| The Cost of a Bad Hire | | | | * Handling phone calls |
| Ever wonder what that last bad hire cost your | | | | * Receiving and organizing resumes |
| organization? Have you ever considered how securing | | | | * Reviewing resumes |
| the services of a professional recruiting firm, even in | | | | * Arranging interviews (how many first interviews |
| instances where surplus talent may be available, | | | | would need to be scheduled and how much time |
| might actually be a value-added proposition for your | | | | would it take to coordinate schedules and possible |
| company? A quick survey of general hiring costs and | | | | re-schedules?) |
| the costs related to bad hires may help to provide | | | | * Conducting first interviews |
| some needed perspective and actionable guidance | | | | * Developing a short list of candidate for second |
| regarding your next hiring decision. | | | | interviews |
| We recently visited with the CEO of a manufacturing | | | | * Additional testing of short list candidates |
| company that posts approximately $20M in annual | | | | * Arranging second interviews |
| revenue. We had been retained to fill a specialized | | | | * Conducting second interviews |
| engineering position that was left vacant after the | | | | * Performing reference checks |
| dismissed employee was terminated due to poor | | | | * Extending an offer |
| performance. | | | | * Sending rejection letters |
| What is interesting about this case was that the | | | | * Other specific hiring and assessment related |
| dismissed employee had gone through a pretty | | | | activities |
| exacting internal screening process before being hired. | | | | Determining the costs related to the previous |
| Individual and group interviews were conducted, | | | | activities depends on several assumptions: |
| personality and intelligence tests were administered, | | | | 1. You get a good response to your first |
| and ultimately a consensus decision was reached to | | | | advertisement. |
| hire the individual in question. Two years later the | | | | 2. The first candidate offered the job accepts and |
| company was again seeking to fill the position. The | | | | starts. |
| costs to the company for this bad hire? The | | | | 3. The hired candidate works out for the long-term. |
| company estimated an astounding $2.5M! Not a small | | | | If any of these assumptions fails to hold true then |
| sum for any organization and certainly not for a | | | | the costs can go up substantially. |
| company of this size. | | | | Now consider the costs related to bad hires: |
| What prompted the termination? It wasn't what she | | | | * HR time and other recruiting / interviewing costs |
| did. She satisfied the basic requirments of the | | | | (see above) |
| position. It was what she didn't do. She really didn't | | | | * Salary and benefits covering the period of time the |
| excel and by all accounts could have done much, | | | | poor performing individual was employeed |
| much more to help the company move forward. How | | | | * Training / Orientation Costs |
| could such a hiring mistake have occured? Well, bad | | | | * Productivity Losses |
| hiring decisions can happen to anyone but often such | | | | * Lost customers / market share |
| costly mistakes can be avoided by well designed | | | | Other related expenses: |
| internal hiring procedures or enlisting the services of | | | | * Negative effect on co-workers' morale and |
| an experienced recruiting firm. | | | | productivity (difficult to measure but can be very |
| On the surface outsourcing the recruiting function to | | | | significant) |
| a third party may seem like an unnecessary expense, | | | | * Unemployment compensation, legal fees, severance |
| especially in today's labor market where there may | | | | pay |
| be a large pool of available talent fitting your | | | | * Additional recruitment and training fees which must |
| particular needs. However, before deciding to utilize | | | | be repeated with a new hire |
| in-house resources for your next hire you may want | | | | Want to determine what that last bad hire can |
| to consider what a growing body of research has to | | | | actually cost your organization? Here is a Bad Hire |
| say about bad hiring decisions. Outsourcing the hiring | | | | Calculator: |
| function can not only save your organization money | | | | (A research study completed by Right Management |
| but also make you money in the long run. But before | | | | reported that the cost of a bad hire ranged from |
| we consider this information, let's first look at the | | | | one to five times that employee's annual salary. |
| standard costs involved in hiring a new employee: | | | | Costs for bad hires can vary tremendously depending |
| Basic Activities/Costs Related to Recruiting and Hiring | | | | on the nature of the position in question and costs |
| * Outlining the specifications for the position (job | | | | that are included in the calculation (see "related |
| description, compensation package, etc.) | | | | expenses" above for expenses often not included in |
| * Writing and placing the ad | | | | these calculations). |