Calculating the cost of a vacancy (COV) is a critical activity, one that’s necessary to determine the actual business impact of talent shortages that result from a gap between the time talent is needed and the time required by the recruiting function to supply such talent. As a metric, it can be configured to measure the dollar impact of voluntary turnover and involuntary turnover, or the impact of a slow recruiting process that’s incapable of meeting the organizations growing talent needs. Calculating COV is critical, because organizations are unlikely to place the requisite emphasis on addressing recruitment issues if they are unaware of the negative impact such vacancies may be generating. So many organizations these days have become so laser-focused on cost containment that they often overlook the possible longer-term detrimental impacts their actions regarding talent may have. This is especially true in organizations where the HR budget is controlled by a CFO who continues to see the function largely as an administrative one. Cost-focused organizations end up seeing a position vacancy as a short-term reduction in expenses; after all, salaries do show up on the balance sheet as an expense (not an investment.) That’s why it’s so critical to demonstrate the business impact of not having a performing employee in key positions. Even the dumbest finance person realizes that without having a single employee, no matter what the cost savings, the firm would produce zero revenue. If you have the time, I strongly recommend that your organization calculates the actual costs of having a vacancy in key roles. In some key jobs ó particularly in industries where time to market is a key factor in driving corporate success ó the cost of a single vacancy has been calculated to be between $7,000 and $12,000 per day. In one unique case, it was as high as $200,000 per day. Unfortunately, calculating the actual COV for all positions in an organization would be ultra complex and time consuming, which is why many organizations opt to use a simplified formula that estimates the cost. (For key roles, should you want to calculate the actual cost, many of the factors you would need to include in your formula are discussed later in this article.) It is important to note that there is no magic or even standardized formula for the calculation of the cost of a vacancy, because the factors that must be considered are largely dependent upon the position, the industry, and the current stage in the product lifecycle. Whatever formula you select, be sure to develop it in conjunction with the finance department. Their early involvement is essential, in that it adds credibility to your calculations and preemptively eliminates any resistance or doubt they would cast on your efforts otherwise. Part 1: The Simplest Formulas If you just want a simple, direct means of calculating COV, here are a few basic formulas you can use:
In any of the above calculations, if the vacant position is replaced by a temporary employee, you have to determine the lower productivity of a temp compared to having a regular employee in the same position. If the manager “fills in” to do the added work, it is generally okay to assume that because they won’t be doing their regular job, there will be some dollar consequences. You can also calculate the higher error rates and lower productivity that any “fill in” is likely to generate and add the extra costs of overtime pay if regular employees must work over time to do the work. Part 2: The Business Impacts of a Vacancy If you are serious about the economic impacts of slow time to fill and turnover, here is a detailed list of the factors that should be used in the calculation of COV ó working with a GM and finance, of course. You should work with functional leaders in marketing, sales, engineering/production, and finance to develop actual costs or acceptable guesstimates for each bullet relevant to your organization. Product Development and Productivity
Individual Employee Impacts
Increased Management Time and Effort
Your Competitive Advantage, Culture, and Value
Your Image and Recruiting
Other Miscellaneous Concerns (and Costs) That May Arise
In the case of start-ups and small departments, where there is little cross training, the cost may be more dramatic. If you only have ten employees and lose two, you have a 20 percent vacancy rate (which is a big deal!). In a tight labor market, vacancies in hard-to-hire jobs may not be replaceable, at any cost. Spending the time to avoid vacancies or to fill them rapidly with top performers may have a huge ROI ó especially if departing employees go to a competitor with your ideas, causing their revenues to increase as yours go down.Get the best of ERE, delivered right to your inbox. Subscribe to our daily e-newsletter. Share this Entry Tweet6 Share5 Share36
The number of jobs going wanting is on the decline just as the Conservative government prepares major changes to the temporary foreign worker program.
Statistics Canada reports that the average number of vacant positions in Canada during the first quarter of 2014 dropped to 206,000, down from 223,000 for the first quarter of 2013. The national job vacancy rate from the first quarter of last year to this year dropped from 1.5 per cent to 1.4 per cent.New regulations for Canada’s Temporary Foreign Worker program took effect on Dec. 31, 2013. iSTOCKPHOTO Multimedia Everything you need to know about temporary foreign workers Philip Thong of National Instraments takes down information from Derek Sargent who will be graduating in the Spring of 2014 from electrical engineering at The University of Waterloo during the Partnerships for employment Job Fair at RIM Park in Waterloo on February 5, 2014. For The Globe and Mail Multimedia The good news and bad news about Canadian jobs numbers
Critics say the decline undercuts the justification for bringing hundreds of thousands of temporary foreign workers into the country each year. However, those who say the program is needed to fill specific regional shortages see vindication in the detailed numbers released Tuesday by Statscan.
(What is the Temporary Foreign Worker Program? Read The Globe's easy explanation)
The report shows Alberta has the highest job vacancy rate at 2.3 per cent, followed by Manitoba at 2 per cent. It also shows the accommodation and food services sector – which fears it may be hardest hit by changes to the temporary foreign worker program – has the highest job vacancy rate in the country at 2.7 per cent. Restaurants Canada says the vacancy rate likely rose even higher in April when the federal government temporarily banned restaurants from accessing the TFW program in response to allegations of abuse.
Edmonton-Leduc Conservative MP James Rajotte, who chairs the House of Commons finance committee, said the details of Statscan’s report are in line with the regional shortages for specific skills that he sees in his riding.
“I understand the concerns of Canadians – they want Canadians to have first access to jobs – I completely agree with that and I agree with dealing with abuse in the [TFW] program,” he said. “But we do have to be responsive to the fact that we have different economic employment realities across the country.”
Employment Minister Jason Kenney is expected to announce major policy changes to the TFW program as early as this week. The minister recently said the government plans to spend $15-million a year on two new Statistics Canada surveys that will provide the detailed regional data on job vacancies that critics say is sorely lacking.
NDP MP Jinny Sims said the latest Statscan report shows the current program is not needed.
“With those kind of numbers out there, I don’t see how we can justify any kind of a temporary foreign worker program unless it is sector-specific and there is a proven shortage in that area,” she said.
Debate over the methodology of measuring job vacancies has played out in Ottawa for months after the Parliamentary Budget Office said Finance Canada was producing an erroneously high job vacancy rate by relying on software that scans online job boards such as Kijiji. That approach produced a job vacancy rate above 4 per cent.
The Canadian Federation of Independent Business provides its own rate by surveying about 1,000 business owners a month. Its numbers for the first quarter will be out soon. However its most recent report for the last quarter of 2013 found 296,000 full and part-time vacancies, for a job vacancy rate of 2.5 per cent.
Ted Mallett, vice-president and chief economist with the CFIB, said he believes Statistics Canada’s approach underestimates the number of vacant jobs. Mr. Mallett said he welcomes the government’s decision to fund more detailed research, but noted that it will take years before that information will provide reliable data on labour trends.
In the interim, Mr. Mallett said the CFIB is concerned the Conservative government will make major changes to the TFW program without clear information on the state of Canada’s labour market.
“I wouldn’t want to see too many changes made without having the knowledge or the data associated with [those new surveys],” he said.Report Typo/Error
Follow Bill Curry on Twitter: @curryb
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