It’s Spring! The workforce landscape is changing. For Human Resources, demands for innovation and transformation are not slowing down. It’s a perfect time to evaluate what’s working. Or, perhaps you want to better understand what’s not. In times of uncertainty, businesses tend to focus on controls. When evaluating risks, expenditures and overhead, the cost of hiring an employee is significant. There is a lot to consider for today and tomorrow. Unfortunately, time doesn’t bend to accommodate change. But as people, we must!
When it comes to purchases, big and small, understanding return on investment (ROI) is vital. Let’s face it, our HR revolution comes with a price tag. Understanding the the real value of investments in Talent Acquisition is one thing. Expressing it mathematically is another…
Whether you are proposing new resources or justifying current costs, now is an opportune time to reevaluate cost per hire (CPH).
Investors typically calculate ROI by dividing net profit by total assets. So if your net profit is $250,000 and your total assets are $500,000, then your return on investment is 50%. The Society of Human Resource Management (SHRM) and the American National Standards Institute (ANSI) have a similar standard for calculating cost per hire (CPH). Take a look at the CPH equation.
To illustrate the ROI of hiring efforts, internal and external costs must first be determined. There are a number of values to analyze when totaling these costs. However, there are also factors that aren’t easily measured. By knowing all of the values associated with hiring, internal, external and subjective, you can understand the real cost of hiring an employee.
- Job Posting and Recruitment Marketing Expenses
- Competitive Compensation Packages, Relocation Fees, Sign-on Bonuses
- Campus Recruiting, Job Fair and Recruitment Event Costs
- Candidate/Recruiter Travel and Immigration Expenses
- HR Tools and Technology, Background Checks and Drug-Testing Costs
- Employee Referral Awards or Payments
- Pre-Screening, Eligibility to Work, Pre-hire Health Screen Fees
- Contingency Planning, Labor or Conversion Costs
- Sourcing or Recruitment Process Outsourcing (RPO) Expenses
- Third-Party Partnerships or Consultancy Fees
- Staff Recruitment and Sourcing Costs
- Governance and Labor Compliance Expenses
- Onboarding and Payroll Costs
- Contingent Labor Workplace Costs
- Workforce Learning, Development and Engagement Program Expenses
- Secondary Management Costs of Time for Recruiting, Events and Programs
Whether stretching your management style to accommodate hybrid work models or stretching job functions to adapt to furloughs or lay-offs, flexible is a word we are hearing constantly. Unfortunately, our affinity for flexibility doesn’t translate to our never-ending quest for data… i.e. “proof.” Personally, I live in the abstract. My husband, a former Professor of Math and Statistics, can attest to the maddeningly creative math that makes for. He’s far more concrete than me. Still, “proof” is a word he’s not inclined to use. Thankfully, a mutual appreciation for outliers keeps us from overinvesting in our mathematical debates. Isn’t that what flexibility is all about?
I may not be a math expert, but I am a darn good storyteller. If there is one take away from my Political Statistics education, it’s that the narrative is not necessarily dictated by the data. Not because information is being used unethically or with the purpose of misleading. Often, we seek information to validate a preconceived idea, argument, statement or storyline. But validation is really just another word for proof. In my opinion, People Math doesn’t add up. When each human and experience is different, even objective evaluations become subjective.
Whether you are proposing new resources or justifying current expenses, it’s vital you include subjective values within your discussions.
The skills that work demands today are rapidly evolving. To keep up, employers are making upskilling a priority for their business. Which means that retaining these bright minds is extremely valuable to them. In addition to the lost time and decreased productivity that results when experienced talent leaves, your investments in training and development are also lost. It’s not as easy to recruit, hire and train a qualified employee as we’d like to think. If knowledge and skills already exist, you can’t afford to lose them! Even if you find an ideal candidate to hire and develop, it’s impossible to make up to lost momentum when it comes to learning.
Time is unforgiving. No matter how quickly you move, there’s not way to avoid lost time and productivity when hiring decisions go wrong. It’s impossible to measure the full impact, because there are so many variables. You can measure the value of added internal and/or external resources. Perhaps your are familiar with the cost of partnering to employ temporary labor. However, understanding the impact of the change in energy and team dynamic is not so simple. Investing in talent means thinking long-term. Even temporary solutions pay-off when implemented properly.
You can’t place a true value on the quality of the talent within your workforce. You may associate a compensation value. But that’s just the beginning. Even when two equally qualified individuals contribute equal work. It is highly unlikely that their time, productivity, inputs or outputs are the same. We are all unique. In fact, we don’t want too much of the same. Circumstances, conditions and variables make finding the right talent confounding. They also make an adequate value assessment inconceivable. Because, motivating management, effective communication, workplace wellbeing and team morale bring invaluable value to your business.
It’s not just profitability that is at stake when it comes to Human Capital. Of course, we must assess the cost of hiring an employee for informed financial planning. And, like all investments, Talent Acquisition comes with risk. Creative problem solving requires fewer constraints. Your people outcomes can improve with critical thinking and recruitment innovation. To get to know the full value of your People Operations, understand the individual talents of each person powering the programs, processes and technology within your business.