Title: How to Measure Hiring and Staffing
1Part 3
- How to Measure Hiring and Staffing
2Why Recruitment Mission Critical
- If we think of the people in the organization as
assets, lets look at our work as being that of
human asset managers - Just like capital, equipment, supplies and
energy, human talent has to be acquired - we call
it hiring, recruitment, staffing - but it is the
acquisition of talent - the first step in asset
management. - The value-adding potential of all functions
within organi-zations depends, how effective is
the talent we help them acquire. - All other assets are nothing more than inert
commodities, that can be purchased at market
prices. Once purchased and delivered, these
resources become depreciating assets. Only the
human asset has the potential to learn, grow and
contribute.
3Make or Buy Decision
- Organizations have two choices in acquiring human
assets - train internal people for greater responsibility
(make), or - go to the market and hire someone (buy).
- One of the fundamental variables in the make or
buy decision is cost. - NOTE The acquisition process has a wider range
of effects on the organization than is generally
realized. The cost-effectiveness of any given
hire does not stop when the offer is accepted, it
can be traced all the way through the new
employees career until the day the person
becomes a turnover statistic. - The issue of turnover cost starts with selection!
4The First Measure
- To make intelligent decision regarding the
trade-offs between promoting from within and
hiring from without, it is necessary to know the
relative cost of each choice. - We start with what is often thought of as the
first measure cost per hire (CPH). - This applies for internal and external sources as
well. Of course internal placements do not
require all the types of expenses that external
sourcing does, but there are still costs, and
they need to be calculated. - CPH includes not only the direct costs of
advertising and agency fees, but a multitude of
expenses generated by the replacement process
(see table).
5Expenses Related to Hiring Process
6Measuring CPH
- In its simplest but most complete form, CPH can
be expressed as shown in the equation below
- where
- AC advertising costs
- AR agency fees
- RB referral bonus
- TC travel cost
- RE relocation cost
- RC recruiter cost
- NC unsolicited no-cost resumes
- H number of hires
Get the best data with a minimum of
effort! Based on Saratoga Institute, this formula
proved to be accurate - in 8 years period the sum
of all other cost was between 9 to 10.5 percent.
- CPH can be calculated for both external and
internal hires.
7Advertising Costs
- When we run one advertisement for one position,
it is easy to ascribe the cost of the ad to that
hire. - However often combination ads are used to call
applicants for two or more jobs. Sometimes we use
a blanket ad calling for an unstated number of
jobs. - Question how should we apportion the cost of the
ad between the positions we want to fill? - divide it simply by the number of positions?
- weight the charges by the salary level of each
hire? - etc.
- There is no prescribed rule to follow. We need to
- establish the ground rules ahead of time
- be consistent in our methodology to gain
comparable results
8Agency Fees
- Agency fees cover all types of outside agency
sourcing - executive searches
- employment agencies
- temporary workers who are converted to permanent
workers - In the case of executive searches, the fee can
run to hundreds of thousands of Hungarian forints
(tens of thousands of US dollars). This, along
with relocation (in the US), is usually one of
the highest costs. - This is the reason, why so many companies have
strict controls regarding the use of executive
search firms.
9Referral Bonuses
- Because of the tight labor market situation, some
companies in the US have employee referral bonus
programs. - These companies pay current employees a bounty
(fee) if they bring in qualified applicants who
are subsequently hired. - When the labor market became very tight in the
second half of the 1990s, many organizations
started offering sign-on bonuses for people who
came in directly without going through an agency. - We do not have neither of these programs in
Hungary.
10Travel Relocation Costs
- According to international data, expenses
associated with travel and relocation are
significant (between 1984 and 1995 these costs
quintupled in the US). - This is also the situation for multinational
companies in Hungary in respect with Hungarian
and/or foreign expatriots (especially in higher
value-added positions, like RD or in management
positions), but does not hold water in general
terms. - Under these circumstances for not having a
misleading CPH rate it is appropriate to report
two sets of figures - one for hires that does not require travel
relocation and - an other for hires for which there are travel
relocation costs
11Staff Time
- International studies have shown that the
recruiters salary and benefits cost multiplied
by the number of hours spent per job is the sixth
important cost variable. - All other staff time - clerks, hiring department
staff, and management - is part of the 10 percent
miscellaneous cost variable. We do not recommend
spending valuable time working this cost variable
out in-depth. - If you feel you must, you may introduce standard
labor costing for each of the staff members
involved in the hiring process. Standard rates
are often computed as a sum of the following
three factors - salary of staff member involved
- benefits of staff member involved (generally as a
percentage of the amount of salary) - overhead costs.
