Calculating the impact of a bad hire

Every organisation encounters wrong hires. There have been many estimates on the cost of bad hire, but they all agree on one thing – it is hugely significant. An Oxford Economics report estimates the average cost of replacement at GBP 30,000. According to the U.S. Department of Labour, it is at least 30 percent of the employee's first-year earnings. Depending on the role, studies peg the replacement cost as anywhere between 6 to 12 months of their salary.

 

Quantifying the cost of a hire

 

The actual cost of a hire may be classified under 3 broad categories:

 

The actual cash pay-out – This includes costs associated with sourcing interviewing, screening, and hiring

The on boarding cost of a new employee - This includes training and time spent by the hiring manager to make the employee job ready

Loss of billing – From the time a position falls vacant to the time the new person joins; and may be even till the person becomes fully productive, loss of revenue is critical - especially in roles such as sales.

 

According to research, employees take an average of 24 weeks to attain optimum productivity. However, the price to pay for a bad hire goes beyond just the cost. When bad hires leave the organisation, they leave behind a trail of loss - of lost productivity, of reduced efficiency of customer service, and of disengagement of existing talent.

 

The price of disengaged hire

 

For one, a disengaged employee, who does not contribute can cause burn-out of good employees as they make up for their lack of contribution. This leads to a cascading loss of enthusiasm – and loss of good talent. It is estimated that 80 percent of employee attrition is directly or indirectly tied to poor hires.

 

Plus, poor performers lower the bar for other employees, which can become a debilitating contagion in the organisation. The investment of time and resources to reset behaviors may significantly damage organisational growth, profitability and brand reputation.

 

Minimising the impact of bad hires

 

In today’s scenario of specific roles and accountability, and the frenetic pace of work, it becomes imperative for everyone to contribute at levels of uncompromising excellence. This means knowing and doing more than what is expected, and sometimes beyond the scope of one’s responsibilities.

 

The reason is simple. Every employee’s performance has a distinct and measurable impact on a company's competitive advantage, costs, revenues and profits. With flatter organisations becoming a norm, the onus is on the frontline employees to be more self-empowered. This also gives very little room to fail.

 

Avoiding bad hires

 

The first step for organisations is to be clear on whom they really want to hire. The recruitment process should take the extra effort to create relevant and uncluttered job descriptions and have answer to the following question - if it comes down to skills v/s traits, what should your organisation do for that particular role.

 

In the chain of the recruitment process, an organisation must leverage all the tools and resources available – a consistent interview process, trained and well coached interviewers, the right employer branding, discerning referrals and background checks, modern hiring methods, and customised analytics to measure hiring effectiveness. If necessary, using competent external expertise may be a good idea.

 

People are an organisation’s most important asset. There can be, thus, no compromises or shortcuts to build the right workforce. The key to hiring right and avoiding bad hires is to develop an efficient hiring plan and execute it meticulously.

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