The cost of poor talent decisions

February 6, 2013 in

Unpublished Losses – The cost of poor talent decisions

By Steve Lowisz

Most conversations that we have in the recruiting industry around cost generally focuses on cost per hire of the candidate identified, engaged, and ultimately selected. What about the cost of a poor recruiting decision, otherwise known as the Quality of Hire?

This is a can of worms that few HR or Talent executives even attempt to open since quality of hire is a difficult metric to measure. Instead of looking at the positives of focusing on Quality of Hire, let’s look at the potential negatives to your organization of making a poor hiring decision.

Your company could be losing a significant amount of money in figures that never end up on a balance sheet, however can be detrimental to your business success. Think about lost opportunities, wasted time, and overall business degradation that occurs when you make poor or rash hiring decisions not based on quality of hire metrics.

Although most organizations will pay lip service to the fact that their most important asset is their people, few companies really ensure that they attract the right people and get the wrong people off the bus. What is the real cost/effect of making poor hires or procrastinating on needed action of current staff?

Although many of these numbers are subjective, let’s first look at the overall, non-balance sheet cost of a poor hire:

1. Recruitment Costs

  • HR/Talent Acquisition Time
  • Management Time
  • Interview Team Time
  • External Tool Cost – Agency, Job Board, Etc.

2. Compensation

  • Poor Hire Salary
  • Poor Hire Benefits
  • Overhead – Phones, Technology, Etc.

3. Productivity Losses

  • Start-up Performance – Less than Acceptable
  • Low Morale of Co-Workers
  • Standards of Performance Lowered by Default

4. Lost Business

  • Prospects Lost
  • Customers Lost
  • New Business Lost

5. Other Costs

  • Unemployment Compensation
  • Severance Allowances
  • Legal Fees
  • Reputational Impact – Often Leads to Lost Business

If you just add up the wasted time, the cost of a poor hire could be monumental! Although there is no perfect was to calculate actual cost, it’s obvious that one bad hire could have lasting impact. Isn’t the quality of hire really where an organization’s recruiting team can have the greatest impact? Why do so few companies measure this?

Let’s switch gears for a minute. We do not live a perfect world where every hire can be guaranteed to be a good hire. What do we do if we make a bad hire? Why do so many organizations regard mediocre or poor performance with more time? Let’s take a look at the potential cost of procrastination:

1. Holding on to Poor Performers

  • Mediocre and even poor productivity becomes acceptable in the company because of non-action.
  • Mangers waste too much time trying to change behaviors that are in the DNA of a poor performer.
  • Wasted money on training programs to try and improve performance of poor performers that do not display the core competencies of the position.
  • Management is viewed negatively for not addressing the low performance.
  • Possible loss of customers and prospects.
  • Eventual negative impact on the company’s performers.

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