Costs Due to a Person Leaving
1.. Calculate the cost of the person(s) who fills in while the position is vacant.
Calculate the cost of lost productivity at a minimum of 50% of the person's
compensation and benefits cost for each week the position is vacant, even if there are people performing the work. Calculate the lost productivity at 100% if the position is completely vacant for any period of time.
2.. Calculate the cost of conducting an exit interview to include the time of the person conducting the interview, the time of the person leaving, the
administrative costs of stopping payroll, benefit deductions, benefit enrollments.
3.. Calculate the cost of the manager who has to understand what work remains, and how to cover that work until a replacement is found.
4.. Calculate the cost of training your company has invested in this employee who is leaving.
5.. Calculate the impact on departmental productivity because the person is leaving. Who will pick up the work, whose work will suffer, what departmental deadlines will not be met or delivered late.
6.. Calculate the cost of lost knowledge, skills and contacts that the person who is leaving is taking with them out of your door. Use a formula of 50% of the person's annual salary for one year of service, increasing each year of service by 10%.
7.. Subtract the cost of the person who is leaving for the amount of time the position is vacant.
Recruitment Costs
1.. The cost of advertisements; agency costs; employee referral costs; internet posting costs.
2.. The cost of the internal recruiter's time to understand the position
requirements, develop and implement a sourcing strategy, review candidates backgrounds, prepare for interviews, conduct interviews, prepare candidate assessments, conduct reference checks, make the employment offer and notify unsuccessful candidates. This can range from a minimum of 30 hours to over 100 hours per position.
3.. Calculate the cost of the various candidate pre-employment tests to help assess a candidates' skills, abilities, aptitude, attitude, values and behaviors.
Training Costs
1.. Calculate the cost of orientation in terms of the new person's salary and the cost of the person who conducts the orientation. Also include the cost of orientation materials.
2.. Calculate the cost of departmental training as the actual development and delivery cost plus the cost of the salary of the new employee. Note that the cost will be significantly higher for some positions such as sales representatives and call center agents who require 4 - 6 weeks or more of classroom training.
3.. Calculate the cost of the person(s) who conduct the training.
4.. Calculate the cost of various training materials needed including company or product manuals, computer or other technology equipment used in the delivery of training.
Lost Productivity Costs
As the new employee is learning the new job, the company policies and practices, etc. they are not fully productive. Use the following guidelines to calculate the cost of this lost productivity:
1.. Upon completion of whatever training is provided, the employee is contributing at a 25% productivity level for the first 2 - 4 weeks. The cost therefore is 75% of the new employees full salary during that timeperiod.
2.. During weeks 5 - 12, the employee is contributing at a 50% productivity level.
The cost is therefore 50% of full salary during that timeperiod.
3.. During weeks 13 - 20, the employee is contributing at a 75% productivity level. The cost is therefore 25% of full salary during that timeperiod.
4.. Calculate the cost of mistakes the new employee makes during this elongated indoctrination period.
New Hire Costs
1.. Calculate the cost of bring the new person on board including the cost to put the person on the payroll, establish computer and security passwords and identification cards, telephone hookups, cost of establishing email accounts, or leasing other equipment such as cell phones, automobiles.
2.. Calculate the cost of a manager's time spent developing trust and building confidence in the new employee's work.
Lost Sales Costs
1.. Calculate the revenue per employee by dividing total company revenue by the average number of employees in a given year. Whether an employee contributes directly or indirectly to the generation of revenue, their purpose is to provide some defined set of responsibilities that are necessary to the generation of revenue.
Calculate the lost revenue by multiplying the number of weeks the
position is vacant by the average weekly revenue per employee.
Conclusion:It is clear that there are massive costs associated with attrition or turnover and, while some of these are not visible to the management reporting or budget system, they are none the less real. The 'rule of thumb' appears to be very inaccurate indeed and, while it depends upon the category of staff, it is probably better to estimate around 80% of salary as a truer rule of thumb - and this will be
on the conservative side.
What does this mean? Well it means that if a company has 100 people doing a certain job paid 25,000 and that turnover or attrition is running at 10%, the cost of attrition is:
(Total staff x attrition rate %) x (annual salary x 80%)
a.. 100 staff at 10% attrition means 10 people leave and are replaced each year.
b.. A replacement cost of 80% of a salary of 25,000 means the cost of each replacement is 20,000.
c.. The cost of turnover is therefore 10 x 20,000 or 200,000 a year.
d.. The oncost to the overall salary bill is 8%.
(Saving 8% of salary costs would make the average HR manager a hero.)
Rgrds
Vinay
This article was seen in BPOindia.org
From India, Hyderabad
241.. Calculate the cost of the person(s) who fills in while the position is vacant.
