Employers must be aware of the costs associated with making a bad hire. Not only can a bad hire lead to overall decreased performance and dissatisfaction among employees, but it can also have financial consequences such as increased recruitment and training expenses.
In addition, when an employer fails to bring on the right person for the job, they miss out on the opportunity for a productive and positive relationship with that employee. This can mean lost business opportunities, such as missing out on key projects or initiatives due to inadequate skills or expertise. Furthermore, a bad hire can lead to disgruntled team members who become disengaged and unproductive due to the lack of good leadership, creating an environment of low morale and negativity.
It is important to note that the cost of making a bad hire can extend far beyond just financial implications. A bad hire can cause damage to the employer’s reputation, disrupt team dynamics, and tarnish the overall culture of an organization. All of these impacts can have lasting effects on an organization’s success and its ability to attract and retain top talent.
Therefore, it is critical for employers to be mindful of the costs associated with making a bad hire and put processes in place to select the right candidate for the job. This can result in not only cost savings, but also improved overall employee engagement, performance, and morale within an organization.
For example, consider this hypothetical scenario:
Sandy owns a software company that is taking the environmental testing industry by storm. They currently do $1.5 million in revenue and expect to double that exponentially for the next 5 years. The “bottle neck” seems to be migrating from a legacy system to a newer more user friendly one. Specifically, moving from Visual Fox Pro to .NET, so customers can more easily interact including exploring online shopping options. Doing so, should result in a 30% increase in annual sales based on customer surveys. This translates into an additional $450,000 per year. However, to upgrade will require 2 software developers for approximately 9 months at $8,000 each or $144,000 to complete the project. In addition, it’s anticipated $10,000 will be needed for marketing collateral and another $15,000 on customer service for training. All told: $169,000 invested to see $450,000 in additional revenue. After careful consideration, Sandy proceeds to hire what she thought was “top talent” in MS software conversions. Unfortunately, one of the developers did not have the coding experience he stated and the school he graduated from has never heard of him. In addition, he was experiencing personal financial issues that required an advance in wages. And his social media profile on Facebook made questionable racial comments that would never be tolerated at Sandy’s Software.
The cost of this bad hire can be calculated as follows:
- Cost of lost productivity (3 months wages for incorrect coding): $24,000
- Advanced wages: $4,000
- Recruiting a new replacement (2 months of HR time for advertising, screening, and onboarding): $3,500
- Damaged reputation (social media post with new hire added to team picture): $0-$1,000,000
Total: $31,500(plus damages to the corporate reputation)
Alternatively, had Sandy done a thorough background check (education, employment, credit and social media), then this loss would likely have been avoided.
At the end of the day, it is important to remember that the cost of making a bad hire can be significant and far-reaching. By investing in a rigorous recruitment process and taking the time to properly assess candidates’ skills and abilities, employers can take steps to ensure they are bringing on the right people for the job. This effort will pay off in terms of both cost and organizational success.