The hidden costs of slow hiring
When you don't hire you're loosing money, not saving it
It is said that hiring is very challenging in Software companies and it needs effort to do it effectively. Once you realise help is needed and acknowledged by the company then half the problem is solved. A budget is defined and you can full-speed to look for the best candidates for the position going into talent acquisition.
Nevertheless, timing is a crucial aspect which is not taken into consideration enough to make the process simple, fast and repeatable. Let’s do a simple calculation of productivity and profits that will guide our most risky assumptions about the process.
We can measure productivity
Productivity is quite hard to measure, there have been books and debates from the past 40 years, sophisticated methodology such as cosmic metrics, confusing story points etc... So let’s assume the quantifiable value of a delivery team is 500K USD a year and it is composed of 5 people with equal pay of 50K USD, which costs the company 250K USD a year. These are not real-numbers, go to payscale to see actual market values, it suits the back of the envelope calcs.
So for every dollar invested in the team, the company gets two in revenue, again simplified profits of 250K a year and roughly 4.8K per team-member month (if you read Brook's mythical man month book you know this is not linear).
This is easy to calculate if your company does consulting and bills per hour or per day, it is just a cross multiplication. Otherwise, you may need help to translate the output from your team into money outcomes. Last but not least in real-life, people don’t earn equally and the company may accrue some additional costs such as employers’ national insurance which is more than the employee gets before deduction and taxes.
Sad news
Starting the new year one team-member decides to move on to another company for a variety of reasons (we can write about those some other day). There are many other effects of a person leaving, in terms of teamwork, domain knowledge and wellbeing of the team that are not that easy to quantify in money so less focus on the easy numbers first.
The company has a new scenario:
200K costs. Savings of 50K
400K revenue. Potential loss of revenue for 100K
And the total opportunity loss for the new year is 50K.
So, a lot of questions arise on what to do next? Hire a replacement? How fast can we go in hiring? How much time would the person need to ramp up? How much will the team slow down without help? Again, let’s talk only on the money left on the table for the time being and some milestones.
Notice period
Let's say it is 1 month (loss: -2.4K). Most companies agree terms between 1 and 3 months of notice period. This implies the person usually still works but the productivity varies, some people are committed until the last day while others are just thinking in their next gig/position. I am glad to say many people that commit to the last day but let’s say on average the person is half productive for a month as he/she could be.
Empty seat period
It could be 3 months (loss: -14.4K) or more. Companies don’t necessarily reopen the position immediately, managers take some time, hopefully less than a week to decide what to do. If you are in the middle of a Coronavirus crisis you may even rethink when to open positions globally. You need to have the budget for replacement approved from finance, in any company size, whether startup or large company.
Once the Job description is out and recruiters get candidates into the process time elapses and the efficiency of making an offer takes time. Usually, if the candidate is good there would be competition of offers and lag between hiring processes. As a candidate it is always better to have many options to pick the best.
As a manager you are hopefully waiting for a yes, then to sign the contract, and finally…. Wait for the notice period in the previous company :(
Ramp up period
The equivalent of 1 month (cost: -9.6K). So the new candidate joins the company, everyone happy or not, but they made it. Now you cannot expect the same productivity as the former colleague from day one would you? Most likely the candidate would find quick wins, but how long would it take to get up to speed for the team work? It is hard to say less than a month, or you can prorate the throughput in the months to come, in one company we used to count the person as half for a 3 month period. In this case, you are already paying the agreed salary but not yet getting all the value. Also the team reduces their velocity because they need to figure out a new working agreement, they are a new team, and get the person up to speed.
Total costs
So far we counted 26.2 K, 21.6K of opportunity cost and 4.8K of salary just to get back where you were in financial terms.
Sounds too machiavelical? Maybe, but the whole point is to convince the finance and talent teams to keep the gap between an open position and a real person coming to help as slim as possible. We are not taking into account the time invested by interviewers, managers and teams accommodating the decision.
The most important is how the people in the team found themselves after the team-member decides to go, what troubles them and how can be addressed.