# The Cost of Employee Turnover

Lean Systems
23 Jan 2018
1 sur 31

### The Cost of Employee Turnover

• 1. The Cost of Employee Turnover How to Calculate It, Reduce It, and Save Your Business Thousands
• 2. What’s the Real Cost of Employee Turnover? Topic often discussed, but rarely acted upon Difficult to put an exact number on it People are becoming more important in business Therefore, retention/turnover is more important
• 3. Why the Cost of Turnover is Ignored The first step towards making retention a priority is to quantify it. “What gets measured, gets managed.” - Peter Drucker
• 4. Actual Cost of Employee Turnover Bottom line: it’s expensive Center for American Progress (CAP) has estimated it at 213% annual salary for high-skill employees; ~20% annual salary for employees earning \$30-\$75K Josh Bersin suggests the true cost lies somewhere between tens of thousands of dollars to 1.5-2.0X annual salary Also makes the point employees are appreciating assets
• 5. Actual Cost of Employee Turnover Maia Josebachvili calculates the ROI of an employee using the term “Employee Lifetime Value”, which represents “the total net value over time that an employee brings to an organization.” In her case study, using a salesperson that earns \$50K/yr (and generates \$50K/mo in revenue), better management yields a difference of \$1.3M in net value to the company over a three year period
• 7. Calculating Your Own Cost of Employee Turnover Basic Equations Cost of turnover = # departures x average cost of departures Turnover rate = # departures / total # employees
• 8. Calculating Your Own Cost of Employee Turnover Jack Altman proposes that we can calculate the cost of employee turnover by examining four main buckets: ● Cost of hiring ● Cost of onboarding and training ● Cost of learning and development, and ● Cost of time with unfilled role
• 9. Calculating Your Own Cost of Employee Turnover ...which can be summarized in this equation: Source: Jack Altman on employee turnover cost (Hiring + Onboarding + Development + Unfilled Time) X (Number Employees x Annual Turnover Percentage) = Annual Cost of Turnover
• 10. Calculating Your Own Cost of Employee Turnover We’ve summarized the list, and provided both the basic and advanced methods of analysis in a spreadsheet for you to use here. (The spreadsheet has full details for each section)
• 11. Factors to Consider for Advanced Calculation
• 12. Bear with us here - these are all explained in detail in the spreadsheet. We’d recommend you look at both, or read the full post here for explanation.
• 13. 1. Costs due to a person leaving ○ Cost of person filling in ○ Cost of lost productivity ○ Cost of exit interview ○ Cost of manager adjusting ○ Cost of training invested in employee ○ Impact on departmental productivity ○ Cost of severance and benefits ○ Cost of lost knowledge, skills and contacts ○ Cost of losing customers ○ Subtract cost of saved salary These are adapted from the list by William Bliss. Factors to Consider for Advanced Calculation
• 14. 2. Recruitment costs ○ Advertisements, referrals, recruitment agency ○ Cost of internal recruiter/HR person ○ Cost of other recruitment personnel ○ Cost of hiring process ○ Admin cost of handling resumes ○ Cost of drug screens, background check ○ Cost of pre-employment tests Factors to Consider for Advanced Calculation
• 15. 3. Training costs ○ Cost of orientation ○ Cost of departmental training ○ Cost of person conducting training + materials ○ Cost of supervisory time spent reviewing work Factors to Consider for Advanced Calculation
• 16. 4. Lost productivity costs ○ 4 weeks at 25% productivity ○ 8 weeks at 50% productivity ○ 8 weeks at 75% productivity ○ Cost of lost coworker/supervisor productivity ○ Cost of new employee mistakes ○ Cost of lost department productivity if person is manager ○ Impact cost on completion/delivery of critical project ○ Cost of reduced productivity if person lost key staff member for management Factors to Consider for Advanced Calculation
• 17. 5. New hire costs ○ Admin cost of bringing new person onboard ○ Expense of manager time reviewing work Factors to Consider for Advanced Calculation
• 18. 6. Lost sales cost ○ Lost revenue for vacant time (sales rep) ○ Lost productivity percentages for lost revenue (sales rep) ○ Revenue lost per employee (non-sales person) Factors to Consider for Advanced Calculation
• 19. Reducing the Cost of Employee Turnover
• 20. Comes down to two main aspects: 1. Reducing the cost of turnover when it happens 2. Reducing turnover itself
• 21. Reducing the Cost of Employee Turnover When It Happens Maia Josebachvili does a good job summarizing the four main factors that maximize the “Employee Lifetime Value”, which is another way of saying “minimizing the cost of employee turnover.” Generally: 1. Minimize time where employee is “cost” - hiring and onboarding 2. Maximize potential of employee through good management
• 22. Source: Maia Josebachvili on the ROI of investing in people
• 23. How to Maximize Those Four Inputs?
• 24. According to Maia: “Onboarding: A good onboarding program accomplishes two goals: 1) It decreases the time it takes an employee to become a fully contributing member, and 2) It significantly increases the likelihood that the employee will stay with the company long-term. Hiring: An excellent hire has a higher maximum output from the beginning, plus has the added network effect of attracting and elevating other top performers. Management & Development: Excellent management and development practices increase the value an employee brings to the organization over time. Management & Culture: A strong management practice and positive culture are directly correlated with retention, which results in an increase in ELTV.”
• 26. Jack Altman suggests focusing on “growth, impact, and care” ● Have conversations with employees about goals ● Give them more responsibility ● Help them acquire new skills to encourage growth ● Articulate a clear and purposeful company mission ● Build culture that shows care and appreciation
• 27. Our Views on Reducing Employee Turnover
• 28. Main driver for employee turnover is quality-of-life, particularly in operations roles and logistics businesses Policies like guaranteed days off need to be carefully considered, as they can impact the operations planning teams too Optimization can maximize resources under quality-of-life constraints
• 29. You can solve scheduling and routing problems using the cost of turnover as part of overall cost optimization Optimization also allows concrete examination of what-if scenarios before implementation, aiding in decisions about hiring, guaranteed days off, or other perks
• 30. Good luck! Please share with us if you use the model!