The High Cost of Hiring the Wrong Person

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Author Ira Wolfe
Date Published April 26, 2010
Original Publication Workforce Trends

Bad hiring decisions can cost you big bucks later on.

Hiring managers are missing red flags when it comes to interviewing candidates. The result is both organizations and candidates are guilty of making bad choices.

Several studies have revealed the high-stakes game hiring managers play when selecting employees and the enormous drag it has on the bottom line. More than 30% of hiring managers and close to 25% of new hires second-guess their decision, according to one of the studies by the Recruiting Roundtable.

These decisions cost businesses millions in lower performance, lower engagement and higher turnover. The loss exploded when you consider the loss of a customer due to poor employee attitude.

In Michael LeBoeuf’s book, How To Win Customers and Keep Them for Life, he cites a survey designed to discover why customers quit doing business with a company. The survey revealed that 68% quit because of an attitude of indifference toward the customer by the owner, manager or some employee. When considering the life time value of a customer, studies indicate it costs roughly 300 to 700 times an hourly worker's rate. That’s a lot of money when the new hire doesn’t work out.

Hiring mistakes don’t only plaque large business. In a small business with only 64 employees, the cost of turnover is just shy of nearly $8,000 (Greater Louisville Greater Impact Study). While visiting a client of mine in late March, the president of the company initially blew off the 47 employees he hired last year who failed to last more than 30 day. “It’s just the cost of doing business,” he explained. But when he finally put some numbers to paper, the color in his face turned from pink to white. He just leaned back in his chair stunned. The cost of turnover just for these 47 failed employees was adding $376,000 to his costs!

Interviewers often make hasty decisions. Forty-seven percent of interviewers in a DDI study revealed they spend less than 30 minutes reviewing a candidate's interview results with others before making a decision. Just think, in the time it takes you to watch your favorite TV show or have an extra-cheese-and pepperoni pizza delivered to your home, employers are making million-dollar hiring decisions.

One of the biggest issues at play is the lack of training and the heavy reliance on "gut instinct." Fifty-eight percent of interviewers report having either no interviewer skills training or relying on their instincts.

When you consider the high cost of a bad hire, the ROI associated with improving employee screening and interviewing is significant. By combining a good behavioral interview with pre-employment testing, business owners can hire better, reduce turnover, and save thousands of dollars.

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Creative Organizational Design can help your organization find many ways to accurately assess the skills of incumbents and improve your hiring decisions, saving you both time and money by finding the right people the first time.

Re-printable with permission.