Tracking the Cost-benefit of Using Contingent Employees

By John Zappe

May. 25, 2005

Cell phone company T-Mobile has undertaken an ambitious program to measure the effectiveness of several hundred new contingent workers as it struggles with the issue of determining the ROI of a flexible workforce.

    Since January, T-Mobile has been measuring the efficiency of the 600 to 700 technical temps it brought in to manage the wireless network in California and Nevada it acquired from Cingular. Using a variety of standard metrics including time-to-repair and help calls, the company will compare the contingent workers to comparable full-time workers.

    “It’s a question of a return on the investment,” says Jim Sullivan, area director of engineering and operations for Northern California for T-Mobile. Data for the first three months of the year was discarded because so many of the hires were new to the area that drive time to repair field equipment skewed some of the metrics.

    That preliminary data showed the use of contingents was more expensive, Sullivan says, “primarily because they were still learning their way around the area and there were some cultural or communication issues. Q2 is when we’ll really be focusing on this.”

    Companies regularly want to know how cost-effective it is to hire temporary workers compared to adding full-timers. Bringing in contingent staff may be the only alterative when a company gets an unexpected order or is faced with a sudden big project, as T-Mobile did last fall when it acquired a new wireless network. Then it becomes a matter of procurement–hiring staffing contractors to bring in the workers as fast as possible. But sooner or later, someone asks the inevitable question: “What’s the ROI?”

    “That’s a question clients want to answer,” says Michael Cruz, managing director of Taleo Contingent. “But not too many are really equipped to know.” Taleo sells software to procure, manage and track a contingent workforce. Its customers are Fortune 500 companies that employ thousands of temporary staff, yet even they find it a challenge to know what the return on their investment is for their contingent workers.

    For T-Mobile, the staffing procurement became an opportunity to see what the company could learn about workforce ROI.

    How useful will the results be? Sullivan called it a “good snapshot” and “another tool,” but at the end of the day, T-Mobile turned to staffing contractors because it couldn’t have filled the jobs fast enough itself. “We had to get people in here.”

Measuring contingent ROI
How would staffing companies measure the return on investment of using contingent employees? Here are some possible metrics:

  • Cost of having a position left open, such as paying overtime to other employees.

  • Hiring expense that would have been associated with hiring a permanent employee.

  • Economic impact of a layoff of permanent staff to a company’s reputation and brand. (With contingent staff, the contract is simply terminated.)

  • Savings in case of termination (including severance, COBRA and accrued vacation that doesn’t have to be paid to a contingent).

  • Avoidance of some legal and human resources issues.

  • Lost-opportunity costs (in case of product nondelivery or not being able to accept an order).

  • The savings that comes with using contingent employees because fewer middle managers are often required.

  • The value for a company of getting to “try out” an employee without taking the risk of a permanent hire right off the bat.

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