Cost vs. Time vs. Loss

Calculating Cost-per-Hire

Cost-per-hire is the most frequently encountered measurement parameter in the hiring practices. It can apply both to internal promotions or transfers, as well as new hires from outside the organization. Internal consistency of measurement within the organization will provide reasonable comparison of one cost-per-hire over another.

Cost-per-hire calculations can get extremely complicated, but the argument can be made that unless they are complex, any over simplification can create extreme inaccuracy. The latest Compensation Planning Outlook published by the Conference Board of Canada calculates the average cost-per-hire as follows:

Executive $43,000

Management/Professional $17,000

Technical $13,300

Clerical/Support $ 3,300

Calculating Time to Hire

This measurement parameter is easy to calculate, however statistics are somewhat harder to come by.

Quoting the Compensation Outlook 2002 by the Conference Board of Canada, the average time-to-hire has been calculated as:

Executive 15 weeks

Management/Professional 9 weeks

Technical 7 weeks

Clerical Support 4 weeks

It notes that these are averages; everyone has heard horror stories of extreme time lines, especially at the executive level where time-to-hire can take from twelve to eighteen months. Also seen at the technical level, where there are often critical skill shortages, the time-to-hire of seven weeks could be viewed as an incredible victory.

Calculating “Wrong Hire”

Here are some suggestions of other equally relevant measurement parameters that should be considered when calculating the quality of your hiring practices.

The cost of “hiring wrong person” can be hard to measure, but some attempts have been made to provide measurements on a consistent basis. Without a doubt, the costs of hiring wrong person could be massive. Cost alone may not be the only consequence of “wrong hire”. In critical positions like doctors, “wrong hire” could result in at least lengthy waiting times in the emergency room, and at worst, the death of a patient who received wrong treatment or didn’t receive treatment at all. In the business world, the costs of “wrong hire” at the management level can also cause side effects like the departure of subordinate staff, who feel the lack of care from above and for whom there are many alternative career options outside the organization that can be pursued.

The quality of hire is perhaps the most critical of all measurement parameters.

It’s apparent that companies need to invest in proper pre-screening and assessment system in order to improve quality of new hires and minimize risk of hiring wrong people. Any short cuts in the hiring and selection process can be devastatingly expensive. Measuring cost-per-hire alone is a common over-simplification of the business issues involved. There is way too much at stake to treat this subject lightly.

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