introduction of attrition (hitesh)

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INTRODUCTION In the best of worlds, employees would love their jobs, like their co-workers, work hard for their employers, get paid well for their work, have ample chances for advancement, and flexible schedules so they could attend to personal or family needs when necessary. And never leave. But then there's the real world. And in the real world, employees, do leave, either because they want more money, hate the working conditions, hate their co-workers, want a change, or because their spouse gets a dream job in another state. So, what does that entire turnover cost? And what employees are likely to have the highest turnover? Who is likely to stay the longest? It is however not an easy task for an HR manager to bridge the ever increasing demand and supply gap of professionals. HR manager is not only required to fulfil this responsibility, but also find the right kind of people who can keep pace with the unique work patterns in industry. Adding to this is the issue of maintaining consistency in performance and keeping the motivation levels high, despite the monotonous

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Page 1: Introduction of Attrition (Hitesh)

INTRODUCTION

In the best of worlds, employees would love their jobs, like their co-workers,

work hard for their employers, get paid well for their work, have ample chances

for advancement, and flexible schedules so they could attend to personal or

family needs when necessary. And never leave.

But then there's the real world. And in the real world, employees, do leave,

either because they want more money, hate the working conditions, hate their

co-workers, want a change, or because their spouse gets a dream job in another

state. So, what does that entire turnover cost? And what employees are likely to

have the highest turnover? Who is likely to stay the longest?

It is however not an easy task for an HR manager to bridge the ever increasing

demand and supply gap of professionals. HR manager is not only required to

fulfil this responsibility, but also find the right kind of people who can keep

pace with the unique work patterns in industry. Adding to this is the issue of

maintaining consistency in performance and keeping the motivation levels high,

despite the monotonous work. The toughest concern for an HR manager is

however the high attrition rate.

Page 2: Introduction of Attrition (Hitesh)

ATTRITION

Meaning of attrition: “The wearing down of an adversary, making him weaker

by repeal attacking them or wearing down of resources i.e. the process of

reducing the number of people who are employed by an organization by

not replacing people who leave the job."

Defining attrition: "A reduction in the number of employees through

retirement, resignation or death"

“The action or process of gradually reducing the strength or effectiveness of

someone or something through sustained attack or pressure.”

“The gradual reduction of a workforce by employees' leaving and not being

replaced rather than by their being laid off”

ATTRITION RATE

Definition: The rate of shrinkage in size or number of employees is known as

Attrition rate. It is usually expressed in percentage.

An attrition rate, also known as a churn rate, can be a measure of two things. It

can be a measure of how many customers leave over a certain period of time or

how many employees leave over a certain period of time. An attrition rate can

also be a combination of these two factors.

Attrition rate in Indian IT industry has gone down and it has reached a level

which was there in this industry 3 years back. This dip in attrition rate is not

sudden. It happened to recent slowdown in world market. However experts are

saying that the main reasons of the downfall of attrition rate does lesser number

of new jobs in industry and companies prefer fresher’s over experienced

employees as fresher’s are very cheaper as compared to experienced employees.

Page 3: Introduction of Attrition (Hitesh)

HOW TO CALCULATE ATTRITION RATE?

“Ideally, attrition should be calculated on a monthly basis for companies that

have over 50 employees for the first five years of its business. Subsequently, a

quarterly index should be applied till a company’s 10th anniversary. After this,

annual attrition figures should be measured and accounted for. This is the

optimum within the services industry as companies tend to have different

challenges at different stages of their business lifecycle; also, maturity achieves

stability around a company’s 10th anniversary.”

WHAT IS THE HR ATTRITION RATE FORMULA?

The Most Commonly Used Formulae Are :

Total Number of Resigns per month (Whether voluntary or forced) X 100-----------------------------------------------------------------------------------------

(Total Number of employees at the beginning of the month + total number of new joiners - total number of resignations)

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Number of employee separations-involuntary separations X 100-------------------------------------------------------------------------------------

*Average employee count(*Avg. employee count = January month strength + December month strength

Total Terminations in a month-------------------------------------------------------------------------------------

(Total Head Count at the beginning of the month) + (Total New Hires)

Total No.of employee left X 100-------------------------------------------Total No .Of employees present

ATTRITION CYCLE

((no. Of attritions x 100) / (Actual Employees + New Joined)) /100.