12Breaking Down CPH
- The true value of the measurement system becomes
apparent only when we examine a dependent
variable such as cost per hire. - The bottom-line number, CPH HUF X for a given
time period is just the starting point what can
be a very enlightening tour of the staffing
function. - Whether we have an automated or a manual data
entry system, we can divide CPH by any of the
types of expenses discussed. - It is also easy to measure CPH by source, by
level of job, even combining level with job
groups. - NOTE To be able to make those cuts, we have to
remember to collect the data at the time of hire.
13Source Analysis
- For the following analysis, standard costs for
staff and management time, travel, relocation and
other costs are taken as givens. The outcomes are
only the sourcing costs. - The basic equation is as follows
- Once we have the basic formula, we can change the
denominator to any group of hires and recompute
cost per source for that group (e.g. technical,
marketing, sales, administrative).
14Source Analysis
- For reporting purposes it is enlightening to show
the comparative cost of each source of hire. To
do that, we simply separate the variables in the
numerator and do separate computations
- A sample report based on this cost analysis
15Interviewing Costs
- We already know how to calculate standard labor
costs for the staff and for hiring management.
Observations disclose how long on average each
interview takes place. Computing the cost of
interviewing (CTI) as a component of the total
cost is a simple two-step process
step 1 CTI ST MT
- where
- ST staff time, total staff time spent
interviewing (e.g. HUF 2.000 per hour standard
cost x half hour per interview x number of
interviews - 237) - MT management time, total management time spent
interviewing (e.g. HUF 5.000 per hour standard
cost x one hour per interview x number of
interviews - 237)
16Interviewing Costs
step 2
- In step 2 we simply include the interviewing cost
in the known source cost per hire ratio. - The new ratio reflects the cost of the fact, that
although there were only a certain H amount of
hires (e.g. 74), it was necessary to interview
237applicants and conduct 237 interviews.
17Summary (costs)
- Evaluating the cost-effectiveness of the
employment process is one of the easier
judgements to make. - Costs are mostly visible in the form of invoices
for advertisements, fees and travel. Moreover the
less apparent expenses, such as the cost of
someones times, can be determined quickly. - No HR department can claim to operate efficiently
if it does not know how much it is spending to
hire people. Acquisition costs are important,
whether we are talking about machines or
employees. - Fortunately, these costs are easy to obtain, and
are powerful tools for proving that HR is trying
to maximize the organizations recruiting ROI.
18Keeping Management Satisfied with the Hiring
Process
- Cost are important, BUT there are obviously other
staffing considerations besides cost. - Issues of timeliness, completeness and quality
may be more important in the eyes of the hiring
managers (our customers). - Our customers are focused on achieving their
operational objects. The decision point may shift
among time, cost and quality as outside pressure
change (e.g. in a fast-growing company, having a
candidate in place may be the key requirement) - Knowing where the customers priorities are or
are likely to be will enhance our service.
19Time Factors
- Basically there are three time issues in the
recruitment process. - The first issue has to do with how long it takes
to develop qualified candidates and refer them to
the management for an interview. This is called
response time. - Response time is defined as the cycle time from
the day we have a signed, approved job
requisition in hand to the day on which we call
or forward to the requesting manager at least one
qualified candidate ready to be interviewed. - Although it does not mean that we have completed
the assignment, it shows how quickly the system
works.
20Response Time
- The computation of response time is a simple
subtraction
RT RD - RR
- where
- RT response time
- RD date first qualified candidate was referred
for an interview - RR date of receipt of job requisition
- Adding total days to respond and dividing it by
total hires for a period of time gives an average
response time
21Internet Effects on Response Time
- Job boards and internal databases are both
- a blessing (rapid access to applicant databases)
- and a burden (quality of applicants has to be
further screened!) - when it comes to rapid response time.
