.

One of the really cool things about TCO analysis is listening to the stories the numbers tell once the calculations have all been made. For instance, I was working with a company that was on the Fortune 500 listing. We had collected all the data and done the calculations and the numbers started talking. Because we break down total cost into different components, we are able to see what level of effort goes into field time involved with collecting, editing and approving time submitted by employees for the payroll. On average, this is 41% of the cost of a paycheck. For some companies it can be a lot higher, for others it can be a lot lower.

For this particular Fortune 500 Company, it was an extremely minimal part of the cost of a paycheck. I had a high confidence level in the data that was provided, so I knew it was likely that the calculations were accurate. When looked at in the context of the other cost components the numbers were telling me that there was either a very mature, efficient, highly automated time capture process in place or this particular company had what could only be termed an "honor system" when it came to the reporting of time.

Turns out, when it came time to present the results and analysis, this company readily acknowledged that they were on the honor system. The conversation with the top execs naturally turned to concepts of payroll inflation, which I will explore next week. But for their part, through TCO analysis the company execs were able to see, understand and have all the information necessary to make an informed decision when they decided that culturally they didn't want to look over the shoulders of their employees to confirm the time they worked. They understood the risk involved and the potential for overpayments and payroll inflation. In essence, they were saying to their employees: "It's OK, we trust you!"

It's an interesting approach. I wonder if their stockholders are aware of it.

By the way, over the past 5 years, this company's stock has significantly underperformed their industry. Yes, numbers really do tell stories if you stop and listen!

About the author - Donald Glade is president and founder of Sourcing Analytics, Inc., an independent consulting firm specializing in helping companies optimize their HR / benefits / payroll service delivery through financial analysis, relationship management, and process improvement.

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