Team presentation

HR costs optimization

Iordanka Nikolova Director Clinical Operations at QuintilesLatinka Pernicheva Integration Manager at EnelPlamen Petrov Business Analyst at IBMDessislava Tsenova Operations Lead at IBM (excused for today)Liliana Velkova Maternity Leave

City University of SeattleJanuary 24, 2010

Speakers: Plamen

IntroductionLilyAlternatives overview

DanyAlternatives evaluation

LatyConclusion &

Recommendations

company overview*

Company “Restart-your-PC” Ltd operates in Bulgaria and delivers CRM services to a small customer base of US clients.

Currently “Restart-your-PC” Ltd has a headcount of 300 FTE.

* fictional company with real-life problems

Problem definition & justification

Problem definition: - Excessive HR costs are driving profits down

Internal factors- Resource utilization (varies around 60 %)- Effectiveness (work overlaps)- Efficiency (tools performance)

External factors - Economic crisis (customers are couscous on new signings) - Competition (price pressure) - Demographics (aging workforce)

List of Alternative Courses of Action

Temporary lay off Reducing working hours Reduction of salaries Decrease in rewards and benefits Reduction of budget for T&D Termination

Evaluation of Alternatives – criteria

Potential benefits

Risks

Speed of savings

Evaluation of Alternatives – assessment matrix

Potential benefits

Risks Speed of savings

TOTAL SCORE

Nr criteria Assessment matrix

weight 4

0 %

weight 3

0 %

weight 3

0 %

100%

Alternative

1 Temporary lay off2 Reducing working hours3 Reduction of salaries4 Decrease in rewards and benefits5 Reduction of budget for training and development6 Termination

weight 4

0 %

weight 3

0 %

weight 3

0 %

100%

Evaluation of Alternatives: Temporary lay offs

Potential benefits:- Significant labor cost reductions;- Keeping the employees

Risks:- Risk of losing the employees/Higher in case of highly

skilled employees- Delays in projects’/tasks’ delivery

Speed of savings: - High

Evaluation of Alternatives: Reduced working hours/week*

Potential benefits:- Salaries adjustments to reflect the reduced working time =

proportional labor costs savings - Increased productivity- Improved work-life balance- Could be selective depending on the volume of work

Risks:- Delays in projects’ completion- Decrease in customer satisfaction- Work overload- Turnover

Speed of savings:- Average

*reduced working week = lay off strategy

Evaluation of Alternatives: Reduction of Salaries

Potential benefits:- Significant portion of the HR-budget – labor cost

savings;- Freeze of salary form

Risks:- De-motivation of the employees- Decrease in the productivity- Turnover

Speed of savings:- Average

Evaluation of Alternatives: Decrease in Rewards & Benefits budget

Potential benefits:- Could be significant portion of the HR-budget - significant cost

savings- No reduction in salaries

Risks:- De-motivation of the employees, if all are taken out- Decrease in the productivity- Turnover

Speed of savings:

- Average/High

Evaluation of Alternatives: Reduction of budget for training & development

Potential benefits:- Could be significant portion of the HR-budget - significant

cost savings- No reduction in salaries & benefits

Risks:- Issue with qualification of employees- Quality issues- De-motivation - Turnover

Speed of savings: - Average/High

Evaluation of Alternatives: Terminations

Potential benefits:- Significant cost savings- Could be selective – implemented in departments with reduced

volume of work Risks:

- Delays in projects’ completion- Decrease in customer satisfaction- De-motivation of employees, who stay- Turnover- High cost for training and on-boarding new people

Speed of savings:

- High

Evaluation of Alternatives – assessment matrix verbatim

Speed of savings (the higher the speed - the higher the score, max 30 %)Speed of savings (the higher the speed - the higher the score, max 30 %)

Potential benefits

Risks Speed of savings

TOTAL SCORE

1 Temporary lay off 25% 25% 26% 76%2 Reducing working hours 30% 10% 30% 70%3 Reduction of salaries 25% 15% 30% 70%4 Decrease in rewards and benefits 20% 25% 28% 73%5 Reduction of budget for training and development 25% 10% 25% 60%6 Termination 15% 5% 25% 45%

* Potential Benefits (the higher the potential benefits - the higher the score, max 40 %)** Risks (the higher the risks - the lower the score, max 30 %)*** Speed of savings (the higher the speed - the higher the score, max 30 %)

Nr

Assessment matrix

Alternativecriteria

Evaluation of Alternatives – overall standings

Speed of savings (the higher the speed - the higher the score, max 30 %)Speed of savings (the higher the speed - the higher the score, max 30 %)

0%

10%

20%

30%

40%

50%

60%

70%

80%

Temporary layoff

Reducingworking hours

Reduction ofsalaries

Decrease inrewards and

benefits

Reduction ofbudget for

training anddevelopment

Termination

Att

rac

tiv

en

es

s

Potential benefits Risks Speed of savings

Recommendation & Conclusion

Implementation roadmap

Assess feasibility and applicability of cost reduction alternatives versus

external and internal factors

Align cost reduction practices with cost reduction stage of the

company prior to adopt them

Anticipate and handle aftereffects on survivors/people who stay at

work

Establish open communication channels pre and post implementation

of selected strategies

Recommendation & Conclusion

Keys to success

Responsible cost reduction: cut the cost, keep the

quality

Be prepared: ensure workforce flexibility & have

contingency plans

Build and maintain motivation and commitment

Respect the people, be honest and deliver on promises

BACK UP slide 1

Speed of savings (the higher the speed - the higher the score, max 30 %)Speed of savings (the higher the speed - the higher the score, max 30 %)

* Potential Benefits (the higher the potential benefits - the higher the score, max 40 %)

Potential benefits

0% 5% 10% 15% 20% 25% 30% 35%

Temporary lay off

Reducing working hours

Reduction of salaries

Decrease in rewards and benefits

Reduction of budget for training and development

Termination

BACK UP slide 2

Speed of savings (the higher the speed - the higher the score, max 30 %)Speed of savings (the higher the speed - the higher the score, max 30 %)

** Risks (the higher the risks - the lower the score, max 30 %)

Risks

0% 5% 10% 15% 20% 25% 30%

Temporary lay off

Reducing working hours

Reduction of salaries

Decrease in rewards and benefits

Reduction of budget for training and development

Termination

BACK UP slide 3

Speed of savings (the higher the speed - the higher the score, max 30 %)Speed of savings (the higher the speed - the higher the score, max 30 %)

*** Speed of savings (the higher the speed - the higher the score, max 30 %)

Speed of savings

22% 23% 24% 25% 26% 27% 28% 29% 30% 31%

Temporary lay off

Reducing working hours

Reduction of salaries

Decrease in rewards and benefits

Reduction of budget for training and development

Termination

References

1. Anthony, W. P., Perrewe, P. L., & Kacmar, K. M. (2006). Human resource management: A strategic approach (5th ed.). Orlando, FL: Dryden.

2. Gandolfi, F. (2008). Cost Reductions, Downsizing-related Layoffs, and HR Practices. SAM Advanced Management Journal (07497075), 73(3), 52-58.