22Time to Fill
- The second time issue is how long it takes to
fill a job requisition (have the offer accepted).
This is called time to fill. - Time to fill measures the total number of days
between the delivery of an approved requisition
to staffing (RR) and the date on which an
applicant accepts the job offer (OD). - NOTE Once we refer an applicant, our degree of
control begins to lessen.
TTF OD - RR
23Time to Start
- The third time measure is time to start. It is
calculated exactly as is time to fill except that
is shows the additional number of days between
acceptance and start. The start date is the day
the new hire reports for work. - The formula for time to start is start date (SD)
minus requisition receipt date (RR)
TTS SD - RR
24Administrating - Selecting Key Checkpoints
- A staffing manager who is looking for
opportunities to improve the time to fill or time
to start record, needs a complete log of the key
checkpoints of the process (computerized HR
systems often generate this automatically, but a
spreadsheet program may also be used instead).
1 - requisition received, 2 - sourcing started,
3 - first applicant responds, 4 - first
screening, 5 - follow-up contact, 6 - first
management interview, 7 - hiring decision made, 8
- offer made, 9 - offer accepted/rejected, 10 -
new employee starts work
25Referral Factor
- After measuring cost and time of hiring, the
third issue is the quantity of candidates. - Quantity is measured by the referral factor, as
the equation shows - where
- RF referral factor, a relationship of candidates
to openings - R number of candidates referred to an interview
- O number of job openings
- A variation on this formula is to substitute
openings for hires. NOTE for a given period of
time not all openings result in hires. - A realistic referral factor is always a
combination of management demand and market
conditions.
26Job-Posting
- Later we will talk about the job-posting system
as a part of the career development effort. Here
we look at it solely from an administrative
standpoint. - From this point of view three perspectives of
job-posting are important to us - the employees use of the system
- the rate of hire generated by the system, and
- the role of the system in the total hiring
scheme. - Each perspective provides opportunities for
measurement. - Job-posting systems and the use of these systems
vary considerably among industries and different
countries of the world. Also management
philosophy, union status, internal communication
capabilities and other factors affect the usage.
27Job-Posting Response Rate
- No matter what the system like, the first
questions to ask are - How are people responding to it?
- When we post a job, what happens?
- Are we flooded with employees eager to transfer?
- Or does anyone at all show up?
- The basic measurement is the job-posting response
rate (JPR), which indicates how many responses
are received per job posting. - where
- A number of applications received
- O number of posted jobs
28Job-Posting Response Rate Analyzing Results
- Job-posting, if monitored, can yield much more
than a list of applicants for open positions. - Assume that there is a flood of applicants for a
job or for all jobs posted. What could that mean?
A few reasons people apply for a transfer are - desire for advancement
- escape from bad supervision
- lack of interest in the current job (boredom)
- escape from bad interpersonal situation
(co-workers) - better pay
- movement to a new geographical location
- change in job responsibilities
- family or health problems.
29Job-Posting Response Rate Analyzing Results
- An analysis of the source of applications and the
reasons given by the applicants often helps
pinpoint an organizational problem. - Let us assume now that there only a very few
employees respond to posting. Some of the
possible implications are - there is a consistent history of internal
rejection in favour of outside applicants - there is no visible support from management
- there are threats from supervisors about applying
for other positions in the company - the HR department has done a substandard job of
dealing with applicants - only low level jobs are posted.
30Other Job-Posting Measures
- There are variations on the basic JPR formula,
one of which is to calculate how many posted jobs
are responded to. - JPRF gives a picture of the spread of responses.
- The second test of the job-posting system takes
the process a step further by dealing with the
number of placements that result from the system. - NOTE If a high rate of response is coupled with
an equally high rate of hire, the system would
appear to be fulfilling its mission.
31Internal Hire Rate
- Some companies set targets for internal
replacement rates. - This is probably a healthy thing to do. It lets
everyone know what the expectation is. If it is
communicated well, employees will understand and
support it. A formula for measuring these targets
is called the internal hire rate (IHR) - Job-posting measures are a good example of the
inherent value of measurement. These seemingly
secondary issues yield information well beyond
what appears on the surface. In the process of
obtaining data on one subject, the procedure and
results cause another set of questions to be
asked.