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Attrition brings decreased productivity.

People leave causing others to work harder

This contributes to more attrition, which contributes to increased costs

and lower revenue

This forces additional cost reduction and austerity measures

This in turn makes working more difficult, causing the best performers

with the most external opportunities to leave

Employee attrition, a big cause for concern for firms, ranges between 15 per

cent and 20 per cent. A company is not hurt because a certain person has left.

The company is hurt because he/she takes away certain knowledge, and there is

no ready replacement in the market.

Attrition, as such, is not a bad phenomenon. It has been known to exist all

along. However, when jobs were scarce, the technology change was less rapid,

voluntary attrition was small and companies managed it. However, with

technology changing rapidly and manpower costs increasing, attrition is high

and hurts badly.

Large players often use money power to lure talent from smaller players.

Companies also use the `location' bait to attract employees. While a certain

percentage of manpower turnover is desirable to keep fresh blood coming in,

and removing dead wood, higher percentages are definitely not good indicators

of an organization's culture and people practices.

It is a challenge to find the right talent within constraints such as location,

nature of work, compensation and benefits.

Fresh graduates joining an organization make it a point to leave within the first

Page 6: Introduction of Attrition (Hitesh)

year. They equip themselves not for performing their current job but for

attracting a new one. Many a time, there is migration from bigger companies to

smaller companies too, mainly because of the prestige associated with a certain

project or a particular client. In some cases, smaller companies are even better

paymasters than larger brands.

The success rates of retention programs are much higher if the management

uses a direct, employee-focused, approach and is ready to invest resources for

the same.

Page 7: Introduction of Attrition (Hitesh)

Factors Affecting Attrition

There are various reasons why people leave their current job. These reasons

may vary from individual to individual and when data are collected from a large

number of individuals leaving or who have left an organization, some

consistencies may be observed-providing more insights as to why people leave

in large numbers. If these are controllable-one attempts to control. If these are

not within the control of the organization, the organization should prepare itself

for managing attrition.

Managing attrition does not mean reducing attrition only. It could also mean

bringing down the negative effects of attrition and increasing the positive

effects of attrition. To increase the positive effects of attrition and reduce the

negative effects, appropriate retention and capacity utilization or talent

utilization tactics should be used. In one of the organizations, attrition has been

used as brand building opportunity. Thus an organization may say that we

provide talent for other companies or they may say that if you join us your

brand value goes up and you get good jobs etc.

 Today when a person leaves it causes a lot of disturbances in the organization.

If it is a small organization the disturbance is even greater. Hence it is important

to understand and manage attrition. There can be various reasons for people

leaving their current jobs.

Page 8: Introduction of Attrition (Hitesh)

WHAT IS ATTRITION ANALYSIS?

Attrition analysis is a study in which an analysis gives the data on what is

the current attrition trend in the company. It’s an analysis done by taking time,

manpower strength & no. of people resigned into consideration to derive the

final outcome.

i.e., Attrition % = (No. of separations/Total employees) *100

:: A MODEL OF THE TURNOVER PROCESS::

Actual turnover

Intension to quitCompare alternative

Looking for alternative

Thinking about leaving

Causes of job dissatisfaction

Job dissatisfaction

Page 9: Introduction of Attrition (Hitesh)

Reasons for Leaving the Organization:

1) Supervisor relations :

The quality of the supervision an employee receives is critical to

employee retention. People leave managers and supervisors more often

than they leave companies or jobs. It is not enough that the supervisor is

well-liked or a nice person, starting with clear expectations of the

employee, the supervisor has a critical role to play in retention. Anything

the supervisor does to make an employee feel unvalued will contribute to

turnover. Frequent employee complaints center on these areas.

Lack of clarity about expectations

Lack of clarity about earning potential

Lack of feedback about performance

Failure to hold scheduled meetings, and

Failure to provide a framework within which the employee perceives he

can succeed.

