Cost Of Vacancy Jeremy Shapiro

Calculating A Realistic Cost of Vacancy
Jeremy Shapiro, SVP Hodes iQ
Posted @ my blog http://measuringtalent.wordpress.com
Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

How much does it cost an organization when a seat is left empty?

How much does a single cost you?

All we are saying is this:
If employees generally do not bill at an hourly rate, and they do provide incremental monetary value, then the value they create can happen in “chunks”.
Ok ,I’ll bite, what is “Chunky” Cost?

A “Chunky” Example: Jim
Jim manages 10 clients. One of those clients has a need for his company’s services valued at $1,000.
The client will wait until Jim is back from his 10 day vacation in Cabo to talk with Jim about the need.
Company doesn’t lose the revenue.
But, if the client has to wait 15 days, he says, “forget it, I’ll call Jim’s competitor.”

We can use that to create a realistic totalcost of vacancy inside most organizations.
What’s our criteria for realistic?
Make this skeptical, grumpy finance guy comfortable with the analysis.
Now that We’ve Defined “Chunky” Cost
Stop showing me average revenue per employee and telling me it’s cost of vacancy!!

For Cost of Vacancy Purposes, Let’s Assume
That salary represents the value an organization places on the roles of their staff.
It’s almost always the largest cost component of an organization, we must be adding value somewhere.
I’m never going to Hawaii again.
I am worth 10x my salary, of course.

The Formula We Will Use
We will calculate it step by step in a few slides.
Calculating Total Cost of Vacancy
(Revenue per employee per day) * (Total days a job was left vacant)
(# days to compensate for “Chunky” work)

Defining Variables

Step 1: Create a “Naïve” Revenue Per Employee Average

Step 2: Create an average Revenue Per Employee Per workday

Step 3: Decide on how many days on average the organization does not suffer from a financial impact from someone being out. This is the “chunky” work.
Example. Time “chunks” are5 days
This is an average used in a financial model.
Don’t get too caught up in individual performance or different departments.
This will be used for sensitivity to the business. Your gut is actually helpful here. What will your financial person acknowledge as reasonable?
We’ll call this variable “Sensitivity” so that we don’t get smirks in our meeting, ok?

Step 4: What are the total days of vacancy?
Example: 1,000 days vacancy
Step 5: Calculate Total days of vacancy / Sensitivity
Example: 1,000 days / 5 days sensitive = 200 adjusted vacancy days

Step 6: Calculate adjusted cost of vacancy
Adjusted vacancy days * Revenue per employee/day
Example:
200 vacancy days * $634 rev per employee per day = $126,800

Want to see an example spreadsheet? I’ve posted an example here for you to look at:
http://spreadsheets.google.com/pub?key=tzXzfCER_s-rv2V540ZLhCw&output=html

Your turn!
Have you tried this technique? Post a note below or at measuringtalent.wordpress.com and tell everyone what you learned?

Thanks!
Jeremy Shapiro, SVP, Hodes iQ, jshapiro@hodesiq.com
Blog: http://measuringtalent.wordpress.com
LinkedIn: http://www.linkedin.com/in/jeremyashapiro
Web: http://www.hodesiq.com
Twitter: hrmetricsguy

http://measuringtalent.wordpress.com	352
http://www.hodesiq.com	56
http://hodesiq.com	6
http://cms.hodesiq.com	3
http://new.hodesiq.com	3
http://www.slideshare.net	2
url_unknown	1

Cost Of Vacancy Jeremy Shapiro

by J Shapiro on Oct 20, 2009

Accessibility

Upload Details

Usage Rights

7 Embeds 423

Statistics

Cost Of Vacancy Jeremy Shapiro — Presentation Transcript