Context

A greatly underestimated aspect of business is the loss of staff members. Too many organisations just accept that people will leave and, therefore, limit the amount invested in them.

An old adage is people leave bosses, not jobs. This has a strong kernel of truth, but people today are becoming more discerning about the brand, its principles, and the products of their employers.

If someone dies or wins the lottery there is nothing we can do.

What can it really cost a business?

---

Assumptions

For the purposes of this projection a number of assumptions are made. It will always be the case that the specific situations the employer faces is different to this but, hopefully, it will make the point. All of the assumptions can be challenged; however, this is not scientific, merely indicative.

• The notional resigning employee is competent, and nobody wants to lose her. She isn’t a highflyer and certainly isn’t in a performance management process.
• She is a member of a six-person team, reporting to a manager who, for the purposes of this calculation doesn’t take on any of the work left by being one person below headcount.
• The other five people absorb equally the extra workload which, in effect, reduces their effectiveness by 20%
• The role is necessary
• It takes three months to recruit the new hire (in itself optimistic)
• An employment agency is used to source candidates
• Technology isn’t used to sift and long list
• Management time in preparation, interviewing and decision making for six candidates and two second interviews equates to two weeks at twice the salary of the new hire
• Administration e.g. acknowledgements, invitations, references, contract
• The prime candidate accepts the job
• The new hire doesn’t leave in the first three months, which is occurs in a third of cases!
• The salary of the new hire is £40K
• Onboarding takes two weeks and to be competent takes three months

Real Value of the Competent Person

The ‘cost’ of a person on £40K is actually about £45K to employ.

For any business to be profitable (and this also applies to not-for-profit operations to be effective) each person needs to contribute at least twice their cost.

So, in this case the calculation is based on £90K not £40K. Finance Directors should be encouraging additional people IF they can be fully utilised. It truly is an investment, not a cost.

---

The Calculation

Aspects                                                                                                %age of a ‘Person Year’

Demotivated leaver for one month @ 50% effective                        4

Five team members operating @ 80% effective for 6 months          50

Management time                                                                              8

Administration                                                                                    2

Employment Agency (£20K)                                                               50

New Hire efficiency average 50% for 3 months,                                12
including onboarding 

Total                                                                                                    126     

Therefore:

126 % @ £90K = £127K

---

Conclusion

The loss of a totally notional leaver is £127000. This makes no accommodation for demotivated staff, lost customers, diminished supplier relationships…

NB If the salary had been £20K the effect would be £64K, albeit it is quicker to recruit and train lower salary roles if candidates are available.

Imagine the costs, for example, in a Call Centre with annual attrition rate of 100% of staff, and the impact on quality-of-service clients receive.

Sometimes recruitment is quicker but sometimes it takes longer and costs multiply. Even if these assumptions are over egged, this does make the point graphically that we need to keep our productive people.

Of course, on occasions the team just absorb the knock-on effects to their workload, but that prompts the questions do we need to recruit and are the other roles really properly ‘loaded’?

Our paper regarding Retention is available.

Please do let me know your thoughts:

---