2) Pay & benefits:

Over half made changes based on exit interview information, and these included

reviewing salary structures, forming employee retention committees,

establishing alternative work schedules, and introducing bonus plans. The

survey also asked the HR professionals to rank the effectiveness of several

retention tools. Traditional benefits apparently work the best. The respondents

ranked health care benefits as the most effective retention tool, followed by

competitive salaries, competitive salary increases, and competitive vacation and

holiday benefits. Interestingly, some of the newer and trendier benefits did not

fare as well. Based on the survey findings, the best action for employers trying

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to boost their retention rates is to analyze salary and benefits packages to

determine if they measure up to the competition. Policies and Benefits Can

Reduce Turnover

3). Corporate communications:

The ability of the employee to speak his or her mind freely within the

organization is another key factor in employee retention. Does your

organization solicit ideas and provide an environment in which people are

comfortable providing feedback? If so, employees offer ideas, feel free to

criticize and commit to continuous improvement. If not, they bite their tongues

or find themselves constantly "in trouble" - until they leave

4) Performance Management System:

There may be very few performance appraisal exercises that are devoid of

criticism of bias any subjectivity however, most of the efforts to dispel the bias

and subjectivity are restricted to changing appraisal formats & systems that

include switching over to techniques like 360 Degree Appraisal & Team

Assessment using MBO criteria or modern approach Balanced Scorecard.

5) Organization Policies and Strategies:

No matter the circumstances, never, ever threaten an employee's job or income.

Even if you know layoffs loom if you fail to meet production or sales goals, it is

a mistake to foreshadow this information with employees. It makes them

nervous; no matter how you phrase the information; no matter how you explain

the information, even if you're absolutely correct, your best staff members will

update their resumes. I'm not advocating keeping solid information away from

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people, however, think before you say anything that makes people feel they

need to search for another job.

6) Likelihood to stay:

Your staff members must feel rewarded, recognized and appreciated. Frequently

saying thank you goes a long way. Monetary rewards, bonuses and gifts make

the thank you even more appreciated. Understandable raises, tied to

accomplishments and achievement, help retain staff. Commissions and bonuses

that are easily calculated on a daily basis, and easily understood, raise

motivation and help retain staff. You can bet that work is about the money and

almost every individual wants more.

7) Opportunity:

Talent and skill utilization is another environmental factor your key employees

seek in your workplace. A motivated employee wants to contribute to work

areas outside of his specific job description. How many people could contribute

far more than they currently do? You just need to know their skills, talent and

experience, and take the time to tap into it. As an example, in a small company,

a manager pursued a new marketing plan and logo with the help of external

consultants. An internal sales rep, with seven years of ad agency and logo

development experience, repeatedly offered to help. His offer was ignored and

he cited this as one reason why he quit his job. In fact, the recognition that the

company didn't want to take advantage of his knowledge and capabilities helped

precipitate his job search

8) Recognition:

Page 12: Introduction of Attrition (Hitesh)

A common place complaint or lament we hear during an exit interview is that

the employee never felt senior managers knew he existed. By senior managers I

refer to the president of a small company or a department or division head in a

larger company. Take time to meet with new employees to learn about their

talents, abilities and skills. Meet with each employee periodically. You'll have

more useful information and keep your fingers on the pulse of your

organization. It's a critical tool to help employees feel welcomed, acknowledged

and loyal.

9) Learning Organization:

Your best employees, those employees you want to retain, seek frequent

opportunities to learn and grow in their careers, knowledge and skill. Without

the opportunity to try new opportunities, sit on challenging committees, attend

seminars and read and discuss books, they feel they will stagnate. A career-

oriented, valued employee must experience growth opportunities within your

organization. The easiest to solve, and the ones most affecting employee

retention, are tools, time and training. The employee must have the tools, time

and training necessary to do their job well or they will move to an employer

who provides them

Today when a person leaves it causes a lot of disturbances in the organization.

If it is a small organization the disturbance is even greater. Hence it is important

to understand and manage attrition. There can be various reasons for people

leaving their current jobs.

Page 13: Introduction of Attrition (Hitesh)

: EMPLOYEE ATTRITION IN INDIA:

Staff attrition (or turnover) represents significant costs to technology and

business process outsourcing (BPO) companies. High attrition rates drive up

training costs, and increase human resources, recruiting, and productivity costs.

They also increase the prospect of customer service complaints or quality

problems, and create substantial continuity problems for longer-lived projects.

There are many causes for attrition including, retirement and death. However,

most attrition is due to employee turnover. Employees leave their jobs for a

number of reasons including: wanting more money, poor working conditions,

irregular working hours, lack of advancement opportunities, lack of job

security, difficulties with coworkers, desire for change, better opportunities, and

family reasons. High wage inflation is another major factor in job hopping.

