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The Human Capital Challenge: How to Maximize Talent Resources for Better Business Results - Session 1


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The overall success of every organization depends on the employees doing the work. In companies of all sizes, talent management is at the top of owners’ and executive’s to-do lists – they see talent …

The overall success of every organization depends on the employees doing the work. In companies of all sizes, talent management is at the top of owners’ and executive’s to-do lists – they see talent as a significant competitive asset, but report their frustration with long hiring processes and unpredictable outcomes.

This free three-part webinar series shows business owners and managers how to improve their hiring success fast. Most small and mid-sized companies focus time and resources on finding the “right” employees – the people they need to grow the business. But three out of four businesses report making at least one hiring mistake that cost thousands to fix.

Join Paula A. Soileau, CPA, Co-Founder and CEO at Affintus LLC, while she addresses the science behind hiring success.

The majority of business leaders believe employees can make – or break – the business. Participants in this series learn how to adjust their hiring systems to reduce the time and cost of hiring while identifying the candidates who really will make the best employee.

SESSION 1: The Value of Talent: Calculate your cost to hire and learn how to reduce it

Tuesday, December 4, 2012 11:00 AM – 12:00 PM CST

Figuring out how much you spend to hire someone is eye-opening. Most companies do not track this critical expense. In this session you will find a simple method for calculating cost-to-hire and then brainstorm ways to reduce the cost and time-to-hire.

