Using Tools for Putting a Cost on Turnover

Using Tools for Putting A Cost on Turnover

Dick FinneganFounder, Retention Institute

Copyright Retention Institute 20010All rights reserved 1

Finnegan BackgroundCEO of C-Suite Analytics; solved turnover across 6 continents including Siberian

bankers, African gold mines and the CIA

Author of “Rethinking Retention in Good Times and Bad”, per BusinessWeek “offers

fresh thinking for solving the turnover problem in any economy”

Author of “The Power of Stay Interviews for Engagement and Retention”, published by SHRM 2011

Noted employee retention expert by BusinessWeek, Chief Executive Magazine, Consulting Magazine, and HR Excellence Center of China

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How Important is Calculating Turnover’s Cost?

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Turnover is typically reported in #s and %s, whereas reporting turnover costs and retention savings in $s generates more:

Urgency

Accountability

ACTION…

and action is required by HR, top management, operations, finance, and others to improve retention

Finance Must Own Turnover Costing and Reporting Because…

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1. Finance is qualified to conduct all complex financial analyses for your company

2. Finance brings credibility and authority to your retention initiative

3. Finance reports important metrics to your board and executive team

HR might track and analyze retention data but ideally only Finance should place a cost on turnover and report it

Finance brings AUTHORITY! Once Finance realizes the $ cost of turnover, your company’s CFO will encourage your CEO to elevate retention’s importance and establish retention goals top to bottom, to the first-line supervisor level

Which Jobs Should You Measure?

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Clues to consider:

If your intiative is for your total company or a division, are there one or two dominant jobs that will receive most of your focus? If so, you might limit your initiative and your cost study to these jobs

If your initiative is for your total company or a division but covers a variety of jobs, can you combine these jobs into groups based on pay and estimated replacement cost and conduct one cost study for each group?

If your initiative is for one or two jobs only, conduct your cost study for just these jobs

Measuring “Lost Productivity” Matters Most

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Turnover cost calculators typically measure direct costs in categories such as “separation”, “vacancy”, “acquisition”, and “placement”…and indirect costs such as “lost productivity”

“Lost productivity” measures how much work doesn’t get done and often times costs more than all other categories combined and might include:

Incomplete work such as products not built, calls with increased hold times, medications delivered off schedule

Reduced quality such as items returned, customer complaints, re-doing work

Lost customers who move to a competitor, leave long lines rather than buy, or follow your ex-employee to their new company

Measuring “lost productivity” is art more than science and will never be completely accurate. The calculator at TheRetentionFirm.com offers a creative way to determine a good estimate of lost productivity’s cost

Free Turnover Cost Calculators

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These calculators are among the best available on the web. The first two apply to any job and the remaining ones are for specific jobs in specific industries. Some require registration. Check your professional association to see if they have one for your industry

The TalentKeepers Cost Calculator http://www.TheRetentionFirm.com/

Wyoming Department of Workforce Services http://www.wyomingworkforce.org/resources/tools_turnover.aspx

TopMark LLC sales calculator http://www.topmark.com/turnover_cost_calculator.htm

Cornell University’s School of Hotel Administration http://www.hotelschool.cornell.edu/research/chr/, then click “Cornell Hospitality Tools”, then “Turnover Cost Evaluator”

National Commission on Teaching and America’s Future http://www.nctaf.org/resources/teacher_cost_calculator/school_calc_sdp.asp

Trinicon Group Cost Worksheet for truck drivers http://www.trincon.com/resources/cost-calculator

Build Momentum With Data

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Cost data has no value if it is announced once and then filed away. Once again, Finance brings authority to these announcements. Consider the following real-life examples that companies have used to leverage this data to drive behaviors:

A $10,000 employee company found that each 1% of turnover cost or saved $366,000

A major hotel chain that was spending $350 million on turnover projected that by cutting turnover in half their stock price would increase by nearly 25%

Another study reported that turnover costs represent more than 12% of pre-tax income for the average company but those companies with high turnover lose nearly 40% of earnings

So identify ways with Finance that you can leverage your turnover cost data to stimulate commitment to reduce turnover among your top-to-bottom management team

Costing by Job Group

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The next slide provides a format example for calculating and reporting turnover’s cost by job group. This example is for a rural, 100-bed hospital. You will see:

All job titles have been collapsed into 5 groups, with each group representing jobs that are similar in pay and replacement costs

The turnover cost for these groups can now be used to both report cost for each group and the total hospital

Comparing cost by job group directs us to which group deserves our first attention; in this case we learn that the cost for nurse turnover accounts for 71% of the total turnover cost for this hospital and should therefore be the first area addressed

The formula for this calculation is to divide the total annual nurse turnover cost by the total hospital annual turnover cost…3,846,882 ÷ 5,402,801 = .71 or 71%

Job Group Example Job Cost/Exit Exits/Year Cost/Year

Non-skilled Nurses aid $7,273 20 $145,460

Skilled hourly Phlebotomist 11,825 30 354,750

Licensed hourly

Rehab therapist

20, 429 21 429,009

Nurses Surgical nurses

49, 319 78 3,846,882

Management All top managers

52,225 12 626,700

Total Cost/Yr $5,402,80110

Put Cost Data to Work

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Competitive Advantage:

Only 33% of U.S. organizations place a cost on employee turnover, and this number decreases to 18% around the world. Fewer leverage it in ways discussed in here, so developing this data and using it to improve retention is a clear competitive advantage

Next Up - Retention Goals:

Armed with data and Finance at your side, your path becomes clear to approach top management to set retention goals for your targeted area as well as for all managers and supervisors who work there

is hereby granted to:

Kristin Scottto certify that this person has completed all the requirements of the Certified Employee Retention Professional Program

and has earned the CERP distinction Granted: June 7, 2011

Richard P. Finnegan, Founder

Certificate of Completion

Introducing The CERP Program

www.c-suiteanalytics.com 12

Certfied Employee Retention Professional program (CERP) is an applied certification program based on the Rethinking Retention Modelsm

Stay-at-Home: All tools are delivered to individuals online but are offered here for group participation with direct facilitation by Founder Dick Finnegan

Development: A developmental opportunity for an HR or Operations leader who can earn up to 26 SHRM re-certification credits

Completion time is 3-6 months


26 SHRM Credits!


6 CERP ModulesModule #1: Building Blocks

Executive SponsorOrganizational AreasTurnover Cost Study

Module #2: Operationalizing RetentionRetention Goal-SettingExit Surveys

Module #3: Tool BuildingEmployee Value PropositionEmployment BrandingTrust Building

Module #4: Narrow the Front Door Hiring Those Who StayCheck Progress

Module #5: Script the First 90 DaysTipping pointOnboarding

Module #6: Challenge PoliciesPolicy ReviewStrategic Benefits

Will Include Stay Interviews!“The Power of Stay Interviews for Engagement and Retention”, SHRM, 2011


• BOST Healthcare reduced turnover by 38% and is on track to save $180,000 this year

• Burcham Hills Retirement Community reduced turnover 72% and is retaining 100% of new nurses for at least 6 months

After A Few Months With The CERP Program…


is hereby granted to:

Kristin Scottto certify that this person has completed all the requirements of the Certified Employee Retention Professional Program

and has earned the CERP distinction Granted: June 7, 2011

Richard P. Finnegan, Founder

Certificate of Completion

The Certified Employee Retention Professional Program

Dick Finnegan

407.772.2710

[email protected]


Using Tools for Putting a Cost on Turnover

Economy & Finance

Transcript of Using Tools for Putting a Cost on Turnover