The True Cost Of A Bad Hire Is More Than You Think

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Posted by Andrea Cleary,
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A good hire can change the course of a business. A bad hire…can also change the course of a business. While the impact of a bad hire is often discussed in relation to their detrimental impact on start-ups, hiring the wrong person in any team or organisation can end up costing the business a significant amount of time, money and resources.

Firstly, the monetary impact can be momentous. Zappos CEO estimated that bad hires have cost his company well over $100 million. Forbes reports that according to the U.S. Department of Labor, the price of a bad hire is at least 30 per cent of the employee’s first-year earnings. When investing in people, the impact that this can have on a small business or start-up can be even more devastating, potentially putting the future of the business at stake.

Three essential roles in management are;

  1. The hiring of new employees
  2. The development of those employees
  3. Retaining top employees

It’s obvious that getting the first step wrong means the chances of developing an employee with a high ROI for the business is almost 0. Helping employees to settle into a role and helping them with difficulties that they face is par for the course in management, but sometimes the cost of a bad hire means sunken time, wasted resources, and hiring (at least) twice.

The impact of a bad hire goes beyond time and money. The effect of a disengaged worker can stretch right across the business. Their co-workers will need to spend time on additional training, picking up the slack, and feel the impact of slipping standards. One bad hire can cost the company immediately, but furthermore, it can cost in the long term. Companies can lose their top performing employees due to low morale. Low morale can have a real impact on the finances of an org, especially considering the costs of; low productivity, difficulty in attracting quality candidates, lower retention, absenteeism, slipping standards in customer service.

When the decision has been made to end the employment of a bad hire, the organisation has already sunk a significant amount of money into their hiring and training. The cost of turnover makes this two-fold, with costs racking up in the areas of; time taken to find a new hire, recruitment costs, potential temp cover for the interim period, etc.

For managers, bad hires can be a stress on their career and reputation. While mistakes will inevitably be made, continuing to miss the mark when it comes to finding new and productive workers can damage the trust that the leadership team holds in you as a hiring manager. This might lead to additional resources being required such as outsources recruitment agencies. The importance of good hiring manager training cannot be understated across all areas of the business.

So, what can be done if you or your organisation has made a bad hiring decision?

Examine why this person isn’t the right fit

Perhaps the workload is more than the person can handle. Perhaps the culture isn’t right. Bad hires happen for too many reasons to count, but it is essential that managers spend some time examining exactly why this hire didn’t work. Making a bad hire once isn’t the end of the world, but twice could be a symptom of a pattern of bad hiring.

Analyse the costs of continuing to train vs letting them go

Are you 100% sure that this person isn’t working out? If the culture fit is mismatched, can human resources help by meeting with the employee and understanding why they are struggling? If they aren’t billing, is there some additional training that you can invest in to bring them up to speed? As discussed, the cost of turnover can be significant. Be sure that you’ve exhausted all of your options before making the decision to let the employee go.

Have a conversation with the employee

Discuss the issues with the employee. Offer them the opportunity to discuss why the role isn’t working out, and ask for their advice on ways that you can help them succeed in their role. Chances are that an unsuccessful employee is well aware of their situation, and if all options are exhausted, they might agree that the end of the road is nigh.

 

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