Vacant Position Cost
The Cost of a Vacant Position
I always loved the example that Dr. John Sullivan, a well-known speaker, author, and advisor to Fortune 500 companies and head of HR Management at San Francisco State University, gives to illustrate the cost of an unfilled opening at a company.
If an airline bought a new 747, and then let it sit for two months on the runway because they didn't have a pilot, what would the cost be to the airline? In other words what is the cost of a vacant position?
There are several possible ways to calculate the cost of an open position: taking the annual salary (say $65,000) and multiplying by the assumed actual value of that position to the company (which most companies put somewhere between 3 and 5 times the salary). You can determine the loss to the company by hour, day, week, or month.
For example, $65,000 x 5 = $325,000 value to company. Loss per week = $6250.
Our calculation is based on company revenue to determine the annual revenue per employee and eventually the total daily revenue lost per unfilled opening.
These factors are very numbers focused and therefore straightforward, but don’t really give the full picture. When your company has an open position, many costs can’t be easily measured by a formula, although they can be financially devastating to a company. Things that should also be considered include:
- Does the open position slow down the process of bringing a product to market?
- Does your staff have to take on the extra workload? Do they have to work extra hours, thereby creating potential issues with productivity, morale, and/or job satisfaction?
- What is the opportunity cost of having this position open? What could the management team or staff be accomplishing if their time did not have to be spent managing an extra workload?
- Have you considered how an opening in one department impacts other interdependent departments?
- What is the perception in the open market of your open positions? Will customers be wary of your ability to support them if necessary?
Even though you can’t eliminate turnover altogether, you can reduce the number and duration of your open positions by:
- Working with Laso to create sound job descriptions in order to attract the right individual for both today’s open position, and who will grow within your company’s long-term strategies and objectives.
- Work with Laso to ask the right set of interview questions to ensure that the person you select has the experience and/or the smarts to do what needs to be done.
- Work with Laso to onboard your new hires in such a way that they are set up to succeed.
Fill in the following information to quantify the basic cost of your unfilled positions: