Playing by the Numbers Means All the Numbers

For the second time in as many weeks, I’ve read that organizations have jobs going begging because they can’t find “qualified” people to fill them. Most recent: “Difficulties in Finding Qualified Workers” by Peter Cappelli of The Wharton School who notes two reasons for the mismatch:

Mismatch reason #1: tons of choice in this “buyer’s market.”

too many choices

too many choices

Organizations can hold out for someone better for less since there are so many sellers. Shopping around is a “smart” thing to do.

Question: If an organization shops around to ensure a smart decision, does it mean a) there’s no urgency to fill it (which begs the question ‘how necessary is it?’) or b) the work of the position is getting done somehow? If you’ve been in an organization recently, you know that the work has been parceled out to others. Yet somehow organizations fool themselves into thinking that this cost is insignificant, but the numbers only lie when they’re omitted.

Mismatch reason #2: what most candidates are missing can only be learned on the job, not through additional education.

highest bid wins

highest bid wins

This means organizations are looking for candidates trained with somebody else’s dime. Smart business model, you say? Only until it’s your employee going to the highest bidder.

Running the Numbers

So let’s do a little quick and dirty math, estimating what it costs an organization to shop for exactly qualified individuals in the market, rather than developing its own internal talent.

For the sake of being conservative, let’s say the open professional position is a $30/hour ($60K annual) with a loaded labor rate of 100% (= $60/hour). Peers are at the same rates, as is HR. Let’s say the manager makes double this, $60/hour with the same 100% loaded rate (=$120/hour). Any consultants make a straight $150/hour. Let’s use the average hiring time of 6 months plus a hiring manager who wants to find the best candidate for the least amount.

When the hiring manager decides to fill the position, he revises the job description just a bit, sends it to HR and has a conversation about his time line and budget. [2 hours] Then:

1. The manager divvies up the position’s critical work to four co-workers within the department. [2 hours] Let’s presume that this organization is “lean and mean” and each worker is already doing 1.5 jobs. This means that people who already have more than a full work load get more work to do. And so none of it gets done well and probably some of it doesn’t get done at all. So, the people left to cover the work become more stressed, do less quality work trying to juggle an impossible number of tasks, and work more hours like shell-shocked refugees, always wondering if their decreased productivity and quality will put them on the downsizing list.

more lost dollars

a waste of resources

So that means 4 people, all doing 2 jobs now, are reduced to 50% effectiveness…for six months. The organization is still paying each employee full wages. Big cha-ching, one not reflected in the budget but there nonetheless. [1000 hours per employee for 6 months.]

2. By waiting, the hiring manager saves the monthly salary and loaded labor rate in his budget and so becomes a ‘corporate hero,’ a great example of  ‘how to tighten the purse strings in this economy.’ Given the number of available candidates and his desire to be certain of the best candidate, the manager may be able to save six months worth of salary dollars, becoming a real hero for short-term budget views. So that’s a “budget savings” of 1,000 hours @ the $60/hour loaded labor rate, or $60,000. Nice cha-ching!

3. Human resources people get the word out, posting to different sites and continuing to review hundreds of resumes: with rigid requirements, they go through lots of chaff to find wheat. Let’s say one HR person takes 4 hours to write up the posting, list it on sites and post internally; plus 4 hours to review 300 resumes and select the top 20 to send to the hiring manager. [8 hours]

shopping takes time; time = money

shopping takes time; time = money

4. The hiring manager gets the top 20 resumes, reviews them, and selects three he wants to interview. Time for paper review, telephone interviews and notes = 6 hours.

5. None of the telephone interviews are quite good enough, so the hiring manager asks HR to re-post. He knows he can get better qualified candidates: the market’s full of people looking for work. He also calls a couple of recruiters he’s worked with and asks them to send him exact matches. [6 HR hours and 15 recruiter hours] Cha-ching.

6. Sound internal candidates are denied because they aren’t exactly right. Career moves are infrequent, so the candidates are upset, disillusioned and disappointed. Let’s say 5 internal candidates denied, now discontent and with no development dollars available, their effectiveness drops to 75% for 6 months. Another big cha-ching that doesn’t show up in the budget, at 1000 hours per employee times 5.

7. Let’s say the process repeats itself three times during the 6 months it takes to find a candidate–the average hiring time in today’s labor market. And then, the hiring manager finds the perfect candidate—for double the money. No learning curve, no development needs, ready to start tomorrow but the “savings” in his budget labor line plus the minimal learning curve makes this hire worth it.

The bottom line?
$ 199, 210 Subtotal costs for hiring the perfect candidate
(60, 000) Less 6 months of salary saved during hiring process
60,000 Additional salary for perfect candidate

$ 199, 210 Total cost

Breakdown: $ 12,060 “hiring” expense that hits the budget and                     $187,150 salary expense that still hits the budget but now for work not done

“Playing” the numbers

All the numbers

All the numbers

How much internal and on-the-job training could be done for almost $200,000? How many employees could have or be a mentor or get skills training to increase bench strength? How much of the expense could be avoided when internal candidates are ready and eager to move into positions that challenge them? How much could be saved in outplacement costs and recruiting retainers?

How much impact on the bottom line could 100% employee commitment have? How much additional top line impact could 100% employee commitment make? What level of customer service could employees who are totally committed to the organization deliver…every day and to each customer? What kind of customer loyalty and business could your organization realize?  What if each employee were productive for 8 hours rather than 6, an average found in a 2008 salary.com survey?

The simple answer? Huge impact. Gallup says over $380 billion annually in the U.S. alone.

The difficulty in using all the numbers? Moving far enough away to see the forest for the trees: to see the true costs and returns (visible and not so much) in a global economy driven by employee brains and hearts rather than by financial reports developed for a different era. If organizations play by all of the numbers, then hiring will reflect human capital as valuable, and the ledgers must as well.

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4 Responses

  1. Insightful article; the numbers speak for themselves that’s for sure.

  2. It’s eye-opening when you take a real look at the “hidden” costs…thanks for reading and commenting!

  3. Hello there,

    I am Yousuf Siddiqui and I provide coaching to leaders and organizations.
    I refer to my work as Business Performance Coaching. I increase my clients’ effectiveness by thinking through their most burning issues with them and creating plans to get tangible, measurable and specific results.

    I want to connect with you and follow you on your blog. I hope to learn from you and exchange thoughts with you.

    Thanks,
    Yousuf Siddiqui,

    http://www.growthatwork.com

  4. Hi, Yousuf: thanks for stopping by and connecting–I always appreciate meeting another coach involved in business performance mostly because there is so much work to do! I’ll stop by your site and look around, too.

    Stay in touch, and I look forward to hearing from you again!

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