The cost of poor management

When networking, I ask for a show of hands. I ask people to put their hands up if they have ever had a bad manager. I then ask them to keep their hands up if that manager caused them to leave their job.

It is a fun way to engage with people whilst doing my “60 second elevator pitch”, but it does have a serious side. There is a huge financial implication to poor management.

The costs of losing a member of staff can seem straight-forward to calculate … it’s just the cost of an advert or the cost of paying a recruitment agency to help fill the gap, isn’t it?

The true costs for replacing a member of staff averages out at £30,000 per person when you consider the loss in productivity, the amount of time taken to advertise, interview and recruit, the training costs for the new team member, it all adds up very quickly.

 

Why do people leave their job?

Surveys of people leaving their jobs (1) consistently show that people leave their bosses, not their job. Conflict with their direct boss is the number one reason why people leave. Furthermore, when you look at the top three or four reasons why people leave their corporate jobs, they are all linked to leadership aspects, such as a lack of recognition or a lack of empowerment.

  • Almost a quarter (22%) of workers left their job due to a lack of faith in leadership
  • 19% felt unappreciated,
  • 19% felt disengaged & unmotivated.

This means that poor management is driving talent out of the door.

 

How much does it cost to replace those people?

Estimates do vary, of course, as you take into account the type of job, the salary, the economic climate but, in 2014, HR Review (2) published an article that provided a shocking cost of replacement. £30,000.

 

Let’s look at the costs: 

  • Before they leave, the employee will be de-motivated and will not be as productive. For certain roles (such as sales), this can have a major impact on revenue.
  • In addition to recruitment agency fees, there are costs associated with the time taken to short-list, interview, check up on references etc.
  • Finally, there will be a cost associated with induction, training and the time taken for the new employee to get up to speed.

 

It all adds up. So, let’s do some simple maths.

  • Let’s say a business has 1,000 employees. In 2012, according to 2013 research on labour turnover from XpertHR Benchmarking (3), the mean (or average) staff turnover rate ran at 10.6% .. let’s call it 10%.
  • That means, 100 people will voluntarily leave their job at this company.
  • If we are cautious and say that a quarter left because of their manager, that means 25 people.
  • That equates to £750,000 in cost to the business to rehire and train people to replace those 25 unhappy staff members.
  • That is my return on investment – if I can improve the quality of your management, I could save you money.

 

Updated: 9 November 2016

 

I provide training and coaching on leadership development. If you want to find out more, call me on 07595 702878 or Contact Me.

References:
(1) Survey by Benchmark Recruitment
(2) HR Review article
(3) XPertHR article

Links:
https://www.recruitment-international.co.uk/blog/2013/11/benchmark-recruit-reveals-top-reasons-people-quit-their-job
http://www.hrreview.co.uk/hr-news/recruitment/it-costs-over-30k-to-replace-a-staff-member/50677
http://www.xperthr.co.uk/blogs/employment-intelligence/2013/10/turnover-hr-data-round-up/