Have you ever try to calculate employee turnover costs?  Read this great article below written Dr. Carlsen as he explains how to calculate employee turnover costs.

It is often said that we live in a “throwaway” society. It is frequently easier, maybe even cheaper to dispose of things, rather than repair them. When was the last time you had your TV repaired, or your toaster, or your cell phone? When it breaks or is obsolete, or a new model appears on the scene, junk the current version.

DISPOSABILITY

We live in a world of convenience. When something, or someone, is no longer convenient our first reaction is to dispose of the offender. Even people have become disposable. Tired of your wife? Get a new one. Tired of your parents? Ship them off to an “old folks” home. This “out with the old, in with the new” mentality has become pervasive, and it is not without implications and consequences.

In the workplace the emphasis is on productivity. New employees typically bring more up-to-date knowledge and skills. It is easier to acquire these new “models” than it is to “repair” the old, by investing the time and cost of training. And there is frequently not an acknowledgment of the value of organizational memory and experience.

A COST-BENEFIT ANALYSIS

Business decisions are dollar-driven. The costs and benefits of each course of action is calculated and weighed. Emphasis is on cost-effectiveness, as the business must generate profits to survive. Although we may not always do a careful analysis when making personal decisions, hopefully in business we will be more objective, as the overriding concern is profitability.

William Bliss, President of Bliss & Associates, has a formula for calculating the cost of employee turnover. In The Advisor (www.isquare.com) he outlines a detailed list of considerations totaling over thirty-five separate cost items. The primary categories include: Costs Due to a Person Leaving, Recruitment Costs, Training Costs, Lost Productivity Costs, New Hire Costs, and Lost Sales Costs. The calculations reach an impressive 150% to 250% of annual salary, depending on the position. So, before you terminate that $50,000 employee think of the $75,000 to $150,00 you will spend in replacing them.

Of course the turnover costs may not apply to every situation. If you don’t plan on replacing the employee you are not confronted with this problem (although you may have others). With a straight layoff you will not experience many of the turnover costs but you may have severance pay and benefits, decreased productivity, and other direct and indirect costs.

DECISIONS

Human Resources decisions are seldom easy. Whenever these decisions involve employee separation, either by the employee’s volition or a business decision it can be a painful and costly process. Company policies and practices which contribute to a reduction in employee turnover usually pay off. Employee retention has its benefits and these benefits can be dollarized. Other intangibles like morale may also be considerations.

The decision to terminate an employee should not be taken lightly as it impacts both the employee and the employer. Carefully consider the decision before taking action. It might be cheaper to retain and retrain the employee, transfer them to another assignment, or just keep them on the payroll. You don’t really know what the replacement employee will be like, how they will perform, or how long they’ll stay.

We may live in a “throwaway society” but this norm is based on convenience and low cost. When it comes to people it may be neither.

Dr. Carlsen has over 30 years experience in management, consulting, and teaching. Currently the Head of the Business Department at Everest Institute, Hialeah, FL., he was Chairman of the Los Angeles County Productivity Managers Network and President of the Association for Systems Management (So. Calif. Chapter). Additional information can be obtained at http://drben.info

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Thanks Dr. Carlsen for your great article on how to calculate employee turnover costs.  Make sure you click on this link for more information http://www.isquare.com/turnover.cfm