It is rarely recognized that the every-day activity of putting on a new employee is a quarter of a million dollar decision – and it’s often made without realizing what a big financial mistake it is to put on the wrong person.
Most quarter million dollar decisions are only made at very senior levels of management, and require a thorough cost/benefit analysis, and then justification.
The first point to consider is that a new appointment is a big decision – let’s say a middle-manager job paying $50,000 p.a. – over 5 years that is a $250,000 dollar decision. How about making absolutely sure that your quarter of a million dollar decision is a good one!
The cost of getting it wrong is very significant. There is the direct cost of the recruiting activity, frequently stated as around $4000 to $18000 dependent upon seniority, and whether external recruiters are used. Let’s say typically $8000
Then there are ongoing issues of employee training, under-performing and loss of productivity represented by wasted wages, and frequently morale issues as under-performers are carried by others.
So below is my cost/benefit analysis of the costs of a wrong appointment:
Activity Risk – get it wrong
Direct recruiting costs – typically ranging between $3000 to $18000. Say $8000 average. Total waste of money – have to do it all again.
Loss $8000
Induction/Probation – say six months New employee can’t or won’t perform job to satisfactory standards. Consumes much training, supervisor time and effort. May cause dissatisfaction with other employees.
Lost employee productivity of 6 months- $25,000
Cost of training, supervisors effort – $4000
Non-direct employment costs – desk, phone, car, superannuation – $4000
Ongoing for 5 years Employee under-performs and is “carried” by the organization. Likely to create resentment and lowered morale from other employees. Productivity lower, say performs at 70%, means 30% of wages “wasted”. Wages lost over 5 years $75000
Total Monies lost/wasted $116000
I often laugh when I see how much time and effort is put into purchasing a new company motor vehicle, say $30000, whereas putting on a new employee, cost $250000 over 5 years, usually receives nowhere near the attention it warrants.
In particular, high quality personality testing can help ensure that suitable employees are put on, and eliminate the risk and costs associated with an unsuited appointment.