HR professionals and managers, have you ever been asked to justify the return on investment on an HR policy, a training plan, a retention program, or the recruitment of a resource?
Have you ever wondered how much a vacant position costs a company?
In an era of skilled labor shortages, human resources remain at the heart of the operations and sustainability of any business. Despite the importance of justifying certain costs related to human resources, the short term often prevails (too much?) Over the long term.
Yet, expenses are very often more easily incurred in other areas of a business’s line of business, while returns on investment are easier to demonstrate. Even, for example, investments in marketing and R&D are sometimes less questioned, even if they do not necessarily present a guarantee of return on investment.
I recently had the privilege of chatting with Helene-Sarah Becotte, entrepreneur, and founder of GRISDD. It translates life into mathematical equations to better understand it and help companies make better decisions and maximize the profitability of their projects.
We quickly identified the link between mathematics and HR challenges. She graciously agreed to collaborate for this article which will put certain important elements into perspective and raise awareness among companies on this subject. We will raise some interesting points derived from an approach combining mathematics and operations management.
Human resources – the raw material
There are two approaches to human resources management. The so-called traditional one, which considers employees an operational cost, was the one advocated until not so long ago. Even today, certain industries use it, particularly for lower-paid jobs, without special training and less difficult to replace. The innovative approach, on the other hand, sees human resources as an investment, crucial capital for the company. This approach is recommended especially in fields where jobs are more specialized, and where the impact may be greater for a company. Both approaches can be found within the same company.
“However, human resources are a raw material,” Helene-Sarah expresses. Even if there is equipment, there must be someone operating it. “
Cost of a vacant position
Although a precise answer cannot be defined, several questions may arise to this effect. The industry, the type and uniqueness of the position, the impact on the organization and the length of time the position is vacant are just some of the factors influencing reality.
Helene-Sarah points out that a vacant position can have many impacts. It is then that the cost of non-replacement can be defined by:
- Production capacity: Is there an overload and loss of productivity to other employees?
- Knowledge transfer: An employee leaving the company without transferring the information and knowledge acquired over the years, without forgetting access to important documents
- Can fatigue be created, increasing the risk of accidents and absenteeism, generating sick leave and increasing insurance and CNESST costs
- Increased turnover rate, with employees leaving due to overwork, leading to more positions to be filled, creating a vicious cycle
Costs related to a long time-to-fill rate can then be generated, without forgetting the recruitment costs. In addition, there are the onboarding and new employees’ training costs.
“It is not because a value is not fixed that it is not real” specifies Helene-Sarah.
This is when a question may arise: What is the highest cost to a business, that of retaining, or replacing human resources?
People: The breaking point in the production chain
This quote from Helene-Sarah sums up very well a real situation that happened to me shortly before the pandemic, showing that the chain is as strong as the weakest link.
One Friday at supper time, shortly before the pandemic, I stopped at a fast-food chain restaurant at a freeway exit. Only the drive-thru was open, with a long queue, a poster on the restaurant door apologizing for the inconvenience of the situation caused by the lack of manpower.
If we take this simple example: if 4 employees were missing at $ 15h / h = $ 60h / h x 3 hours of peak period = $ 180 in avoided labor costs.
What would the financial losses be, considering the potential sales lost by the number of customers who went elsewhere, estimating an average order of $ 30? What about the impact of customers who may not return?
An employee who is easy to replace. Not anymore, and not for the next decades. The days of CV banks are over. The gap between the pool of available candidates with the required skills will only reduce, in addition to a context of competition between employers.
From a vicious circle to a virtuous circle
Limiting turnover through innovative and people-centered HR management, while having a proactive attraction strategy, can thus limit replacement costs.
“We have to do preventive maintenance on humans” summarizes Helene-Sarah.
We can conclude with a parallel with sales. It is more profitable and less expensive to retain customers than to find new ones to replace lost ones. The same is true for employees. We must continue to charm, motivate, and train them to mobilize them.
So, what really costs the most? Taking care of our human resources, or replacing them?
Do you want to discuss your attraction strategy that will allow you to maximize your recruiting efforts and support your growth?
Write to us at firstname.lastname@example.org or directly at email@example.com and it will be our pleasure to accompany you through the various stages.
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