:: ATTRITION RATES & COST IN INDIA::

In India, the average annual attrition rate in the business process outsourcing

(BPO) sector hit a high of close to 50% a few years ago.  Better attrition

management and the 2008-2009 global economic slowdown have helped reduce

the figure to 24-30%, but this still has a significant impact on costs and quality. 

Furthermore, attrition rates in India’s business process outsourcing (BPO)

industry are about 8 percent higher than the national average.

Some companies believe that the attrition rates in India—and the costs

associated with them—are so high that they can override the benefits of lower

wage costs. For example; while wages in call centers in Indian are less than

one-eighth of those in Northern Europe, it has been reported that Hewlett-

Packard have found the cost per ‘ticket’ (the cost of processing a query) was

double in India “due to the inability of the staff to resolve customer queries

efficiently because of language barriers and inexperience”. The issue is not with

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the quality or education of the staff and still less with the investment in

technology. It is simply attrition—people do not stay long enough to be taught

or to learn the job.

India’s government is acutely aware of the attrition issue and has introduced

several initiatives to create BPO jobs in rural areas of the country.

:: MANAGING ATTRITION IN INDIA ::

To ensure that attrition rates are kept to a minimum, businesses need to redesign

their reward and recognition packages to help the industry hold onto staff and to

find the right kind of people who can keep pace with the unique work patterns.

According to Oscar De Mello, country head of Hay Group’s Reward

Information Services in India, adjusting pay might not automatically lead to

higher operating costs for BPO companies. By creatively designing their total

reward package towards more short-term incentives and benefits, and linking

the package to performance, companies can ensure that they get higher

productivity without hefty increases in salary costs and minimize attrition costs

and issues at the same time. Hay’s Group recommends providing a better

balance of short- and long-term benefits such as performance bonuses,

employee stock option plans and retention bonuses; effectively communicating

details of compensation plans to encourage employee buy-in; and promoting

non-financial benefits such as career development, job rotation and transparent

performance management systems.

First, if you are working on a longer-term project, understand your partner’s

attrition rates and their management practices. Some firms manage attrition

well, while others simply try to hide it. Second, review your team structure and

ensure that there is sufficient information sharing and collaboration so that the

loss of any one person does not set you back. Finally, get to know your key

Page 15: Introduction of Attrition (Hitesh)

team members. Not only will this help reduce attrition, but help you minimize

the down side if you do lose a key team member

COSTS OF TURNOVER

The impact of employee turnover on company performance is often understated

by organizations. This describes how the cost of turnover is can be calculated

using some basic organizational parameters. The purpose of this document is to

provide talent cost of turnover calculator with insight into how costs are

calculated and the reasons why certain costs were include or excluded form the

calculator. The calculator should only be used as a guide in understanding the

impact of turnover on a company. If the desire is to understand the true cost of

turnover then it is suggested that a greater degree of analytical work is

undertaken.

The key areas used in the calculation of turnover are:

New Hire costs

Once a person has been employed an organization generally spends significant

resources in the induction and administration of bringing them into the

organization.

Lost productivity

The hidden costs associated with lost productivity of employees prior to leaving

the organization and new less skilled employees are one the largest components

of the total cost associated with turnover.

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Dysfunctional and avoidable turnover

Determining the level of dysfunctional and avoidable attrition provides a

perspective on the scope of control that a company has to manage their turnover

costs. Determining the cost of turnover is the first step in the process of

developing a management plan. To deal with an attrition issue effectively the

reasons for turnover and an understanding of the demographics of turnover need

to be understood.

Undoubtedly, the financial costs of turnover have attracted the attention of

academics and practitioners alike. Besides the more familiar costs associated

with the administration of terminated employees the economic costs such as

productivity losses need to be included in any calculation. In particular,

departure of employees - especially experienced or talented ones - may threaten

overall firm productivity or client retention. Furthermore, personnel losses may

endanger the firm’s future opportunities in the marketplace or the morale of

their remaining work force. Human resource accounting experts Cascio, Hom

and Griffith define exit expenses as having two main components - direct and

indirect costs. A company incurs both direct and indirect costs that result in

losses in production dollars and overall production volume, as well as increased

administrative costs. Direct Costs are actual dollars spent each time an employer

has to attract, select, and induct a replacement for an employee who leaves the

organization. Indirect costs are those expenditures attributable to turnovers

affects on production - that is costs for incomplete or disrupted work, loss of

quality, etc.

