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What Does a Bad Hire Cost the Company?

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Share the postYou want to motivate your CFO to budget more funds to upgrade your…

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You want to motivate your CFO to budget more funds to upgrade your HR recruitment software tools.?Or you want to take the next step and integrate recruitment and on-boarding processes to make your tools more productive.

But the CFO needs financial justification, and general statements about improving the quality of hire and raising retention rates aren’t closing the deal. You need some hard figures to open their eyes to the financial impact of investments in better hiring practices.

Here are some that you can build on, courtesy of a study run by CareerBuilder, which you may have missed because they chose to release it right in the middle of the holidays last December:

  • 69% of the 2,500 hiring managers surveyed said
    they had suffered bad hires
  • 41% of respondents estimated that the negative
    impact of each bad hire was over $25,000
  • 24% estimated the negative impact at over

Negative impact is amplified, of course, by the level of compensation, but the hiring process does not change dramatically from entry-level job to executive suite job. Candidates need to be sourced, screened, interviewed and offered regardless of level.

How can you profitably use the above data to win approval for HCM investments? Run a simple calculation that leverages the objectivity of the survey data.

  1. Forecast the cost of software selection and implementation. Include training and sustaining budgets to get employees fully engaged in the new tools.

Example: $20,000 annual budget for 500-person firm

  1. Select the relatively objective estimate from the CareerBuilder survey that best fits your typical hire.

Example: $25,000

  1. Divide the proposed investment in step one by the number in step two, and set the result as the number of bad hires you need to avoid to break even on the new investment.

Result: One bad hire cured in the recruitment process each year covers the expense. Two bad hires converted to good hires deliver 2x ROI, and so forth.

  1. Relate that to the number of people typically hired by the firm annually.

The CareerBuilder survey also offered data about how the bad hires negatively impacted productivity, giving you areas to discuss with operating managers how the new software tools can help fix some of those process issues.

What do you think? Can an upgrade to HCM help improve hiring results? Have you seen such initiatives in action? What were the keys to the successful implementation?

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