cost of vacancy jeremy shapiro

Calculating A Realistic Cost of Vacancy

Jeremy Shapiro, SVP Hodes iQPosted @ my blog

http://measuringtalent.wordpress.com

Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

http://www.hodesiq.com/

http://measuringtalent.wordpress.com/

How much does it cost an organization when a seat is left empty?


How much does a single cost you?

Answer Reason

Nothing We didn’t need to fill this job in the first place, we found true efficiency. Kill the req.



Answer Reason

Indirect cost only

The role indirectly influences top line revenue. •Eventually has an impact on precursors to top line revenue (customer satisfaction, innovation, cash flow problems, etc.) •Soft dollar costs are the immediate cost. Cost < fully loaded compensation of the role (in the short term).



Answer Reason

Direct cost This role bills out for their time (pure consultancy, etc). Take the hourly or day rate and multiply by the # hours usually billable. Cost = Fully loaded compensation.



Answer Reason

Leveraged cost

This role produces more value than the salary represents •“A” player sales, a crucial role in the organization, etc.)•Cost = Fully loaded compensation * (some factor)



Answer Reason

“Chunky” cost

The most common type: This role does not exactly have a 1 to 1 cost if they are out for a day like “Direct cost”. •If they are out for a day or two, the revenue is not lost, it’s generated later when they are in the seat.


• All we are saying is this:– If employees generally do not bill at an hourly

rate, and they do provide incremental monetary value, then the value they create can happen in “chunks”.

Ok ,I’ll bite, what is “Chunky” Cost?


A “Chunky” Example: Jim• Jim manages 10 clients. One of

those clients has a need for his company’s services valued at $1,000.

• The client will wait until Jim is back from his 10 day vacation in Cabo to talk with Jim about the need.

• Company doesn’t lose the revenue.

• But, if the client has to wait 15 days, he says, “forget it, I’ll call Jim’s competitor.”


• We can use that to create a realistic total cost of vacancy inside most organizations.

• What’s our criteria for realistic?– Make this skeptical, grumpy finance guy

comfortable with the analysis.

Now that We’ve Defined “Chunky” Cost

Stop showing me average revenue per employee and

telling me it’s cost of vacancy!!


For Cost of Vacancy Purposes, Let’s Assume

• That salary represents the value an organization places on the roles of their staff.– It’s almost always the largest cost

component of an organization, we must be adding value somewhere. I’m never going to

Hawaii again.I am worth 10x my salary, of course.


• The Formula We Will Use– We will calculate it step by step in a few slides.

Calculating Total Cost of Vacancy

(Revenue per employee per day) * (Total days a job was left vacant)(# days to compensate for “Chunky” work)


• Defining Variables


Variable Description Where 2 find itTotal Revenue Take the top line revenue of the organization over the

past 12 months (or your chosen time period)Corp web site, finance group.

Avg. headcount In the same time period as Total Revenue, what was the avg number of FTE in the organization?

HRIS, HR, etc.

Total # workdays/year

HR or finance will have an expected number of days an employee works in a year.

HR management, Finance

Total # days a job was left vacant

If you calculate the # of business days from the time the departing person left to the day the new person arrived, this is a good start. (Don’t do this by hand! Excel can do this for you…)

ATS, HRIS


• Step 1: Create a “Naïve” Revenue Per Employee Average



• Step 2: Create an average Revenue Per Employee Per workday



• Step 3: Decide on how many days on average the organization does not suffer from a financial impact from someone being out. This is the “chunky” work.

• Example. Time “chunks” are 5 days– This is an average used in a financial model.

• Don’t get too caught up in individual performance or different departments.• This will be used for sensitivity to the business. Your gut is actually helpful

here. What will your financial person acknowledge as reasonable?

• We’ll call this variable “Sensitivity” so that we don’t get smirks in our meeting, ok?



• Step 4: What are the total days of vacancy?– Example: 1,000 days vacancy

• Step 5: Calculate Total days of vacancy / Sensitivity– Example: 1,000 days / 5 days sensitive = 200

adjusted vacancy days



• Step 6: Calculate adjusted cost of vacancy

Adjusted vacancy days * Revenue per employee/day

Example:200 vacancy days * $634 rev per employee per day = $126,800



• Want to see an example spreadsheet? I’ve posted an example here for you to look at:

• http://spreadsheets.google.com/pub?key=tzXzfCER_s-rv2V540ZLhCw&output=html



http://spreadsheets.google.com/pub?key=tzXzfCER_s-rv2V540ZLhCw&output=html

http://spreadsheets.google.com/pub?key=tzXzfCER_s-rv2V540ZLhCw&output=html

• Your turn!• Have you tried this technique? Post a note

below or at measuringtalent.wordpress.com and tell everyone what you learned?



Thanks!

• Jeremy Shapiro, SVP, Hodes iQ, [email protected] • Blog: http://measuringtalent.wordpress.com• LinkedIn: http://www.linkedin.com/in/jeremyashapiro• Web: http://www.hodesiq.com• Twitter: hrmetricsguy


mailto:[email protected]

http://measuringtalent.wordpress.com/

http://www.linkedin.com/in/jeremyashapiro

http://www.hodesiq.com/

cost of vacancy jeremy shapiro

Documents

svp hodes iqposted

total cost of vacancy

single cost

cost of vacancy purposes

largest cost component

days sensitive

days vacancystep

average revenue