What are the real costs of poor talent decisions? (3 of 3)

So how much does a poor talent decision really cost?

Oxford Economics in a 2014 detailed study across five key sectors (IT/tech, accounting, legal, media/advertising and retail) calculated that the loss of an employee earning an annual salary of £25,000 has an average financial impact of £30,614, ranging from £20,113 for retailers to £39,887 for legal firms. These costs take into account the impact of lost output while a replacement gets up to optimal productivity as well as the impact of recruiting and absorbing a new worker. (The Cost of the Brain Drain (2014) – available at www.oxfordeconomics.com)

The Recruitment & Employment Federation and Indeed (a leading UK job search engine) on the other hand published a study in June 2017 where they calculated that a poor hire at a middle management level salary of £43,000 could end up costing a business up to £132,015.

This was based on the following factors:

  • Wasted salary
  • Internal time & energy – spent dealing with the problem and not doing other things
  • Increased sickness/absence
  • Professional Fees – lawyers, cost of tribunals and potentially crisis management
  • Compensation/salary settlement
  • Wasted training
  • Replacement costs – internal time and external costs spent on new recruitment and induction, as well as new training
  • Reduced productivity – until new recruit reaches optimal productivity (average 28 weeks) including the cost of any interim, and the cost of co-workers and supervisors while they are getting up to speed
  • Loss of business – costs associated with missed opportunities not just while working but until the new hire is up to speed
  • Fraud – financial loss, legal fees, damaged reputation
  • Impact on staff morale – from seeing how a colleague behaves and is treated, which can potentially increase other staff turnover
  • Impact on reputation & brand – with both existing and prospective clients

As an Example

An enterprise with 30 employees that decides it wants to develop an area of its business in order to generate an additional £150,000 of turnover with net profit of £10,000 in the first year.

It looks to hire a person at a salary of £32,000 plus NI to lead the project and promotes 1 person internally to support them for a salary of £25,000 plus NI.

It advertises online for both positions (the new one and the one that has opened up due to the promotion) using a standard job description and receives 20 applicants for each job and decides to interview 4 for each position. They have a 2nd interview for a shortlist of 2 before offering the two positions.

Two desks are allocated in their office for the two new positions and computers are purchased.

Both people have a 1 week induction under the supervision of the COO. The leader’s job is reviewed after 1 month and 3 months by the COO.

The promoted member of staff resigns after 4 months. The COO voices concerns with the CEO after 3 months so the 6 month review involves the CEO after which the leader is given a month’s notice for non-performance.

It’s decided to close the department

They were simply the wrong person in the wrong place at the wrong time.

What did it cost?

No less than the following:

  • Wasted salary – 7 months plus 4 months of support staff – £30,000
  • Wasted management time – £2,500
  • Wasted office space – £3,700
  • Wasted coaching – £3,000
  • Cost of hiring – £1,500
  • Loss of business – 15,000
  • Impact on staff morale and reputation – TBC

Does this sound familiar?

As an exercise think of an occasion when you have ended up with the wrong person in the wrong place at the wrong time and allocate a cost under as many of the headings set out in the above table as you believe relevant.

How do this figure make you feel?

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