Most Human Resources professionals agree that providing financial rationale for human capital strategies will help HR get a seat at the table.   Providing any standard costing of voluntary turnover (e.g. 50% of base salary), however, is something that can not be done with any level of accuracy.  I humbly suggest that anything but an individualized approach to the cost of turnover is pure folly.

There are no positions for which the calculation is easy, but the problems of generalizing can be seen even if we use a seemingly simple position.  I encourage HR professionals to think about any position within their organization – I defy anyone to tell me that it is easy.

Example: Jane is an accounts payable clerk earning $15 an hour.  Jane is in the same exact position and pay as 10 other clerks.  All clerks earn $15 an hour regardless of experience.  Jane is unhappy with the way her Manager treats her and she quits without giving notice.  What is the cost of the turnover?

In order to calculate the cost of turnover, the following questions must be answered:

How much time did Jane’s supervisor spend cleaning up open matters?

How many extra or overtime hours were worked by the other clerks to over the work that was being performed by Jane?

What is the cost to advertise and fill the open position (headhunters, etc.)?

What are the costs of miscellaneous business issues (changing passwords, business cards, etc.)?

What are the costs of outside training that will be required for Jane’s replacement?

How many extra or overtime hours will be incurred by the Company until Jane’s replacement reaches the same level of overall productivity?

But then we need to subtract a number of offsets.  The quantifiable offsets include, that we get to save Jane’s salary while the position is open – plus, if Jane’s replacement turns out to be more productive than her, then the costs will be paid back over time.  This may depend on the current job market – if there are fully qualified accounts payable clerks in the area, then there may be little cost.  If there is a 6-month wait to get health insurance, we can book those savings because the new employee will not cost as much right now.  Finally, we need to look at how good an employee Jane really was.  If she was our least productive clerk, then the turnover in an applicant rich job market may cost next to nothing.

There is no easy answer – and that is my point.  OK, it’s not my only point.

Let me be clear – the can be costs associated with turnover.  Depending on the person, there may be a loss of continuity,  loss of business and loss of efficiency.  But the only real analysis is that which is done with full knowledge of the next best alternative.

Here is my challenge to HR: Use historical turnover data to highlight improvements you have made in the organization, but stop using numbers to quantify the cost of turnover unless you have done the calculation for a specific person and position.  Our role as HR professionals is to provide value, but we must be honest in those situations where the “science of HR” can not be measured accurately.