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  • Finding the right candidate takes too long : 55% of respondents involved in hiring at their company reported that filling a vacant position typically takes longer than 60 days, and 43% reported that open positions aren ’t filled within their required timeframe Employers settle for good enough: almost half of respondents involved in hiring report settling for a candidate that was just “good enough” because finding the right candidate took too long more than 60% of respondents, job-seekers and employers said that their experience with the hiring process has been less than positive Inefficient hiring impacts more than HR : 70% of people surveyed indicated that their company includes at least three employees in each hiring decision Candidates give up before applying : almost half – 46% — of respondents have chosen not to apply for a job they are interested in due to an application process that was “too lengthy or complicated” And it ’s not that HR and managers aren’t working hard. And it’s not that job seekers aren’t doing their best to connect and market their abilities. It’s that we haven’t prioritized this as a “must fix.” Leveraging technology to match supply and demand is a no-brainer. People have biases that make it difficult to evaluate who is good, who is great, especially if they are not like “us”
  • Hiring does cost businesses a lot of money – here ’s what impacts those costs Turnover rate – higher turnover rate translates into more hires to replace those leaving Number of hires in a year – either to replace those who left (see turnover rate), or due to growth of company (new positions) Time to hire – the longer positions remain open, the more lost opportunities, lost business, lost revenue, lost productivity – open positions cost the organization, so the longer the position is open the higher the cost Time to learn the job – employees who are “average” will likely take longer to learn the job and to reach acceptable level of productivity. The hiring process itself – how efficient is the process – how many candidates does the company have to look at, are there automated systems, how many people does HR screen or does the hiring manager interview to reach a decision Average pay within the organization – higher average pay translates into higher hiring costs According to a 2008 SHRM study, the cost to replace and hire new staff may be as high as 60% of an employee ’s annual salary, whereas total costs of replacement, including training and loss of productivity, can range from 90% to 200% of an employee’s annual salary. Turnover Rates Within Key Industries In order to get a better sense of how turnover affects organizations in key industries in the United States, data from the 2011-2012 SHRM Human Capital Benchmarking Database were analyzed by industry. Industries with the highest turnover rates were services—accommodation, food and drinking places (35%); arts, entertainment and recreation (27%); and retail/wholesale trade (22%). Industries with the lowest turnover rates were high-tech (11%), state/local government (9%), and association—professional trade (8%) and utilities (8%), which were tied for third. Across all industries, the average turnover was 15%. Table 1: Productivity Metrics Avg Revenue Cost- Industry Turnover per FTE Per-Hire Services - hotel, food, bev 35% $183,173 $1,062 Arts, entertain, recreation 27% $188,817 $1,394 Retail/wholesale trade 22% $523,529 $2,549 All industries 15% $339,785 $3,196 High-tech 11% $207,763 $3,357 Government 9% $204,594 $2,293 Assn -professional/trade 8% $294,582 $5,582 Utilities 8% $413,086 $3,936  
  • Understanding which factors you can control, and how, will help to manage the overall costs of hiring Turnover rate – yes – every person who walks out the door is costing the company money – lost institutional knowledge, time invested in training, impact on other employees during vacancy Number of hires in a year – yes – manage turnover rate and the number of hires will be positively impacted Time to learn the job – yes – focus on hiring “great” and not settling for “good enough” – employees who “fit” the job will be more productive and learn their jobs faster Time to hire – yes – manage the time to hire, and costs of hiring is reduced – productivity higher The hiring process itself – yes – more efficient processes will result in faster time to hire, and fewer resources required to complete the hiring process (why spend 10 employee hours interviewing candidates numerous times if a more efficient, more effective process is available) Average pay – can be controlled, but may not have desirable impact Changes to all factors above other than average pay can be done without negatively impact corporate performance.  
  • Calculating an approximation of costs to hire/place employees within an organization requires 3 data points: Number of Employees Number of hires Average Salary
  • Example For a company with 100 employees, and 15 hires in a year, with average salaries of $50,000, the cost of hiring and placement is $187,500
  • 2009 study of cost to hire skilled workers – they find the average cost to hire to be about 25% of salary Costs for larger firms tend to be higher. Recruitment costs in firms with 100 or more employees was about 4 times the cost for the smallest firms. This is mainly due to higher costs for posting vacancies and higher per-applicant interview costs. There are two reasons why interview costs are higher for larger firms. First, larger organizations spend more time interviewing an applicant than smaller firms. On average, the smallest firms spend about 6.4 hours per applicant. Large firms with 100 or more employees spend twice as much time to interview a single job-applicant. Second, interview costs are higher for large firms because the salary of the workers conducting the interview is higher Parenthetical numbers = number of firms in the size range Observations = number of hires Data were collected for four years (2000 – 2004)
