If there is one constant in HR and Recruiting – it is the fact that no one will ever agree on how much a bad hire costs an organization! Never! It doesn’t matter how much time you put into coming up with some algorithm, how much research to back up your numbers – it’s still going to be 90% subjective/soft numbers at best. This is the main reason executives in our organizations think the majority of HR/Talent Pros in the world don’t get business! We come to them with stuff like this:
“We need to reduce turnover because of Engineer who leaves us, costs the company $7,345,876.23!”
Then you go through a 73 slide PowerPoint deck showing how you came up with the calculations all the way down the parking meter expense during the interview, and when you’re done – no one believes you’re even close to an actual number.
The gang over at National Business Research Institute put together a pretty good infographic proving my point – take a look:
97%+ of the ‘lost’ cost is from “Training” and “Productivity Loss” – those are very subjective measures in almost all organizations. What that says is – ‘Oh, Jimmy isn’t working out – fire him – and because he wasn’t working out we lost ‘X’ percent of productivity over any other possible replacement (which in itself is a whole other leap)’. And, we lost 100% of training we put into Jimmy because he is now not here. Which again is subjective, since most training isn’t one-on-one, and resources used to train are almost always not used just on one person, etc.
So, here’s a better way to figure out the cost of a bad hire:
1. Ask your head of finance or accounting what they think it costs? “Ballpark it for me?” $10K? Sounds great! We’ll use $10K.
2. Use $10K as your cost of bad hires.
Your reality – HR’s Reality – is it really doesn’t matter what the number is – only that the powers that be in your organization all agree on the number. Stop wasting your time trying to come up with a better number – just come up with a number that those signing the check agree is probably legit.