Calculate the cost of lost productivity at a minimum of 50% of the person's
compensation and benefits cost for each week the position is vacant, even if there are people performing the work. Calculate the lost productivity at 100% if the position is completely vacant for any period of time.
2.. Calculate the cost of conducting an exit interview to include the time of the person conducting the interview, the time of the person leaving, the
administrative costs of stopping payroll, benefit deductions, benefit enrollments.
3.. Calculate the cost of the manager who has to understand what work remains, and how to cover that work until a replacement is found.
4.. Calculate the cost of training your company has invested in this employee who is leaving.
5.. Calculate the impact on departmental productivity because the person is leaving. Who will pick up the work, whose work will suffer, what departmental deadlines will not be met or delivered late.
6.. Calculate the cost of lost knowledge, skills and contacts that the person who is leaving is taking with them out of your door. Use a formula of 50% of the person's annual salary for one year of service, increasing each year of service by 10%.
7.. Subtract the cost of the person who is leaving for the amount of time the position is vacant.
Recruitment Costs
1.. The cost of advertisements; agency costs; employee referral costs; internet posting costs.
2.. The cost of the internal recruiter's time to understand the position
requirements, develop and implement a sourcing strategy, review candidates backgrounds, prepare for interviews, conduct interviews, prepare candidate assessments, conduct reference checks, make the employment offer and notify unsuccessful candidates. This can range from a minimum of 30 hours to over 100 hours per position.
3.. Calculate the cost of the various candidate pre-employment tests to help assess a candidates' skills, abilities, aptitude, attitude, values and behaviors.
Training Costs
1.. Calculate the cost of orientation in terms of the new person's salary and the cost of the person who conducts the orientation. Also include the cost of orientation materials.
2.. Calculate the cost of departmental training as the actual development and delivery cost plus the cost of the salary of the new employee. Note that the cost will be significantly higher for some positions such as sales representatives and call center agents who require 4 - 6 weeks or more of classroom training.
3.. Calculate the cost of the person(s) who conduct the training.
4.. Calculate the cost of various training materials needed including company or product manuals, computer or other technology equipment used in the delivery of training.
Lost Productivity Costs
As the new employee is learning the new job, the company policies and practices, etc. they are not fully productive. Use the following guidelines to calculate the cost of this lost productivity:
1.. Upon completion of whatever training is provided, the employee is contributing at a 25% productivity level for the first 2 - 4 weeks. The cost therefore is 75% of the new employees full salary during that timeperiod.
2.. During weeks 5 - 12, the employee is contributing at a 50% productivity level.
The cost is therefore 50% of full salary during that timeperiod.
3.. During weeks 13 - 20, the employee is contributing at a 75% productivity level. The cost is therefore 25% of full salary during that timeperiod.
4.. Calculate the cost of mistakes the new employee makes during this elongated indoctrination period.
New Hire Costs
1.. Calculate the cost of bring the new person on board including the cost to put the person on the payroll, establish computer and security passwords and identification cards, telephone hookups, cost of establishing email accounts, or leasing other equipment such as cell phones, automobiles.
2.. Calculate the cost of a manager's time spent developing trust and building confidence in the new employee's work.
Lost Sales Costs
1.. Calculate the revenue per employee by dividing total company revenue by the average number of employees in a given year. Whether an employee contributes directly or indirectly to the generation of revenue, their purpose is to provide some defined set of responsibilities that are necessary to the generation of revenue.
Calculate the lost revenue by multiplying the number of weeks the
position is vacant by the average weekly revenue per employee.
Conclusion:It is clear that there are massive costs associated with attrition or turnover and, while some of these are not visible to the management reporting or budget system, they are none the less real. The 'rule of thumb' appears to be very inaccurate indeed and, while it depends upon the category of staff, it is probably better to estimate around 80% of salary as a truer rule of thumb - and this will be
on the conservative side.
What does this mean? Well it means that if a company has 100 people doing a certain job paid 25,000 and that turnover or attrition is running at 10%, the cost of attrition is:
(Total staff x attrition rate %) x (annual salary x 80%)
a.. 100 staff at 10% attrition means 10 people leave and are replaced each year.
b.. A replacement cost of 80% of a salary of 25,000 means the cost of each replacement is 20,000.
c.. The cost of turnover is therefore 10 x 20,000 or 200,000 a year.
d.. The oncost to the overall salary bill is 8%.
(Saving 8% of salary costs would make the average HR manager a hero.)
Rgrds
Vinay
This article was seen in BPOindia.org
From India, Hyderabad
yeah loss is Huge...we need to have 200% job done at hiring itself and keep motivating performing guys and gals so as to no surprises.
Non performers be given feedback on time and HR needs to be eye and ear of management to have corrective measure on time.
From India
Non performers be given feedback on time and HR needs to be eye and ear of management to have corrective measure on time.
From India
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