What is an employee worth to you?
Not just their ability to generate sales or produce a measurable outcome, but also in terms of the experience they provide, and the emotional impact they make?
How can we calculate the degree of value an employee brings to a company, and what we lose when they quit?
Previously, I discussed ways to increase Risk Intelligence after staff turnover, and how to calculate the financial impact.
In this third segment, I explain hidden values employees provide, the 9 things we lose when an employee leaves, and simple ways to calculate the cost of quality.
We tend to underestimate what we lose when an employee quits or is fired. Your “human resources”—the people who work for you—contribute a whole lot more than just a series of tasks.
Here are just a few ways employees provide value:
- They bring a tremendous breadth and width of knowledge.
- In addition to their daily tasks, your staff establish their own routines, processes, and methodologies.
- They provide your company with relational connections and social equity by engaging with customers and team members.
- They share knowledge, innovative ideas, and a unique perspective.
- They contribute to the culture of the organization.
When an employee leaves, all that knowledge and social equity evaporates.
Replacing an employee involves more than just paying a new hire’s salary. The total cost of turnover includes:
This is a standardized process to transition your staff (or customer) out of the organization.
- comprehensive documentation of the resignation or firing process
- additional process to identify the real reasons why the employee is leaving (survey, questionnaire, interviews with co-workers, anonymous form, etc.)
- internal investigation (if needed)
- transfer of knowledge and duties to other staff
- handoff of other responsibilities, materials, and resources
- retrieval of property
- retrieval of access mechanisms (keys, badges, access cards)
- update organizational access (directories, security gaps, logins, software access)
- final exit interview with departing employee
- update the organizational chart
- alert customers, vendors, and other stakeholders of new contact person
- advertising costs
- time for résumé review and analysis
- reviewing and responding to queries from applicants
- call-backs to applicants
- conducting interviews
- discussions about hiring, and final decision
- draft and send the final offer
- follow-up with job candidate
- HR paperwork and research
- pre-employment drug testing
- personality tests (if using)
- general orientation
- department orientation
- first-day paperwork
- instructions on the job’s context and activities
- resources and tools needed to meet the expectations of the position
- additional training and education
5. Productivity Loss
- reallocation of duties to other staff during the interim period
- gap as employee adjusts to peak productivity level
6. Increase in Error Rates
- mistakes, misses, and near-misses due to the gap in coverage
- decreased quality of work output
7. Decrease in Customer Satisfaction
- loss of relationships with customers
- decreased quality of care
- lack of trust and engagement
- loss of social equity
8. Lower Staff Morale and Engagement
- less motivation to go the extra mile
- perceived lack of transparency from top leaders
- disinterest in contributing original ideas
- lingering mystery surrounding their exit
- ambivalence about giving more than minimum effort
- fear of being “the next one on the chopping block”
9. Negative Impact on Company Culture
- top leaders’ knee-jerk reactions to curtail unwanted behavior
- unexpected relationship shifts after the employee leaves
- mistrust in top leaders’ motivations
- reduced customer loyalty
Some of these aspects of turnover can be calculated with numbers. We call this Quantitative: the measurable calculations we can measure in terms of time, money, speed, movement, status, and quality.
But there’s another very important way to evaluate the effects of our business decisions, one that doesn’t use specific numbers. We call these Qualitative: the subjective and objective experiences based on feelings, intuition, sensations, values, and beliefs.
Although most companies rely on hard data (quantity) to evaluate their turnover, I believe that quality is a vital aspect to seeing the whole picture.
The amount of hours, dollars, and training materials you spend to replace an employee is only the part of the total cost.
We also need to consider qualitative costs—the beneath-the-surface effects of an employee leaving, whether by their choice or yours.
Qualitative effects have to do with emotional impact. The way people feel when they work at your company, and the degree to which they feel invited to contribute, are extremely important to morale. These quality factors are closely tied to an employee’s decision to leave.
Quality can include things like:
- Do I feel like my work matters?
- Am I inspired to do my best here?
- Does my input make a difference?
- Am I encouraged to make healthy choices?
- Is my feedback welcomed, or is it rejected?
- Am I invited to share my ideas?
In addition to the obvious financial impact from staff turnover, we also need to consider the qualitative effects. Replacing staff, especially on a frequent basis, can result in serious long-term consequences for your company, such as:
- an increase in mistakes
- loss of customer loyalty
- decreased employee engagement
- loss of trust
- decline in company culture
So how do we add up the cost of these quality measures? It helps to ask questions like these:
- Have we lost any customers as a result of staff turnover?
- What happens if we lose more employees? What impact will that have on the business?
- Has this event resulted in weakened relationships with customers or other stakeholders?
- How much could staff turnover affect our company financially in the long-term?
- Is our company experiencing incidents of waste, loss, fraud, or abuse due to the turnover?
- What effects is this having on our company culture and employee engagement?
- Is the turnover a symptom of deeper problems in our decision-making?
- Will this have an effect on customer loyalty?
- Could this impact the public perception of our reputation?
As you can see, the total qualitative impact of turnover (emotional, experiential, and relationship) is often much higher than a dollars-and-cents amount.
Putting a Qualitative Approach into Practice
Although a data analysis of specific numbers is extremely helpful, I also recommend implementing quality measures in your company. Here are three tools to help you do that.
1. Post-Mortem Evaluation
We learn best through failure. In order to avoid negative outcomes, I suggest looking for the root causes of your turnover using a Post-Mortem approach.
A Post-Mortem Evaluation is a fantastic tool that allows you to “squeeze all the juice” from an experience that did not go as well as expected. It can help you see vulnerabilities in your hiring process, flawed expectations in the company culture, and even areas of your own attitude and personality that are negatively affecting others.
Here are some questions to ask about your employee turnover:
- What happened? How did we arrive at this point?
- Why did this person choose to leave? (Not just the reason they told you, but the real reasons?)
- What circumstances caused the employee to struggle?
- What did we not provide to help this person succeed?
- How could the situation have turned out differently?
Read more about Post-Mortems in What is Strategic Risk, and Why Does It Matter?
2. Employee For a Day
You can also consider spending a few days with your staff to really understand what is going on in your company.
I describe this process in my 2-part series, What Happened When I Became an “Employee For a Day” and “Employee For a Day”: How to Start
3. Hearing Bad News
Finally, the best way to decrease staff turnover is to be open to hearing bad news from all of your stakeholders. Yes, it’s painful to listen to problems your staff are having. It can feel embarrassing, overwhelming, and even lead you to question whether you’re doing anything right.
Find out more about this in 5 Painful Discussions That No Organization Should Ignore.
The bright side of your ability to hear from your staff (especially the Devil’s Advocates) is that you will become aware of more problems. Your staff will feel more connected with you. They will trust you more.
Instead of seeing waste and loss after it’s too late, developing risk intelligence will help you anticipate problems before they happen.
Check out my previous posts on the topic of Staff Turnover:
- Part 1: What You Can Do to Boost Risk Intelligence After Losing Staff
- Part 2: How to Calculate What Staff Turnover is Costing You
Interested in hearing how you can reverse a toxic workplace? Find out more here.