FurstPerson

PRE-EMPLOYMENT TALENT ASSESSMENT CLIENT WORKSHEET ARTICLE

Calculating the Cost of Attrition

Brent Holland
Brent Holland, FurstPerson, Inc., Brent.Holland@furstperson.com

Companies are aware of the financial burden and cultural toll attrition places on the workplace. Notable, however, is the degree to which industry participants tend to underestimate the significance of its impacts. In failing to calculate or quantify the actual cost of attrition on a role by role basis, it becomes difficult to justify implementing new solutions to drive and measure improvement.

Any critical thinking around attrition reduction begins with cost clarity. Companies need to move past quoting ‘industry averages’ or guiding decisions on ambiguous estimates. To understand the operational impact and evaluate the relative performance of talent selection programs, a hard dollar amount should be calculated and socialized to gain buy in throughout the organizational hierarchy.

FurstPerson developed the Cost of Attrition worksheet to enable organizations to calculate the actual cost of an employee leaving the company. The worksheet organizes hiring activities and investment areas by category. In using this tool, companies can estimate the fully baked cost of attrition. The worksheet highlights many of the known areas of expense like search firm fees and job advertising. But it also provides guidance on some of the fuzzier or lesser known areas costs areas, including those around vacancy or orientation and training.

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According to a study by the Society for Human Resource Management and workplace service provider PeopleMatter, the annual turnover rate for hourly workers is 49%. In partnership with Deloitte, QATC, a knowledge and research sharing hub for call center professionals, suggests that it takes $12,000 to replace the average non-professional or frontline person, a bleak view for companies vying for profitability. As quality hire demands outstrips supply, rehiring and training new employees grows quickly into a cyclical process of investment, little return and cultural decay. It is perhaps the most significant driver of margin decline for these businesses.


Many executives will point to attrition as one of the main issues causing their company profits or culture to languish. However, few actually know how to calculate the cost of attrition. The intangible (and often, unconsidered) elements around turnover cost make it very difficult to predict spend.

FurstPerson has identified three areas that costs tend to center around: recruiting, orientation and training, and vacancy. In each of these are legitimate costs that a company endures for every hire, transition and rehire event. Using our worksheet, companies can pin a hard number to employee attrition scenario.

Discover how FurstPerson reduced attrition by 20% for a Fortune 500 firm

Recruiting costs

Job advertising, hiring a temp agency, and employee assessments are costs associated with the continual search for new talent. In some cases these costs may be straightforward, but others more abstract. Consider one study from human resources market analyst Larocque, which suggests that the average company uses 24 different recruiting technologies to find candidates for open positions. Supporting infrastructure, maintenance, training and licensing all go into heavy use of recruiting technologies. These costs are real – and need to be factored into a systems calculation when building a Cost of Attrition formula. Once candidates have been selected, additional costs are incurred to interview, conduct a background check, and deliver screenings. Understandably these costs quickly accrue. And for the manual or more interactive hiring activities, economies of scale may not reduce bottom line impact.


Orientation and training costs

In 2015, per person spending on new employee onboarding topped $1,000, according to a report released by Bersin by Deloitte. Employee orientation, training seminars and classes can cost a company thousands of dollars to execute. In addition, they tend to require a tremendous support burden; leaving other departments understaffed, reducing productivity and workplace or team continuity. Further, once a new employee joins, that individual will naturally operate or produce at a less-than-normal rate. This is part of an expected ramping period in which the individual learns. Their ramp, however, also reduces the effectiveness of the manager or surrounding team who must support this initiation.

Some research suggests that it takes new employees up to eight months to function at peak productivity. With attrition cycles often moving new hires out even within that time frame, the compounding effects and costliness of poor hiring is stark.

Download Now: How to Understand and Dramatically Reduce Attrition

Vacancy costs

In 2001, the average job opening sat unfilled for 19.3 days. Today, that number is closer to 28.1 days, according to a January 2018 report by DHI Hiring Indicators. A position that sits unopened for nearly a month costs a company in myriad ways – lost productivity and additional overtime costs due to shortages, in particular.

Attrition also disrupts companies in other, more qualitative ways. Constant employee turnover produces instability and discontinuity within an organization. When left unchecked it creates a perpetual cycle of turnover, expense, and culture decay. These exacerbate one another, compound and add to the running attrition cost sum.

Many attrition costs are ambiguous and span multiple departments, including human resources, finance and IT. However, establishing the bottom-line beginning point of role attrition remains critical. It is key to understand the span of one’s operational footprint and improve business processes. Further, by inventorying specific cost categories and looking at total attrition cost as sum of many smaller investments, savings opportunities may get uncovered on a line item by line item basis.

Once recovered from the initial shock, companies that truly understand the level of attrition spend are positioned to improve. They find new motivation and departmental collaboration to grow the quality and performance of their employees and hiring processes. Alongside this, they find cultural and workplace health becomes a competitive differentiator. This attracts better qualified talent, spurring a new cycle of beneficial hiring, cultural growth and attrition decline.

Learn more about how we help our customers dramatically reduce attrition!

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