Costs of recruitment

How do we work out how much recruitment costs? Well, it gets a bit complicated, because costs can be organised in different ways; in New Zealand we tend to consider direct and indirect costs; in the USA the costs tend to be grouped into external and internal (Phillips & Gully, 2015). Direct costs arise where we can point to that and say this was directly related to hiring a new staff member (such as advertising the position), and indirect costs are costs which are are part of someone's job or overhead (such as HR staff time, travel and expenses for selection and interviews, testing, reference-checking and verification of qualifications). This latter category is remarkably hard to track, even though it has been tried (Tsarenko & Krishnamurthy, 2021).

External hiring costs arise where we pay someone outside our organisation (advertising placement, recruiter fees, referral bonuses, travel costs, relocation costs), and internal hiring costs are self-evident (advertising content or co-ordination, travel/interview/referee costs, and staff time). Apparently 90% of hiring costs - "including testing, reference checking, hiring manager time, and administrative support" - are likely to be external costs (Phillips & Gully, 2015, p. 156).

Recruitment costs, or costs per hire/CPH, used to be guesstimated at something like $13k per person, which I would guesstimate to be more like $20k today. In the USA in 2016 this was considered to a little over $4100 (SHRM, 2016). This is a simplistic model, largely only including direct costs (advertising, testing, verifying, contracts), not indirect costs (screening, interviewing, reviews) or the six or so months it takes for a new staff member to become acculturated to organisational processes, procedures, and to build networks.

Those more complex recruitment costs - including training investment - for trainee accountants were calculated out to a staggering 241% of an accounting graduand's annual salary (Twiname et al., 2011). However, those accounting students require two expensive professional exams to become Chartered Accountants once they have clocked up the appropriate number of hours, which significantly inflates costs in this profession (Twiname et al., 2011). It would be interesting to know whether the percentage has shifted since the original study, and what costs doctors and lawyers rack up!

It is interesting just how pricey it is. I began making a rough list of what needs to be factored in, and came up with quite a substantial list (see the image accompanying this post). And I forgot job sizing.

It is a complex bucket of stuff!

Sam

References:

Phillips, J. M., & Gully, S. M. (2015). Strategic Staffing (3rd global ed.). Pearson Education (UK) Ltd.

SHRM. (2016, August 8). SHRM Benchmarking Report: $4,129 Average Cost-per-Hire. Society of Human Resource Management. https://www.shrm.org/topics-tools/news/shrm-benchmarking-report-4129-average-cost-per-hire

Tsarenko, A., & Krishnamurthy, D. (2021). Understanding and Improving Quality in Firm Recruitment Processes: A case study [report 2021:035]. University of Gothenburg.  https://d1wqtxts1xzle7.cloudfront.net/97248696/483817839-libre.pdf

Twiname, L. J., Samujh, H., & Rae, S. (2011). Accounting for the costs of recruiting and training [paper]. Cambridge Business and Economics Conference (CBEC), Cambridge UK, 27-29 June 2011. https://researchcommons.waikato.ac.nz/server/api/core/bitstreams/1fc33677-9d09-4f9c-a9de-8a69368f7ab2/content

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Honesty in the Hiring Process

The wonderful, artificial world that is hiring: where interviews consist of the employee trying to be the best candidate they can be, and the employer trying to be the best employer they can be. This is such an artificial construct for both sides, complicated by formulaic questions, elements which must be skirted, and both participants trying to (a) avoid looking bad while (b) trying to find out what the risks of the position/ appointment are.

No one tells the bald, naked truth in interviews. Both participants 'gloss over' the untidier aspects of their relative backgrounds. Neither comes clean about the actual circumstances of the role/experience. Everyone is being Pollyanna (Porter, 1913).

So really, who can be surprised when it all goes wrong? When the job turns out to not be what was expected, and the person turns out not to fit the culture of the organisation? Where everyone is disappointed?

Perhaps we all need to take a leaf out of Ricky Gervaise's world in "The Invention of Lying" (Gervais & Robinson, 2009), where we only tell the truth. Telling the truth in interviews is what Raki and Weiss (12 June 2019) are proposing: "letting job applicants interview them as much as they interview the applicants." A nice idea, but how would it work in practice? They provide a nice analogy: "Do you think that some 40% of U.S. marriages end up in divorce because [partners] intentionally lie to each other? Or is it that most don’t ask themselves enough tough questions about whether they are good long-term fits as spouses?". If we took this fit into the interview process, then employers "can be transparent and [say] that they expect the same candor from employees" and that this will "set the tone for the [employment] relationship". They note that "Research shows that asking direct and blunt questions is the best way to elicit honest answers" (Raki & Weiss, 12 June 2019), but unfortunately they do not cite the actual research.

