Calculating the Cost of Bad Hiring Decisions
A good hire is a great step towards the success of a business, aiding in compiling a strong and committed team. However, this is no easy feat, and unfortunately, bad hires happen frequently. The costs of bad hiring decisions can be high—and not only financially speaking. A poor hiring choice can have less easily measurable but extremely adverse effects across the whole company.
Financial Costs of Bad Hiring Decisions
If you consider the entire hiring process, each individual element reveals all manner of opportunities for poor decisions to be made, all of which has a potential cost attached to it. Factor in your own time, and that of HR, training, severance, etc., and you’ll see that the consequences of a bad hire are very significant. Indeed, they go far beyond the cost of paying a recruiter, or for advertising, to find someone new.
So how much will a bad hire set you back? To make an informed estimate, there are many things to bear in mind. The range of costs is vast and varied, including recruiting, interviewing and lost opportunity time, which can last anywhere between a few days and six months depending on how long it takes to realize it’s a bad fit. Add in firing costs, and you’re looking at a serious financial drain.
A little research will lead you to some data that is frightening. The US Department of Labor states that the cost of a bad hire can equal around one-third of the employee’s salary in the first year, whereas, The Undercover Recruiter estimates average expenses of a bad hire and consequent firing to actually be around $840,000!
Online calculators exist, which allow employers to tally up the cost involved with their own particular circumstances. Fields include advertising, hours spent interviewing, and reviewing resumes, among others. There are also formulas that can help companies determine the cost of specific aspects of the hiring process, such as turnover, revenue per employee, and recruitment marketing. As you might imagine, it’s sobering reading.
Cost To The Team
Aside from quantifiable financial costs though, the adverse effects of a poor hiring decision on your company’s health can be much more far-reaching and long-lasting.
A bad hiring decision is an HR headache. Realizing a bad fit quickly is one thing, but if the bad hire is not instantly apparent, you can waste a significant amount of time trying to locate the true problem.
Productivity naturally suffers as a result also. Particularly in a small team, one rotten apple can spoil the bunch, and undoing the damage can be time-consuming and complicated. Bad hires can create tension, or even resentment, where one person ends up covering for a weaker link too often.
Customer & Vendor Relations
These poor hiring decisions can wreak havoc on customer and vendor relations. Such relationships, which are so dependent on building and maintaining trust, can be destroyed in an instant by an insensitive or inexpert move by a bad hire. The intangible cost of rebuilding or replacing these links can be astronomical and hinder the company’s future growth.
The cost of bad hiring decisions is a highly relevant and important topic, of which all companies should be aware. The potential for disaster, from enormous financial impact to reduced morale and productivity, shows that it pays to invest time and energy into making good hires. Bringing industry-specific hiring insights can help bring market knowledge to searches, that can guard organizations from the impacts of poor hiring decisions. Putting in the time and effort, and potentially consulting with an expert, can protect relationships, trust, and the bottom line.