How Much Does HR Cost?

Hewitt Offers New Tools To Help Employers Identify HR Costs

LINCOLNSHIRE, Ill -- Feb. 19, 2002 -- As organizations pay close attention to expenses in these uncertain economic times, they're seeking to quantify the total cost of human capital to meet financial targets instead of missing them. Hewitt Associates, a global outsourcing and consulting firm, has developed a proprietary HR activity-based analysis to collect and analyze all costs of delivering human resources to employees.

Hewitt's HR activity-based cost assessment includes an analysis and inventory of HR operating costs (such as labor, materials, and vendors), and capital costs (such as real estate and investments in HR technology or allocations for the HR component of ERP systems). In addition, it provides a distribution of costs across HR activities and within an activity, and identifies the type of work being performed for each activity.

"Companies rarely have a comprehensive or accurate view of their HR costs and few, if any, can quantify their total investment in people management practices," said Kirt Davis, Hewitt HR Effectiveness consultant. "Decision makers understand that their ability to make a wise, informed choice depends on the quality of the facts used to make the decision. To reduce costs, employers need to know their current costs. To show a greater return on investment, they need to have a complete picture of their current HR investment."

What is included in total HR costs?

Hewitt provides an example of the costs you can expect for human resources:

  • Labor costs inside and outside HR: health and retirement benefits, compensation, diversity/EEO, employee/labor relations, employee communications, employee development, work design, performance management, recruiting, staffing and training.

  • Facilities and Real Estate

  • HR technology: capital equipment, applications and software, HR Web development and maintenance, HR functional software packages. ongoing operations expense, and the portion of enterprisewide systems infrastructure used to manage HR and payroll data and transactions.

Using a Web-based, data-collection device, Hewitt gathers information on how and where HR staff spends their time. The firm then integrates that data with demographic information to arrive at fully loaded labor costs. This method provides a rigorous answer to the question, "what are our total HR costs?" in a manner that facilitates comparison to other leading companies and captures HR service delivery related expenses that fall outside the HR budget.

"With 16 operating companies, we had a lot of opinions on where people were spending their time, but not a lot of facts," said Tom Ruddy, director of HR and Organizational Development, Siemens. "For example, the company knew a lot of employees who touched recruiting, but we discovered through the HR activity analysis that hundreds of people were spending a very small amount of their time on recruiting. We're using the data to prioritize the next things to work on, what we're going to Web-enable, and what we're going to streamline."

Hewitt Associates LLC is a global outsourcing and consulting firm delivering a complete range of human capital management services to companies including: HR and Benefits Outsourcing, HR Strategy and Technology, Health Care, Organizational Change, Retirement and Financial Management, and Talent and Reward Strategies. With 81 offices in 37 countries, Hewitt's 2001 fiscal year revenues were approximately $1.5 billion.

      CONTACT: Hewitt Associates LLC
               Rebecca Hayne, 847/442-7655
               JoAnne Laffey, 847/442-7648