The Cost of Not Pre-Employment Testing

Surprisingly, many managers spend more time evaluating the purchase of new software, a PDA or office furniture than they do their most valuable asset – their people. Yet the cost of even a few bad hires can quickly become one of a company’s most significant expenses, making pre-employment testing one of the smartest cost-saving steps a company can take.

Selection errors are common and their cost is staggering. Selecting individuals with a below-average match for a position who lack the capacity to produce can cost dearly. They are a poor investment that holds tangible and intangible costs.

Decreasing Costs Through Pre-Employment Testing

How do you calculate the cost of one bad hire? Just consider:

The costs associated with managing a bad hire, including low team morale caused by a person in the wrong job, loss of confidence in management, the “poisoned well” syndrome in which one bad hire impacts the performance of others, damaged internal and external relations, and the lost opportunity cost of not hiring the right person in the first place.

The costs associated with an employee separation, including separation paperwork, exit interviews, unemployment compensation, and lost productivity due to vacancies.

The costs associated with recruiting and hiring, including advertisements, headhunters, HR costs, interviewing, and relocation costs.

The costs associated with a new employee, including benefits, new hire training, and lower productivity during a new hire’s first weeks and months on the job.

Research suggests the cost of turnover equals anywhere from 1.5 to 4 times the annual salary of a lost employee.

Increasing Revenue Through Pre-Employment Testing

Yet, just as the combined tangible and intangible costs of a bad selection can total hundreds of thousands of dollars, revenue through pre-employment testing and proper selection can transform these losses into even greater profits, particularly when taking into account the long-term impact of low turnover and consistent employee performance.

Consider the “Pareto Principle,” perhaps best known as the 80/20 rule. Quite frequently 80% of an organization’s results are produced by the top 20% of its people. If an organization’s selection process yields new hires producing the same attributes as its top performers, profitability skyrockets. Productivity improves without expanding the employee base, but simply through the consistent selection of the candidates best-suited for the positions available.