Costing Turnover -Exercise

Costing Your Turnover. Are you ready?

Salaries are a large part of any business’s overheads. Add to this the cost of recruiting and training staff and accurate selection is key to business profitability. Using the table below, enter conservative estimates. You may be surprised...

Your Analysis of the Costs of a Bad Hire

Advertising – Number of advertisement x cost of each

Administrative costs to process candidates – Number of candidates (A) times hourly cost (including overheads) (B) times hours per candidate (C), NOW multiply A X B X C
Candidate travel costs – Number of interstate/overseas candidates times the costs of travel, accommodation, taxis, meals, etc.
Interviewer costs – Total number of first and second interviews (D) times 1.5 hours @ the hourly rate of the interviewer (E).
NOW multiply D X 1.5 X E
Opportunity costs – The costs of temporarily filling the position, inferior performance, less effective customer service, and lost sales.
Relocation costs – These can apply and can be expensive but in this case we will assume a local candidate is successful
Time to reach full productivity – Moving from zero productivity on day 1 through to full productivity after 6 months. The average would be 50% productivity at $_________ (salary for 6 months). This ignores the indirect costs, of course… (calculate 0.25 x annual salary = wasted in first year)
Training and Induction programs: cost x number
Recruitment Consultant / Search Firm Fees
Performance discussions – The HR and Management costs of preparing for and holding performance discussions (because we have employed an unsatisfactory person) – three discussions @ $_________ each
Severance pay – Assume 70% chance of having to terminate the unsatisfactory person, as oppose to voluntary departure (eg 0.7 x typical severance pay and arrangements )
Total costs of just one instance of poor selection
Sources for this methodology:
• Wayne F. Cascio, (1999), Costing Human Resources, South-Western College Pub.
• Jac Fitz-Enz (2001) How to Measure Human Resource Management McGraw-Hill.