Recruitment spend; the figure invoiced for services rendered for recruitment (tangible)
Cost of recruitment; the invoiced figure (tangible) plus the cost of the time of internal stakeholders (tangible) plus the cost of dislocation for recruiting (intangible)
I recall a discussion I had with a HR Manager of a reputable business a few months ago. It’s a business that I had talked too for a number of years on and off but had never been able to really build a relationship with. The type of business that will let anyone have a go at recruiting for them as long as they are happy to work to 15%. They were advertising for a Project Manager. When I asked how it was going she told me that they had interviewed about 20 people and had reviewed many more CV’s. She told me that if I wanted to submit some CV’s I could, just to get the JD off the website and send any candidates through. Out of sheer intrigue as to how this approach panned out I decided that I would. Despite the role having been live for a number of months, and without too much effort I managed to find 2 candidates locally that had not been approached and briefed them on what I knew, which wasn’t a huge amount, they were however interests so I sent their CV’s. A few days later the HR Manager contacted me to say that they would like to interview one candidate but the other candidate was a no, no real feedback as to why in each case. Anyway the interview process went ahead. The candidate met with 3 people in the interview process and was in interview for an hour and half. He wasn’t successful.
So in total 4.5 hours of the companies labour time was spent on just that one unsuccessful interview.
By assumption that all other interviews had the same people involved, with the same amount of time, the total time spent on interviews alone was 90 hours. Or 2 weeks with some overtime. That’s a lot of time to invest without success. The amount of waste involved is incomprehensible. I wonder how many people reviewed CV’s and how long it took them. If this business recruits 20 people each year in a similar fashion then that’s 1800 hours spent interviewing candidates that were not right. There’s a whole other range of articles about what is wrong with this scenario but that’s for a different time.
This company was only recruiting one PM so in essence, working to a mega efficient process, they only needed to interview one candidate! Ok, to provide a choice, maybe 3 – 4 candidates maximum. This would represent a 80% efficiency improvement at first stage. A saving of 72 hours. In that 72 hours the company could have met with 20 recruitment providers, understood what value they could bring, selected one or 2 that best fitted their needs and spent some more time with them, introducing them to departmental managers and giving them a real insight to the business and culture. In short, setting them up for success for both the PM role and future needs.
Recruitment is a cost to any business, even if it’s just a matter of the time spent in interviewing the successful candidate by the hiring manager, even if only one candidate is interviewed for one hour, a cost is still incurred. The tangible cost to this is the cost of the salary of the hiring manager for that one hour spent. The intangible cost of this is the cost of dislocation of that hiring manager, i.e. the loss in productivity of that hiring manager because he/she was not focussed on other aspects of their role. There is also a cost of dislocation associated to a vacancy that stays open as other employees tend to pick up the additional work load and therefore become less productive in their own role. Many sources and commentators would put this at 3 x the salary of the individual dislocated for the time taken.
“What are your terms?” This question can be a false economy if you were to consider the recruitment process as total costs to the business as opposed to the transactional spend on that hire. Driving down cost at source could lead to a reduction in quality through that source and an increase in intangible costs. Engaging multiple sources may provide additional service but it will inevitably lead to an increase in the hidden cost. It could however reduce time to hire.
Added value is a term that’s pinged around in everyday office talk. Customers in supply chains all around the world are looking for added value from their suppliers. In this context the added value lies with those recruitment providers that free up your time as opposed to consuming more. Interviewing 4 candidates that match your requirement through a source that charges 2% more can be more cost effective than using multiple sources at a lower cost but interviewing 20 candidates.
AXA PPP recently conducted a study and found that the cost to an SME business for recruiting is nearly £30,000 http://www.hrreview.co.uk/carousel/new-research-finds-costs-smes-almost-30000-replace-employee/102004
This is a staggering amount, and if those businesses recruit 4 people in a year, then… well I don’t need to do the maths for you but that’s a big cost.
As you can see there is a significant amount of cost hidden and tucked away in a recruiting process, some companies will bleed cash because they consistently get it wrong or don’t really think it about the broader implications of their recruiting strategy. There is a balance to strike. Getting the right service at the right price is important but don’t let the right price be determined purely by the lowest % cost. Find the value.
So, if you use have used, do use or are considering using a recruitment provider always ask yourself
“what’s the total cost”?