Rogue Spend: What is it, and is Your Business Affected?

Rogue Spend - This term represents expenditures with staffing suppliers outside of pre-negotiated contracts or the guidelines of the organization’s contingent workforce program. The expanded scope of rogue spend alludes to the lack of visibility from different line of business leaders directly sourcing talent (1099 contractors, freelancers) and making payments via PayPal, credit cards, or Accounts Payable without a strong procurement process.

It’s estimated that businesses worldwide spend over $300 billion a year on their extended workforce, according to an analysis by Accenture. The way we work is rapidly changing from static, inflexible work environments to the freelance economy and is affecting anywhere from the consumer (Grubhub, Uber, Lyft, etc.) to commercial enterprises (IT field worker, graphic designers, content writers). More businesses and workers are realizing the rather significant benefits of using a contingent workforce comprising of 1099 workers, freelancers, independent contractors, and gig workers.

As top-notch workers transition to supporting themselves with a variety of gigs for many different employers, the competition for this talent grows. The allure of working for oneself makes these workers avoid positions that place restrictions on how, when, and where they work, and look for positions that enable them to work the hours they want.

But with this growth, challenges arise. Managing an extended workforce requires a significant change in management styles to guide a team to the completion of their project effectively. And thanks to the rise of online freelance marketplaces, procuring a group of 1099 workers has become as simple as a Google search, enabling many business units to work around the constraints of HR approval, and slipping into rogue spend.

The Dangers of Rogue Spend

70% of a business’s operating expenses go towards human capital. No business leader can fathom having zero transparency into the costs of this workforce. But with the way contingent workforces are procured and managed, they typically fall into this “rogue” or “maverick” spend category. SpendMatters refers to rogue spend as “scenarios where requisitioners contract with suppliers outside of pre-negotiated agreements or preapproved buying channels.” Furthermore, SpendMatters found that almost ¼ of the business negotiated spend is rogue, and is not actively managed.

Ardent Partners estimates that nearly “60% of all contingent/contract labor is unaccounted for in financial planning, forecasting, and budgeting within the average company.”

You wouldn’t actively avoid managing spend in other categories, and your contingent workforce spend shouldn’t be any different. Risks of this lack of clarity can lead to employees engaging contingent labor on their own using company credit cards or discretionary budgets. Naturally, the problem starts to compound as you scale your contingent workforce.

Preventing Rogue Spend with Technology

The increasing demand for this contingent workforce is only going to grow, creating even more gaps in rogue spend, unless businesses get on top of the challenge now. And one way businesses are finding to do this is by moving away from manual processes of antiquated spreadsheets and piecemeal solutions to integrated approaches with automation technology. SpendMatters Research Director for Services and Labor Procurement Andrew Karpie put it this way in this article:

“Across many companies, we are seeing rising adoption and use of online platforms to source individual workers (freelancers, consultants, etc.) and a growing range of service/SOW outputs (software development, user testing, creative content writing, graphic art, video, voice-overs, etc.). And the growing use of such platforms is mainly initiated in functional/departmental levels of the organization outside of the vendor/supplier management processes of contingent workforce management/services procurement programs (in effect, rogue spend).”

Automating Your Contingent Workforce Management

The reality is rogue spend is typically not done out of malicious means, but an attempt of stakeholders to meet an unmet need. When businesses turn from seeing this as non-compliance to an opportunity to meet a critical need of their stakeholders by putting the right tools in their hands, real digital transformation can be achieved. With a Freelance Management System that streamlines the sourcing, onboarding, and payment functions of contracting an extended workforce (gig workers, independent contractors, freelancers, etc.), organizations can effectively gain visibility into their rogue spend and turn it into a valuable asset in their business growth. Ready to learn more about a Freelance Management System? Check out this article.