HR Solutions: Hiring, turnover influence company profitability

Lynne Haggerman is president/owner of Haggerman & Associates, a firm specializing in management training, retained search, outplacement and human resource consulting.

Sales, profit, production and quality figures are key indices of the financial health of a company.

However, human resources the largest line item in the budget often remains unanalyzed in terms of the cost of hiring and turnover.

Hiring and turnover significantly affect the bottom line and should be reviewed regularly, just like management examines profit and loss statements. Four items must be monitored.

Turnover. The following formula would be applicable to evaluate turnover monthly: divide the number of staff who left during the month by the total number employed at the middle of the month. In addition, tabulate different rates for each department or job in the organization.

Computing avoidable turnover is another alternative since not all turnover can be controlled.

First, select a time period to assess. Second, judge which resignations were unavoidable. Third, subtract that figure from the sum of both avoidable and unavoidable departures. Fourth, divide that computation by the gross number of workers at the middle of the time period.

Cost of recruiting, interviewing and orientation.

Detail every expenditure. Recruiting items might include consulting firms, placement agencies, temporary agencies, print and radio advertising, and Internet job posting and resume database sites. Obtain a price per hire for each recruiting option and cease using methods that are not financially justifiable.

Possible interviewing charges consist of forms, long distance, hotels, airfare, entertainment, background investigations, drug testing, employment physicals, relocation packages and trailing spouse job assistance.

Numerous staff members invest time throughout the process. Compute this expense by considering meetings to discuss progress, problems and candidates. Be sure to include execution of the recruiting options, telephone calls from inquisitive job seekers, interviews and reference checks. Don't forget to incorporate the cost of other work not being performed.

Time is a major factor in orientation and training.

The average time spent developing new employee classes is 10 hours of preparation for every hour of presentation. Add up materials, instructor time, participant time and below-standard production, quality and error rates by fresh hires during the education phase.

On average, selection and orientation expenditures equal half of a worker's annual salary, according to the Society of Human Resource Management.

The expense of the job vacancy itself might consist of overtime and monies spent on temporary staff through agencies. More challenging to assess is the cost of prospective client sales not captured and current customer sales lost due to lack of staff. Reflect upon decreases in customer service and increases in turnover from employee and supervisor burnout.

Cost of voluntary and involuntary termination. An inordinate amount of time is taken for personnel problem identification, counseling and follow up. Paperwork, exit interviews and general processing must be considered. Unemployment claims and lawsuits are becoming more common and quite costly.

Organizational memory loss concerning company history, management styles and the rationale behind key decisions are more intangible to measure, but are still factors.

Cost of lost customers. When workers leave, it is not uncommon for them to take clients to their new employers. And, as any business owner knows, it takes more money to win new customers than keep old ones. In addition, loyal clients are harder to come by without loyal people in an organization.

Managers would never dream of running a company without a monthly review of profit and loss statements. In the same way, leaders shouldn't make critical decisions that notably affect the bottom line without sufficient human resources information.