By: Leslie Stevens-Huffman

In the dog-eat-dog world of engineering, managers are constantly seeking new ways to lower operating costs. That’s why savvy managers are taking a hard look at the return on human capital and strategically integrating contract professionals into the engineering talent pool.

Four Cost-Reduction Strategies

No. 1: Control ancillary employment costs

Although managers not only avoid recruiting and employee benefit costs by hiring contract professionals, they also gain control of the ancillary costs that silently erode the bottom line.  For example, 41% of companies estimate that a bad hire costs more than $25,000. One in four said it costs more than $50,000. Worse yet, hiring missteps reduce productivity, decrease sales and may cause litigation. Managers can virtually eliminate hiring risk by selecting full-time employees from the proven performers in the contract engineering pool.

No. 2: Rally the troops

According to a recent survey by consulting giant Mercer, apathy is evident among 20% of U.S. workers, and 32% are seriously considering leaving their organizations. The data should serve as a wake-up call for engineering managers. The Harvard Business Review reports that trimming turnover rates by just 5% reduces operational costs by 10% and improves productivity by 65%. Instead, boost morale and engagement by reallocating routine tasks to less costly interns and junior contractors so full-timers have an opportunity to mentor colleagues, attend seminars and tackle stretch assignments.

No. 3: Follow the money

Since operating expenses are expressed as a percentage of revenues, why not use contract engineers to create proposals or help your firm compete for RFPs? Customers often view a lack of in-house expertise as a serious weakness, but you can surmount those objections by highlighting your firm’s ability to tap and manage a diverse pool of contract talent.

Better still, use contractors to help your firm tap new markets by providing an instant injection of technical or global market expertise. For instance, GE engineers discovered an untouched opportunity during a trip to Africa in 2005 and subsequently invented a portable ultrasound machine that sold for 30% of the original cost. By 2011, GE’s sales to the Africa–Middle East region totaled more than $10 billion, or 5% of global revenue.

No. 4: Keep score

Given the recent pressure on billing rates and margins, professional service firms need to monitor key performance indicators and keep full-time headcount to a minimum to maintain a competitive and predictable cost structure. Increase utilization while lowering overhead and break-even rates by reducing full-time headcount and increasing your reliance on contract engineering professionals.