  • Measuring Time To Hire Can use 2 Formulas: TF = RR – SD ( Time to acceptance) or TS = RR – SD (Time to start) Value of Measures: Helps identify the value of lost time due to vacancy, especially if you know staff and management cost factors (TF x MT or ST where MT = Management time and ST = Staff time) Can be the beginning of a process improvement effort, especially if you choose to break down the component steps of the recruitment process to further analyze the cycle time
  • Measure: Estimated Cost to Interview Formula: Estimated Cost to Interview = C*($M*Mhr) + ($R*Rhr)+$Trav Value of Measure: Helps identify the value of time spent in the hiring process, especially given that many companies use multiple interviews and interviewers in the process. Can be the beginning of a process improvement effort, especially given the limitations of interviews in predicting the probable success of candidates.
  • Turnover or Retention = (NSFY / AEFY) * 100 (company-wide and for each dept.) NSFY = Number of separations during the fiscal year AEFY = Average number of employees during the fiscal year Value of Measures: Employee turnover is defined as “the rate at which employees enter and leave a company in a given fiscal year.” HR professionals and organization executives focus on turnover for three main reasons: it has significant cost implications; it affects overall business performance; and it has the potential to become difficult to control, resulting in a talent crunch, where it is hard to find quality candidates with the skill sets required to fill open positions.
  • Measure: Productive Workforce Formula: Productive Workforce = HC – (%pNH) Value of Measure: think about the last time you started a new job – how long did it take you to do the new tasks? How long now? How long did it take to master the new position? New employees are a drain on internal resources until they are up to speed on their jobs. typically takes from 2 – 18 months, depending on the nature of the position. This number takes into account the learning curve that all new employees have. How many have we hired and what is the estimate of where they are vis a vis a fully productive worker On average new employees might be producing at 70% during the first 6 months. HC = 100 20 hired in the first 6 months of the year – and they are producing at about 70 % (You will have to estimate this for your org, and for each position) PW = about 86( new hires are producing like 14 people, not 20) HC = a number and it is important to track this number PW = what you really have re: productivity and results This measure supports the understanding, esp at the mgr / exec level, the impact of being fully staffed as well as the impact of new employees on productivity. When people are new, there is a learning curve that draws on internal resources. Real impact = $$$ and productivity – just because you are fully staffed doesn ’ t mean you are getting the work done…the more complicated the job the longer the learning curve…etc.
  • Human Capital Metrics Can improve business results if you know where you are, and what impacts those results. Improvements in turnover, time to hire, time to learn a job, etc. all have an impact on costs of hiring, and more importantly, all have a huge impact on business results.
  • Average Resume accuracy The resume is a good marketing piece for the candidate – it tells you where they have worked (which you can check) and it gives you some idea of the work they have been responsible for. The resume does not tell you if the work they have done in the past relates to the work at your company and it does not indicate the quality of the work
  • If you have ever said, “Now, remind me…why did we hire this guy?” you are ready to use assessments. Not very many new hires (selected by traditional approaches) will become high performers… they key is find a way to hire people for their inherent abilities (ones that can't be taught), such as personality, learning style and company culture match.  
  • Three out of four small and medium-sized business owners report having made a hiring mistake that cost them thousands of dollars (and many hours) to fix. Some have even made the mistake more than once, like the exec who hired and fired his best friend - twice. True story...   When 20%-50% of resumes contain erroneous information and hiring based on interviews has about the same success rate as flipping a coin, it is hard to make a data-driven decision. We know that selecting someone who will match your culture and have the right attitude for the work is the best way to make a talent decision. Think Southwest Airlines - They figured out what skills and abilities make their star performers shine. They have designed ways to identify which people have the qualities, then they teach them job duties after hire. ”
  • Better (and Faster) Hiring in 3 Steps It ’s difficult to hire the right person if you’re not clear on what the job is – Hiring is partly an art, and a science. To apply the science part, using objective processes first enables managers to narrow a pool of candidates to those who are the best fit (and not necessarily those with the most experience), and then use of subjective criteria / processes are more useful later in the process. Remember, you can train someone a skill (how to speak Spanish, how to perform math calculations, how to program in a certain computer language – if they have certain cognitive abilities. What you cannot teach or train them to do is be a different person. They are who they are, and thinking you will train them to work well with others if that ’s not a natural preference could be an uphill battle. Skills = can be taught Personality ≠ not likely to change Interviewing – has limitations Free form interviews where interviewers just throw out questions that come to mind are not reliable in terms of predicting future performance or success in the job. Structured interviews require planning, practice and are not easy to conduct effectively.
  • Finding people who are a good match for your job results in significant impact to the bottom line.
  • Transcript