32Career Path Ratio
- A second perspective on the organizations
internal hiring process emerges from calculating
the percentage of internal hires that are
promotions versus those which are transfers. - By understanding these results, one can uncover
other career development issues as well.
- where
- CPR/P career path ratio / promotions
- CPR/P career path ratio / transfers
- P total promotions
- T total transfers
33Recruiting Efficiency
- After examining cost, time and quantity issues,
we focus on the efficiency of the recruiting
process and that of the recruiters. - Lets start by looking at recruiters efficiency.
Our basic questions are - How productive are their interviewing techniques?
- What is the average length of interview for a
given type of job? - How many interviews does it take to develop a
list of qualified applicants? - How many interviews does it take to achieve a
quality hire? - Ratios for all this issues can be created if that
will be useful.
34Basic Measures
- The most basic measure is average length of
interview (AIL) - There is another efficiency measure that yields
information about both the recruiters and the
sources of applicants, the hire rate formula
(HR)
- where
- HO total hours spent interviewing
- I total number interviewed
- where
- A applications received (e.g. 120)
- I interviews (e.g. 30)
- R referrals (e.g. 10)
- H hires (e.g. 4)
35Basic Measures
- Hire rate traces the process from the point of
application to the point of hiring. The ratios
show how the original pool of applicants is cut
at each step. - Example
- Questions
- If we obtain only 4 hires, was the advertisement
effective with 120 applicants? - consider time
and cost of processing - When the process was finished with four hires,
probably 60 to 80 labor hours had gone into it.
Is that satisfactory?
HR 25 x 33 x 40 3
36Offer Acceptance Rate
- Another measure that says valuable information
about how productive recruiters are is called the
offer acceptance rate (OAR). Simply stated this
is the hit ratio of job offers made to job offers
accepted. - It is helpful to have an acceptable standard for
this ratio. OAR can not be fully controlled, it
reflects the supply and demand positions of the
labor market as well. Today the accepted US rate
of OAR is about 80. - There is probably nothing more irritating,
frustrating and wasteful than an employment offer
is rejected.
- where
- OA offers accepted by applicant
- OE offers extended (made)
37The Quality of Recruiting
- The basic problems with measuring quality of
recruiting are - How do we judge the quality of a new hire at the
time of hiring? - How do we describe a good employee (our product)?
- Our answers to these questions are
- When observing the quality of recruiting, we must
acknowledge that quality is time bound. - NOTE patience is a prerequisite to measure
quality of hiring. - For describing a good employee we use three
criteria - performance
- promotability
- stability
38Quality of Hire
- Based on our answers we believe that quality
issues cannot be measured for a minimum of 6-12
month. - With these assumptions we can create a quality of
hire (QH) measure
- where
- PR average job performance ratings of new hires
(as a percentage of possible maximum performance) - HP percentage of new hires promoted within one
year - HS percentage of new hires retained after 1 year
- N number of indicators used (in this example 3)
- The resulting percentage (e.g. 62) is a relative
value. - It is up to us to decide if the number represents
high, med. or low quality.
- The decision can be based on historical
comparison or preset performance standards, etc..
39Recruiter Effectiveness
- To answer the question of recruiter effectiveness
(RE) we will follow the same procedure, but
employ different indexes.
where RT response time TTF time to fill
CPH cost per hire OAR offer acceptance rate
QH quality of hire N number of indexes used
(here 5)
40Summary
- We have looked at the staffing function and
measured it with the five basic indexes cost,
time, quality, quantity and customer service. - NOTE the most important is customer
satisfaction. Without it, we are out of work. - The examples given were not meant to be
all-encompassing. Rather they were samples of
what we consider the most important tasks to
measure. - There may be special needs within the company.
- Consider the environment, the staff, line
management, business conditions, organizational
objectives, etc. - Then design a set of measures and reports that
will help meet the twin goals of effective
management and persuasive reporting.
41C o f f e e b r e a k