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It’s not in your budget… seriously…

It’s not in your budget… seriously…
Damian Scallon
  • On January 27, 2015

The minute hand on the clock in our board room clicked slower and slower as our vice president of Human Resources, Billie, went through her diatribe promoting how effective and efficient her department was operating.  Closing out she said, “I do have a few concerns about our turnover numbers and trends, but we can review that next month.”

“Very good,”  responded Larry, our company president.

“Not so good,” I piped up, as Billie sank into her seat.

“I agree we need to discuss this further, and I will make sure it is on the agenda for next month’s meeting,” Larry stated quickly, trying to get us back onto today’s agenda.

“Let’s move onto our last agenda item, profitability, which will consume the balance of this meeting,”  Ron, our CFO, chimed in as he put up the next PowerPoint slide showing our declining site direct profit margins.

“We may be in a difficult position here, and we may need to renegotiate with some of our  customers. These trends are very concerning,”  Larry stated.

Quickly hopping out of my seat and heading for the white board on the wall, I said, “Look, indulge me for five minutes, and if you feel this is not worth our time I will quietly sit back down.”

“Quietly?” Larry asked. He had known me for years and knew that quietly was not something I did well.

“Well, at least calmly,” I answered, grabbing a marker and removing the cap.

“Billie, give me the name of one of our sites where you have a ‘mild concern’ about our turnover.”

Billie consulted her laptop and said, “Indiana is probably a site where employee turnover is in the middle range.”

“Perfect,” I responded, writing ‘Indiana’ on the white board.

“What information do you need to know?” Billie sighed, dreading where this was going.

For the next few minutes I asked a series of question, and put the answers into a table I was creating on the white board. How many people did the site require? How many people did we hire last year? How many that we hired left in less than 90 days? Less than six months? Less than a year? As the information was given, it was captured into the table and I quickly started to add up the totals and apply some percentages.

Indiana # of People %
Site requirements 225 100%
Hired last year 85 38%
Less than 90 days 40 47%
Less than six months 10 12%
Less than a year 5 6%
Lost last year 55 65%


“Are you telling me that in Indiana we lost 55 of the 85 people we hired last year?” Larry asked with astonishment.

“Yep, 65% of everyone we hired we lost within the first year.”

“That is ridiculous. How are we able to service the customer with that kind of turnover?”  Larry stated, knowing it was a rhetorical question.

“I am much more concerned with the 40 people we lost within the first 90 days, which equals 47%,”  I responded.

Billie, feeling the need to redeem herself and her HR department, stated with her usual air of authority,  “If we lose new hires in less than 90 days, it is due to bad hiring practices. The people should not have been hired in the first place. Staying less than six months is usually accredited to poor job orientation, and less than a year is a lack of recognition of the people.”

As she talked, I created another table on the white board.  When she finished, I stated  “The operations group proposed to HR that we use a test, a profiling tool, to assure suitability for every hourly candidate, before we even spend time interviewing.”

Billie chimed in, quickly stating, “We hire hundreds and hundreds of people, and we cannot afford to absorb the cost of those profiles.”

“Billie, we implemented a profiling tool when we faced turnover issues in management, and today we have great retention metrics.”

“What’s that table telling us?”  Ron asked, no longer worrying about the original meeting agenda.  The entire team was now entranced in the conversation.

I took a few minutes to outline the second table showing the number of hours and cost per hour associated with every new hire.

Cost Breakdown # of Hours $ per Hour Total
Company orientation 16 $21.00 $336.00
Safety orientation 24 $21.00 $504.00


“Do I have it right that we are spending $840 dollars for every new hire before they even step foot on the shop floor of our customer?”  Larry asked.

“Yes, you’re right, and those are actual payroll costs.  This does not include the intangible costs such as poor delivery, quality and such all associated with turnover.”

As the team digested the information, I quickly drew a third table outlining the impact to our bottom line of losing 55 people, with emphasis on the 40 we lost within 90 days.

Indiana # of People $ per Person Total
Site requirements 225
Hired last year 85
Less than 90 days 40 $840.00 $33,600.00
Less than six months 10 $840.00 $8,400.00
Less than a year 5 $840.00 $4,200.00
Lost last year 55 $840.00 $46,200.00


“Let me get this straight.  We are losing $33,600 in one year because of our poor hiring practices?”  Larry exclaimed.

Billie went to jump in, but Ron beat her to the punch. “That is exactly what this is telling us, and as we have sat here, I have also been calculating the impact of this on our declining profit margins. I believe this issue is probably one of the root causes, if not the root cause.”

“I agree, and the impact is even worse if you calculate the overtime we realize to offset the turnover and also the intangible costs,”  I responded.

“What’s this test you spoke about earlier, and what is its cost?”

I walked through how the operations team had researched the use of a profiling tool that assessed applicants for their compatibility and suitability to work as team players, be punctual, follow standards and safety regulations, and show an aptitude for honesty, quality, pride, and loyalty. During interviews we had with companies accustomed to using the profile tool, they each stated it is an absolute best practice for any company hiring people into entry level positions like we do.

Cost Comparison # of People $ per Person Total
Less than 90 days 40 $840.00 $33,600.00
Cost to test 40 $35 $1,400
Percent of Loss   4% 4%


Billie, sitting upright in her chair once again, spoke out with authority, “It is not 100% accurate.”

“True,” I said as I finished up the last table outlining the cost of using the tool and how small the investment was compared to what we were losing.

“What is the worst-case scenario of success from those you have spoken to?” asked Ron.

On the white board under the last table, I wrote the worst-case scenario of 70%. The room was quiet as everyone absorbed what this meant to our actual bottom line. We had spent the last thirty minutes discussing one site, and we had over 200 sites. The Indiana site was also not one of our worse offenders; it was middle of the pack.

Worse Case Scenario 70% $23,520.00


“I do not think we should be going back to our customer to ask for more money when we as service providers clearly have an issue,”  I said as I took my seat, avoiding the glare from our vice president of HR.

“Quite frankly, if we can resolve this issue by even 40%, we no longer have a profitability issue,”  Ron said looking up from his calculator.

“Billie, why have we not embraced this profiling tool technology?”  Larry asked more sternly than usual.

“It’s not in my budget,” she started to say, but Larry cut her off stating, “It’s not in your budget…..seriously?”

Jumping in I said, “With the support of HR, we can have a pilot up and running by our next meeting.”

“You have their support,” Larry said.

“Do you have a site in mind for the pilot?”  Billie inquired, finally getting on board with the direction the conversation was taking.

Pointing to the white board, I said, “Indiana.”

As I gathered up my things from the board room table, I reflected back on a statement a professor who specialized in Human Resources once told me: “If HR cannot prove how they impact the bottom line, they should not expect a seat in the board room.”

“So true, especially when you are a service provider,” I thought to myself walking back to my office.

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