The Cost of Poor Recruitment…
It can be very difficult to genuinely quantify the cost of getting a recruitment decision wrong. It is not something that businesses like to dwell on, but the true cost can often far exceed our expectations.
Recent studies in both the UK & Australia* have shown that the cost of making a poor recruitment decision ranges between 110% – 137.5% of the annual salary. The studies focused on the overt or visible costs associated with the selection then exit of middle managers, who had spent approximately three months in their respective roles. In addition to the overt costs, the covert costs (i.e. litigation or employment relation advice, team morale issues, lost sales opportunities, client dissatisfaction, & impact on brand or reputation) can add significantly to the real cost of poor selection.
We have applied these findings to our local market place, to assess how relevant the larger market figures are. We have been conservative in our review & analysis, and have factored in local pricing structures.
In this example we have chosen a “business manager” on $60,000, who resigns after three months in a role. The estimated cost to business at this stage is high, as this manager is unlikely to have made a meaningful contribution to the businesses overall performance (we know that it can take 3+ months for people new to both a role and a business to really perform).
- Recruitment & Advertising costs = $9,400
- Salary & notice period = $20,000
- Management time (selection) = $1,000
- Management time (induction, training) = $5,000
- Administration costs = $1,500
- Delayed “projects” cost** =$25,000
- TOTAL = $61,900 or 103%
In this regard we see that our local market costs are lower than both Australia and the UK (as expected), but still show that this selection error has cost the business approximately a full years salary for the role (before factoring in any covert costs)!
Regardless of your recruitment needs, approach each selection with a great deal of care and due dilligence!
* Sources = CIPD, The People Bulletin (UK), Chandler Macleod, Barrett (Australia)
** Refers to projects, BAU activities that the manager is responsible for, & change initiatives & improvements that this role has direct responsibility for.