    • 1. The Human Capital Challenge SeriesT he Value of Talent: Calculate your cost to hire andlearn how to reduce itDecember 4, 2012 | Paula A. Soileau, CPA ©2012 Affintus, LLC
    • 2. Why does talent cost so much? Challenges  Finding the right candidate takes too long • Who will be successful is not easy to determine: how do managers know which candidates are best? • Internal processes may be inefficient • Social media results in lots of candidates  Employers settle for “good enough” • Difference between good and great employees is significant, but hard to know who will be great  People have biases • People like people who are like themselves, but this similarity does not reflect what is best for your job • People rely on subjective or self-reported information
    • 3. Factors That Affect Hiring Cost  Turnover rate  Number of hires in a year  Time to hire / time positions vacant  Time to learn job  Hiring process (efficient vs. inefficient)  Average position salary
    • 4. So which ones impact business results?  Turnover rate  Number of hires in a year  Time to learn job / ramp up  Time to hire / time positions vacant  Hiring process (efficient vs. inefficient)  Average salary
    • 5. Cost To Hire…a simple calculation a) Number of Employees 2011 b) Estimated hiring in 2011 # of hires or placements c) Average hiring rate % =b/a d) Average Annual Salary $ e) Average cost per placement 25% % of salary f) Cost of Placements 2011 $ = (.25 X d) X b
    • 6. Cost To HireImpacts Business Results a) Number of Employees 2011 100 b) Estimated placements in 2011 # of hires or placements 15 c) Average Turnover Rate 15% =b/a d) Average Annual Salary $ 50,000 e) Average cost per placement 25% % of salary f) Cost of Placements 2011 $187,500 = (.25 X d) X b
    • 7. Cost by firm size ̈ Blatter, Marc et al. 2009. The Costs of Hiring Skilled Workers. Working Paper No. 15. Bern, Switzerland: Institut fur Strategie und Unternehmensökonomik.
    • 8. Time To HireImpacts Business Results2 Formulas TF = RR – OD Time to acceptance TS = RR – SD Time to start  TF = Time until offer acceptance  TS = Time until new hire starts work  RR = Date requisition received  OD = Date offer accepted  SD = Date new hire starts
    • 9. Cost to InterviewImpacts Business ResultsFormulaEstimated Cost to Interview = C*($M*Mhr) + ($R*Rhr)+$Trav C= total number of candidates interviewed $M = mean manager salary per hour Mhr = mean number of hours manager spends on interview-related activity per hire $R = mean recruiter salary per hour Rhr = mean number of hours recruiter spends on interview-related activity per hire $Trav - expenses per candidate: total travel, meals, hotelNote: if multiple employees are involved in interviewing, Mhr or Rhr in the formula should reflect the total number of hours all managers or employees spent on interview related activity.
    • 10. Turnover RateImpacts Business ResultsFormula Turnover or Retention = (NSFY / AEFY) * 100 NSFY = Number of separations during the fiscal year AEFY = Average number of employees during the fiscal year(Measure company-wide, by department, and by manager )
    • 11. Productive WorkforceImpacts Business ResultsFormula PW = HC – (%pNH)  PW = Productive Workforce  HC = Head Count  %pNH = New Hire Productivity Estimate
    • 12. Human Capital Metrics Drive Business Results
    • 16. Hiring is hard…
    • 17. Better (and Faster) Hiring in 3 StepsClarify requirements and needs of the jobBe clear on what the job is and is not(don’t use a moving target or “figure it out later” approach)A Job Description is useful!Analyze top performersUse objective criteria firstReduce reliance on the resume - self-reported, subjectiveUnderstand limitations of resumes and interviewsLook for “natural” talents and abilities; skills can be taughtStructure interviewBehavioral questions – example of when candidate did XTake notes, rate responses on a scaleBonusHelp managers plan the entire talent decision processSchedule interview time at the beginning of the processUse human capital metrics to improve results
    • 18. Better Hiring ImpactsBusiness Results 50% 50% 10% 10%
    • 19. More from Affintus onImproving Business ResultsDec 11 The Limits of Experience and Education: learn why skipping the resume results in better hiring Early in their careers, most executives and managers learn that prior work experience and educational background are key factors in job success. But it turns out that it is not true! Neither experience nor education is related to future success on the job! In this session you will find out what factors you should look for in potential employees.Jan 8 The Value of Behavioral Interviews: learn how to interview to find out what you really need know as fast as possible You have probably read a lot about interviewing and how important it is to “get to know” the candidate face-to-face. The problem is that most interviews turn out to be a conversation rather than active fact-gathering. In this session, learn how to create the questions that really tell you what you need to know to make a good decision.
    • 20. AffintusGreat people data. Great business | Paula A. Soileau, CPA | 1-866-429-4351 @affintus Visit Our Blog! ©2012 Affintus, LLC