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The cost of a bad hire and how can we avoid them?

Posted on 26/08/2015 by Jason Rumney

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When it comes to hiring a new employee for any small business pressure is well and truly on to fill the position as quickly as possible. However, by rushing the process chances are you won’t find the best candidate for the job and a bad hire can have a series of negative implications for the organisation.

It is a well known fact that there is always an element of risk when hiring a new member of staff. Despite the lengthy interview process & multiple reference checks you can still  never know for sure whether someone will be the perfect fit for a role before they start. Therefore for small businesses like Intelletec making a hiring decision involves a lot of consideration and careful planning. Not only can hiring the wrong person cause a disruption among the team but it can also have severe financial repercussions, something I witnessed first hand when I took on my first few hires with Intelletec.

Next Generation have put together a video which outlines the true cost of a bad hire, from the salary, to lost business. It outlines the following areas;

The financial cost

  • The average cost of a bad hire is 30% of the employee’s first year earnings.

  • 10% of sales opportunities are lost.

  • 27% of UK companies said that bad hires cost them more than £50,000

The effect on productivity

  • Hiring the wrong person can cause a 36% drop in productivity.

  • Hiring a replacement is time consuming, causing almost 40% lost time, recruiting and training the new person.

The cultural damage

  • It can disrupt the team dynamics and has potential to cause a 32% drop in employee morale.

  • It can also be damaging for client relationships, I've noticed this a lot over the years of working for a few recruiting firms and seeing almost 200 new employees. Client’s are more likely to stay with those recruiters that have longevity in their careers.

So the question is how do we avoid this...

  • Thorough precise preparation: Writing a thorough & detailed job description helps so that candidates know exactly what the role entails. Be prepared to dedicate time to making the right hiring decision whether you engage recruitment agencies or you stick to finding talent in-house. If you are new to hiring make sure you have a support team as hiring is a 24/7 job that needs a dedicated team.

  • Effective interviews: Assess the candidate against specific criteria that is essential for the role you're hiring for. Make sure you know the essential questions needed and stick to a structure, if their are multiple people who are part of the interview process make sure everyone is singing from the same hymn sheet. Finally judge each candidate not only their skills and experience, but also whether they’re a good cultural fit for the company.

  • Psychometric tests: Something becoming a lot more frequent is the application of Psychometric tests. In the UK 18% of companies currently do psychometric tests and this could be the answer to finding well suited candidates.