Having the right people in the right jobs is key to every business, and nowhere is this more crucial than human resources.
It can be challenging to ensure that you have the correct personnel and that they work to the best of their abilities.
Any expanding company’s HR department is its foundation. However, as shown in this HR Management article, cost management techniques for HR are frequently disregarded in many organisations.
Businesses must effectively and efficiently manage their human resources to accomplish their strategic objectives.
Techniques for strategic human resource management can help to guarantee that your staff members are effective and content in their positions and that the corporate culture is developing.
But first, let’s define cost management as an HR role before we examine these human resource cost management techniques.
What is Cost Management as an HR Role?
The complexity of the modern organisation necessitates a clear definition of each position. Employees are extremely expensive, and HR’s role is to serve as the organisation’s police force. Managers must maintain the same employment structure and cannot add new employees without prior HR approval. The organisation’s control of human costs is under the responsibility of HR.
The human resources department is responsible for forecasting human capital management and reporting staff costs. This represents a major shift in the duties of many functions. The management of human expenses must be strategic; they cannot be controlled like any other balance sheet item. Maintaining agreed targets and enabling managers to expand the business are the responsibilities of HR.
It is important to establish clear roles and duties while managing human costs. Managers must hand off responsibility to HR. Although they dislike this strategy, they must change their conduct. They cannot base their choice on the resources offered by their cost centre.
Making projections and analyses is a key component of cost management. The development of human costs must be projected, and HR must plan for various contingencies. When external conditions change rapidly, HR plays a key role. The organisation must move fast, and the choice it makes should be supported by forecasts that have been planned and considered.
Cost management is not well-liked. Most managers want complete freedom. The top management cannot afford to give managers complete control over cost management. The top management needs departments with a cost management focus. Managing the organisation’s personnel costs is the responsibility of human resources.
- Cost Management Techniques for HR
Here, we’ll go through some of the most frequent HR cost management techniques incurred by SMEs and offer advice on the best cost-cutting measures to minimise and optimise your expenditures while maximising the potential of your workforce and business operations.
Hiring new employees is one of the most expensive HR cost management techniques for businesses. For SMEs, hiring the incorrect candidate for a position can significantly negatively impact the entire company. The Undercover Recruiter notes that in addition to wage costs, you must also consider recruiting costs, bonuses, office space and equipment, and the time required to onboard a new employee. Because of this, it’s essential to know how much you’re spending on hiring as part of your HR cost analysis.
How to manage the cost of recruitment:
A business’s expansion and sustained success frequently depend on hiring new employees, but there are ways to streamline the hiring process and reduce costs. To discover new staff, SMEs might apply various alternative recruitment tactics. Applicant Tracking Systems (ATS) are also being used by many businesses to reduce the administrative burden of hiring.
2. Reject outsourcing agreements and bring the work in-house:
Your company might be paying more for the flexibility supplied by a third party. It can be a cost management techniques if you can complete the work using internal resources because you’d be able to save money and keep your personnel. Before terminating the relationship, it’s crucial to consider any possible contractual responsibilities you may have with the third party. For instance, you would have to consider whether a cost would be associated with terminating the contract.
3. Employee benefits:
One of a company’s biggest cost management techniques related to human resources can be employee perks. Rising employee benefit costs were cited as a worry by 51% of the businesses questioned by Willis Towers Watson in their 2019 UK Benefits Trends Survey. However, if properly implemented, benefits can also help in cost reduction by lowering staff turnover and assisting in recruiting qualified job candidates.
How to manage the cost of employee benefits:
In the end, it’s critical to balance the upfront expenses of employee benefits against their effects on your results for hiring, productivity, and employee retention, especially if you’re an SME competing against larger businesses. To evaluate your benefits packages’ effectiveness, it’s critical to measure your HR data. Additionally, it’s essential to keep track of your pay and benefits information using pay and benefits software to get a comprehensive picture of your costs.
4. Reduce or eliminate outside training:
Since training may develop new abilities, help in employee retention, and provide the organisation with fresh ideas, it is crucial for both businesses and their workforces. If you don’t have the funds for outside training, perhaps your company’s in-house subject matter experts can fill the void by leading training sessions. You might want to limit the number of external training sessions taken in a given year for your top talent, but you shouldn’t prohibit them entirely.
5. Employee Retention:
According to an Oxford Economics study, replacing an employee costs £30,614 on average, which makes high staff turnover rates expensive for organisations. This is due to the expense of hiring a new employee and missed output while the new employee is adjusting to the position. Many companies implement cost management techniques to help in reducing their turnover rate. However, when businesses increase compensation and perk packages to entice and keep great employees, these techniques can also become expensive.
How to manage the cost of employee retention:
You don’t need to give out excessive incentives to keep good staff. While offering competitive salaries and benefits is important, maintaining a competent workforce ultimately depends on establishing a strong, empowering workplace culture. Be sure you take a strong stance (in terms of process and policy) on important topics, including mental health, diversity, well-being, and bullying.
6. HR administration:
HR Administrative is one of the effective cost management techniques that frequently occur in the background when lowering a company’s HR expenditures and may go unnoticed. However, if your systems aren’t effective, the time and effort needed to gather and maintain employee data can add to a significant expense. Administrative work takes up time that could be spent on more important activities, slowing down business operations and demoralising workers.
How to manage the cost of HR administration:
When it comes to keeping everything current, performing computations, or even finding the proper document, paper files and spreadsheets eventually lose their effectiveness for many companies.
Installing an HR software system is the next obvious step for most expanding SMEs. Management of holidays and absences, performance reviews, and disciplinary actions are just a few of the staff management procedures that the proper software solution can assist managers and HR professionals with.
7. Training and Development:
Training and other staff development forms are essential for employee retention and corporate growth using in-house expertise. However, Training and development is one of the cost management techniques but can be highly expensive, just like other retention tactics, if not handled carefully. Ineffective or overly complex training methods may end up costing the company more than the savings that the subsequent knowledge would bring.
How to manage the cost of Training and development:
Conduct a training needs analysis to determine what areas of the company lack the abilities that Training and other staff development techniques can address. This will assist you in choosing the appropriate degree of expenditure for training projects that will increase profitability by fostering employee engagement and the development of staff members’ mission-critical abilities.
In addition to Training, it is beneficial for staff to regularly meet one-on-one with line managers to receive constructive criticism. Structured annual reviews and setting objectives with SMART goals also help staff members feel like they can advance within the organisation.
8. Deal with the underperforming staff:
If an employee isn’t performing up to par, you may want to consider terminating their employment as a last resort. While it is never simple, it is one more reason to concentrate on your higher-performing staff at a time when the company needs to cut costs.
9. Streamline procedures:
You might find opportunities for efficiency by analysing your current HR processes, freeing up workers to work on other duties that might otherwise require more staff. You might also spot tasks that, if no longer necessary, can be temporarily suspended or completely done away with.
10. Keep track of and restrict overtime and shift premiums:
By examining scheduling procedures to minimise overtime and shift surcharges whenever possible, your core HR team and payroll can significantly assist the business in analysing hourly rates. Additionally, the HR team may be able to activate elements in their HR software that will signal overtime when an employee is scheduled for too many hours in a pay period, offering a proactive cost-cutting method.
One of the crucial requirements for the success of any project, or business, for that matter, is cost management techniques. It is much simpler to set goals and work toward them when one is aware of the range of costs that the company can endure.
HR departments can utilise various tools and methods in their planning procedures. The HR team must be aware of all the resources and use them judiciously if an organisation is to function at its peak. When a company’s HR department works to its full potential, the entire organisation will also perform at its peak.