Author: A. J. Balasubramanian
Reducing cost per hire is an important metric to evaluate the performance of HR Departments in organizations. The standard definition for cost per hire is simply sum of all costs directed towards hiring efforts divided by the number of hires. The key is to capture the data accurately, both on the expenses side and outcome side.
While expenses are easily and immediately accountable, outcomes are not. Depending on the company’s brand and capacity, the total cost spent, when measured using only internal accounting figures may not provide a true picture of cost per hire. For example, an organization with great brand may be able to attract more people and therefore more eligible candidates for screening and selection. Hence, it is important to come up with an internal metrics by the organizations similar to Economic Value Added concept used in measuring financial performance of firms.
EVA is simply the earnings made by the firm, after subtracting cost of the capital deployed. In other words, when organizations are able do a minimum performance with X amount spent on hiring expenses. It must see, in addition to the normal return, what are the additional returns it brings in to organization. Simple formula of Cost / number of hire may indicate very good result. But HR must ask, whether, the hire was really successful and met with the goals of the position and the corporate objective. Hence, this measure should not be completed as soon as the exercise is completed.
It should be extended to a long term and a statistical processing should be introduced to check, what additional savings are made by the company. Such saving may include, performance of the hire on the job and satisfaction expressed by the department head or customer satisfaction brought in by the hire or reduced cost to train the hire and deployment speed etc.., These additional benefits that are derived by HR from other expenses, have to be compared brand building investment in marketing or R&D / product development investments in Product Management that has gone in to company’s effort in the past.
Once these metrics are arrived at, then HR Department must concentrate on assessing the past investments that had gone in to branding the organization, which helps attract better and more suitable candidates and target their future investments and initiatives in those areas. For example, conducting an industry workshop or a University Training Program and promoting the company culture on the sidelines may help see candidates who attend the program benefits of working your organization. Such indirect methods have higher and better focused impact on hiring then direct advertisements and job fairs.
The key to reducing cost per hire is not just counting what is countable, but also counting on what is not visible and doing it right based on outcomes and experience. It may be risky. But it would eventually increase the impact on quality of hire.
A. J. Balasubramanian is Vice President at CareVoyant. Follow him on Twitter @ajbala