Human resources costs also subject to analysis

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, remains unanalyzed in terms of the cost of hiring and turnover.

These amounts significantly affect the bottom line and it is past time to calculate and review them regularly, just as management examines profit and loss statements.

Four items must be monitored:

Turnover

Determine the extent of your personnel retention problem. 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 alone is another alternative because not all turnover can be controlled.

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

Cost of recruiting

Detail every expenditure. Recruiting items might include the cost of 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 stop using methods that are not financially justified.

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

Numerous staff members invest their time throughout the process. Compute this expense by considering the time spent in 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 by personnel who spend time filling a vacant slot.

Time is also a major factor in 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 your fresh hires during the education phase.

On average, you will find that replacement and orientation expenditures alone equal half of a worker's annual salary according to the Society of Human Resource Management.

The expense of the job vacancy itself is more challenging to assess. Review 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 burnout.

Cost of 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 also 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 still factors,

Cost of lost customers

When workers leave, it is not uncommon for them to take your customers to their new employers. 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 need to stop making critical decisions that notably affect the bottom line based upon scant human resources information.

(Lynne Haggerman is president and owner of Haggerman & Associates, an employment, management training, human resources consulting and outplacement firm.)