From the employer's point of view, there is a real economic driver to getting the best candidate. The costs of hiring in New Zealand are clear. Without using a recruitment agency, the cost is almost $14k:

• Advertising 1 x 3 placements = $ 750.00
• CV screening 20h x $75/hr = $ 1,500.00
• Interview cost 20h x $75/hr = $ 1,500.00
• Psychometrics = $ 400.00
• Reference checks 2h x $75/hr = $ 150.00
• Induction 2 people x 20h x $75/hr = $ 6,000.00
• Productivity loss Operating at 75% for 90 days on a salary of $55k = $ 3,437.50
• Total cost of a new hire: $ 13,737.50

Anything that can be done to do make the process more honest and less fraught with problems has to be good for the employer. But what about the employee?

The literature tends to be silent on the cost to a candidate who starts work for a company but who doesn't fit the organisational culture. Costs are hard to estimate for depression, anxiety, loss of confidence, impact on their family, failure, career derailment or a damaged reputation.

The writers suggest asking "candidates if they would like to conduct reverse reference checks on him [their prospective manager]. If they accept, he introduces them to two of his past direct reports" (Raki & Weiss, 12 June 2019). That is a great idea: but how much will that really minimise risk for the candidate?

Honesty in the hiring process sounds like a great idea, but I don't think we are there yet. The power remains on the employer's side, and we still have a very poor understanding of the cost from the candidate's side.

It looks like there might be a research gap!


Sam

References:

• Gervais, R. & Robinson, M. (2009). The Invention of Lying. United States: Warner Bros Pictures.
• Porter, E. H. (1913). Pollyanna. Boston, USA: L.C. Page and Company
• Tarki, A. & Weiss, J. (12 June 2019). Stop Lying to Job Candidates About the Role. Retrieved from https://hbr.org/2019/06/stop-lying-to-job-candidates-about-the-role

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What Applicant Tracking Software (ATS) is

OK. So what is this "ATS" thing that is rapidly becoming a buzzword in the US, and a puzzle in some less teched-up markets?

ATS is an abbreviation for Application Tracking Software (ATS), sometimes known as a talent management system (TMS). OK, so that part's clear. An ATS is essentially a specialist CRM which handles applications. It is the organisation's central recruitment database; it partner with job boards to get the hiring ads out there, and stores the applications that come back. 

The database has some built-in specialist tools. Specifically artificial intelligence (AI) and natural language processing (NLP) for intelligent guided 'semantic search'. One of the clever things the software does is look for key words in the documents that applicants upload, that match the job description specs of the jobs being applied for so that staff don't have to read CVs.

So what happens is that applicants upload their CVs, forms and application letters. The documents are automatically screened by the ATS according to the preloaded role criteria, using AI & NLP.  The ATS spits out a list of matches who get to the next stage (whatever that stage is - interview, secondary screen on different criterla or whatever). Insufficient keyword matches, and the applicant doesn't make the cut.

The development of ATS has largely been driven by two factors. The economic downturn - there are so many people out of work, there needed to be a better way to manage so many applications for companies flooded with desperate applicants - and the AI algorithms have reached a level of sophistication that enables this to work. As The Resumator says, "the right ATS can give recruiters their time back, once stolen by the overwhelming demands of finding, handling and evaluating piles of resumes" (29 May 2013).

The proprietary software is currently pretty pricey, but it is saving large organisations loads of money in recruiting fees. However, the software is going to follow Moore's Law and get cheaper - fast. There are some open source alternatives already at http://www.linuxlinks.com/article/20091006153557925/HumanResourceManagement.html. Expect to see ATS at SME applications near you. Soon.

From the applicant end, there are some tricks to making an ATS appllcation work for your clients, else they won't make the cut. I will explore this a later blog post.

References:

• LinuxLinks (30 June 2013). 5 of the Best Free Human Resource Management Software. Retrieved 20 January 2014 from
  http://www.linuxlinks.com/article/20091006153557925/HumanResourceManagement.html.
• SearchCIO (November 2010). applicant tracking system (ATS). Retrieved 20 January 2014 from http://searchcio.techtarget.com/definition/applicant-tracking-system
• The Resumator (29 May 2013). What Is an Applicant Tracking System? Retrieved 20 January 2014 from http://www.theresumator.com/blog/what-is-an-applicant-tracking-system/

Sam

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