Understanding the Soft Cost of a Managed Service in the Procurement Process
In the procurement process, you take into account a range of variables when deciding on a provider. In addition to the upfront quoted price for products or services, you also consider a provider’s reliability, responsiveness, and the potential long-term value of the relationship.
The cost of a managed service is particularly multi-faceted. It represents not only the price you pay directly to the provider for specific services, but also the soft costs—the costs and potential savings associated with the provider’s processes, technology, and service quality.
Though the soft costs related to a service are not visible or associated with physical items, they can affect the value you receive from the service provider more than you think.
What Are the Soft Costs of a Managed Service?
Soft costs don’t have a line item in your budget, but they can certainly impact how much you spend and save with a service provider. In background screening, soft costs impact not only the efficiency of your hiring process but also the quality of the individuals you hire. Some of the notable soft costs include:
How long it takes to get background check results impacts your time to fill a position. Time is precious due to the availability of candidates, and there is a cost associated with having to wait extra days for results before you can move forward with a hire.
Turnaround time also impacts the candidate experience. It can result in losing candidates if they get lured away by another employer while you wait for background check results. By working with a background screening provider aiming for an efficient turnaround time without sacrificing quality, you can make informed hiring decisions while keeping the hiring process moving.
Quality of Background Data
The accuracy and completeness of the background data you receive informs your hiring decisions. Without quality results, you can make an erroneous hiring decision that could damage your organization’s bottom line and reputation in the short and long term.
Employment verification offers a great example of the value of quality background data. Though you pay a hard cost for employment verifications as part of a background check, you could pay an even higher soft cost if the information you receive from your screening provider is incomplete. It happens more commonly than you think, because many providers make only the industry-standard three attempts to verify a candidate’s verification, often yielding “inconclusive” results.
Alternatively, a provider willing to go beyond three verification attempts provides you with better quality and more complete actionable information, allowing you to have more control over the soft costs associated with verification. Moreover, you don’t have to accept an empty report or waste time “going rogue” to conduct verifications your provider wasn’t able to complete.
The responsiveness of a service provider is another soft cost that can quickly snowball if you don’t receive timely guidance and answers to your questions. When you’re managing a fast-moving hiring process, you don’t have time to wait for a response or deal with an overseas call center outside of your time zone. By wasting time, you could lose a candidate or miss out on an opportunity to address an urgent compliance risk.
A service provider with processes to help you automate key workflows saves you time and money. For example, a background screening provider offering applicant tracking system (ATS) integrations and efficient workflows for submitting background check requests can help you speed up screening turnaround times and move candidates through the process more efficiently. Instead of relying on manual or outdated processes, you have access to technology and best practices to improve the overall productivity of your hiring process.
A service provider’s knowledge of the laws affecting your organization can impact the degree to which you avoid non-compliance penalties, lawsuits, and reputational damage. And working with just any background check company doesn’t mean you will be immune from class-action lawsuits and costly fines. Background check companies can be fined for unlawful screening practices, too.
There are many federal and state laws affecting background screening compliance, including “ban the box” laws, marijuana legislation, salary history bans, and the Fair Credit Reporting Act, to name a few. Avoiding spiraling non-compliance costs requires working with a provider that can help you manage risk and remain compliant with the laws affecting your hiring process.
Signs of High Soft Costs
Even though soft costs don’t mount up on your balance sheet, there are some telltale signs they are ballooning out of control.
In background screening, the signs of high soft costs can often be found in the quality and efficiency of your hiring process. Some examples include:
- Your time to hire is increasing due to a longer background screening process.
- The process for submitting requests and getting results is cumbersome.
- You’ve made a poor hiring decision based on inaccurate or incomplete background check results.
- Your current provider doesn’t have processes in place to help you reduce manual and paper-based workflows.
- You have identified compliance risks in your screening process and your provider is not able to help you mitigate them.
How to Manage Soft Costs in the Procurement Process
In a 2021 Deloitte study, surveyed procurement professionals said driving operational efficiency was their top priority in managing their organization’s procurement process. When you want to do more than manage hard costs and create a procurement process that prioritizes efficiency, it’s essential to focus on the soft costs of working with a specific service provider.
Take the following actions to manage the soft costs associated with your service provider relationships :
1. Get a professional consultation from your service provider.
To obtain maximum value from a service provider relationship, the provider should offer guidance and support to help you navigate risks and improve efficiency.
For example, Corporate Screening offers complimentary consultations and quarterly business reviews to all clients, and regularly recommends best practices and guidance for improving their screening process. Consultation services include:
- Proactive account management
- Compliance updates and advice
- Guidance for navigating court delays
- Ideas for budgeting and managing background check costs
Even if you aren’t a Corporate Screening client, you can take advantage of a no-obligation Screening Program Assessment. This proprietary assessment evaluates important factors in the success of a screening program and provides actionable recommendations for improvement.
2. Routinely audit your policies and processes.
Reviewing your existing processes and policies can help you identify new compliance risks and opportunities to make improvements. Conducting a regular audit of your screening program can also create an opportunity to assess the tools and processes your screening provider has put in place, helping you build additional efficiency and compliance into your hiring process.
3. Address soft costs in the RFP process.
The RFP process is a great time to review a service provider’s processes for helping you manage the hard and soft costs associated with their services. For example, expand the background screening RFP process beyond cost and turnaround times, and make sure your RFP process includes insightful questions about a service provider’s commitment to accuracy, quality, customer service, and technology enhancements.
Understand Soft Costs and Improve Your Background Screening Program
The procurement process requires the consideration of several variables, and ignoring just one of them can result in an unfruitful and costly service provider relationship. An excellent way to manage costs in a managed service relationship is to look beyond quoted fees, and consider the soft costs and overall value of the services you receive.
In background screening, the latest movement of several states towards marijuana legalization is one recent development that could impact the soft costs of your background screening services. With the right partners to advise you, you can re-evaluate your background screening policies and processes and consider any necessary changes as the laws continue to evolve. To learn more, check out our RFP Scorecard Checklist: How to Conduct an Insightful RFP Process.