Dr. Earl R. Smith II
Managing Partner, The Federal Circle
DrSmith@Dr-Smith.com
Dr-Smith.com
In the last Part, I focused on the cost of hiring and the costs of having an important position vacant to any length of time. My argument was that providing executive coaching reduces turnover and improves team member dedication to the interests of the company. I have been outlining a guide for calculating the costs of such turnovers. Next, let us look at the costs involved in Personnel Training, Lost Productivity, Lost Sales Costs, and Hiring New Personnel because of turnover. Here are some of the items you would need to quantify:
Personnel Training Costs
- Calculate the cost of orientation in terms of the new person’s salary and the cost of the person who conducts the orientation, including the cost of orientation materials.
- Calculate the cost of departmental training as the actual development and delivery cost plus the cost of the salary of the new employee.
- Calculate the cost of the person who conducts the training.
- Calculate the cost of various training materials needed including company or product manuals, computer or other technology equipment used in the delivery of training.
- Calculate the cost of supervisory time spent in assigning, explaining and reviewing work assignments and output. This represents lost productivity of the supervisor. Consider the amount of time spent at 7 hours per week for at least 8 weeks.
Lost Productivity Costs
- Upon completion of training, the employee is contributing at a 25% productivity level for the first 2 – 4 weeks. The cost therefore is 75% of the new employee’s full salary during that time.
- During weeks 5 – 12, the employee is contributing at a 50% productivity level. The cost is therefore 50% of full salary during that time.
- During weeks 13 – 20, the employee is contributing at a 75% productivity level. The cost is therefore 25% of full salary during that time.
- Calculate the cost of coworkers and supervisory lost productivity due to their time spent on bringing the new employee “up to speed.”
- Calculate the cost of mistakes the new employee makes during this elongated indoctrination period.
- Calculate the cost of lost department productivity caused by a departing member of management who is no longer available to guide and direct the remaining staff.
- Calculate the impact cost on the completion or delivery of a critical project where the departing employee is a key participant.
- Calculate the cost of reduced productivity of a manager or director who looses a key staff member, such as an assistant, who handled a great deal of routine, administrative tasks that the manager will now have to handle on their own.
New Personnel Hiring Costs
- Calculate the cost of bringing a new person on board, including the cost to put the person on the payroll, establish computer and security passwords and identification cards, business cards, internal and external publicity announcements, telephone hookups, cost of establishing email accounts, costs of establishing credit card accounts, and other equipment such as cell phones.
- Calculate the cost of a manager’s time spent developing trust and building confidence in the new employee’s work.
Lost Sales Costs
- For sales staff, divide the budgeted revenue per sales territory into weekly amounts and multiply that amount for each week the territory is vacant, including training time. Also use the lost productivity calculations above to calculate the lost sales until the sales representative is fully productive.
- For non-sales staff, calculate the revenue per employee by dividing total company revenue by the average number of employees in a given year. Whether an employee contributes directly or indirectly to the generation of revenue, their purpose is to provide some defined set of responsibilities that are necessary to the generation of revenue. Calculate the lost revenue by multiplying the number of weeks the position is vacant by the average weekly revenue per employee.
Just by looking at all these potential costs involved in employee turn over, wouldn’t it make better corporate financial sense to obtain executive coaching services for your company? An Executive Coaching Program can help you by creating a plan specific to your company that designed to significantly improve your retention of employees and reduce your operating costs dramatically. The cost of such an Executive Coach will easily pay for itself. In the next Part, I will outline the costs and benefits of such a program.
© Dr. Earl R. Smith II
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Related Articles:
- Can Your Company Afford Not To Have A Coaching Program? – Part I
- Coaching Notes – Chapter Two
- Coaching Notes – Chapter One
- Seven Steps to a Successful Executive Coaching Program
- Improving Business Performance through Corporate Executive Coaching
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