The cost of turnover can be calculated by measuring the time taken to

administer each activity plus the direct costs such as advertising costs. The

turnover costs calculated using the calculator represent dollars spent. The

potential loss of revenue if these dollars were invested elsewhere or through lost

productivity is not calculated. Therefore, the figures are an indication of the

Page 17: Introduction of Attrition (Hitesh)

minimum costs that the organization is subjected to when an individual leaves

the company.

Administration & Sourcing costs

The most visible cost of turnover is incurred by organizations in the area of

recruitment administration and sourcing. The time associated with processing

terminated employees and recruits places a burden on organizations where staff

turnover is excessively high. The assumption is that this is largely an

administrative task conducted by people at 80% of the average company salary.

In addition the direct costs to a company for recruitment agency and advertising

costs are highly transparent.

1. Process Administration:

Resignation Administration -

The time taken to administer a resignation will include activities such as:

conducting exit interviews & processing of administrative tasks. The time taken

to perform these activities is ideally measured as a result of analyzing the

processes involved.

Recruitment Administration -

A large amount of time is often spent in administering the recruitment process.

Writing the job ad, posting it onto job boards, organizing agencies and reference

checking all require the use of organizational resources, whether internal staff or

outsourced. The hours spent involved in these activities does need to be factored

into the cost of turnover.

2. Sourcing Costs:

Agency expenses -

The cost of sourcing a successful applicant from an agency may be one of the

largest single direct costs associated with recruitment.

Page 18: Introduction of Attrition (Hitesh)

Advertising costs -

The cost associated with posting job ads to job boards or traditional media such

as newspapers can be significant. The average cost per vacancies is used within

the calculation.

3. Interview Costs:

Interview -

A core component of recruitment administration is the cost associated with

interviewing applicants. Interviews make use internal resources. The more

interviews held and the greater the number of candidates interviewed the larger

the costs associated with these activities.

Testing -

Companies are making greater use of psychometric and aptitude testing in their

recruitment processes. These tests can be costly to administer and as such need

to be factored into the overall attrition costs.

Travel -

Companies may pay the costs associated with bringing an applicant to the

interview location. Although this may not be done for every candidate an

average is used in the I4 calculator.

Page 19: Introduction of Attrition (Hitesh)

FACTORS TO CONSIDER IN THE COST OF ATTRITION

What You Want To Identify Are Your Organization's Costs For:

New employee recruitment, especially for recruiting the kind of diverse staff a

great organization wants?

Management time for trips to job fairs & colleges, screening applications time,

interviewing, meetings to make decisions?

Newspaper, journal, Internet and other ads

Technology specialist time for placing recruitment and job info on the

organization web site

Brochure and flyer printing, folding, addressing, and mailing

Personnel staff time processing applications, answering phones, dealing with

certifications, and other inquiries, etc.

New employee initial orientation

New employee training during the first year or two? (both that just for new

employees and all other organization training)

Reduced results when an employee leaves with what they have learned from

trial and error, and a different new employee is hired without that hard won

experience and starts over at the beginning again.

Loss of work flow continuity when employees leave or are not rehired

because they are not as successful as required?

Page 20: Introduction of Attrition (Hitesh)

:: CONSEQUENCES OF ATTRITION::

The labour turnover can have a number of serious consequences, both negative

and positive.

On The Negative Side, Turnover Can Have The Following Consequences:

Management time spent orienting, evaluating, coaching, developing, and

supporting new employees who are not retained?

Significant replacement costs.

Significant operational disruption.

Loss of key skills, knowledge and experience.

Employee dissatisfaction and loss of morale.

Further turnover may be stimulated by an increase in the workload, or

pressure on, those who remain.

A service contractor’s ability to take on new work may be impeded.

Productivity and creativity may diminish.

On The Positive Side, However, Turnover May Have The Following

Consequences:

Vacant posts provide opportunities for re-structuring sections or departments.

Vacancies in key posts will increase internal promotion prospects.

Promotion of innovation, flexibility.

Reduction of playbill costs – initial employment cost of replacement staff

may be lower.

Displacement of poor performers.

Adjustment of staffing mix to provide greater flexibility.