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The Real Opportunity Cost of losing an employee

Updated: Jan 11, 2021

One of the major challenges currently faced by the companies is curbing attrition rates. Many factors including employee performance, the company’s goals and policies, employee’s personal reasons influence the attrition rates.


A company loses an employee for a variety of reasons. Sometimes, retention is possible but sometimes, the loss is difficult to curb for a long time. One thing is very much obvious after losing an employee, that is the ripple effect it creates on the existing employees, which will affect their quality, productivity, and interest.

Whatever the reason is, the opportunity cost of losing an employee is multi-fold.


Let's look closely and try to calculate the value when such a situation arises.


Calculating the Opportunity Cost of Losing an Employee

An employee, Robert, is working for the last 2 years in the company with a take-home salary is rupees fifty thousand per month. In a typical corporate system, he must be generating revenue of rupees two hundred thousand per month. Let us assume he is going to be replaced by a fresher employee, with a monthly salary of rupees thirty thousand.

The above table provides you a rough estimate of the monetary losses incurred while replacing an experienced employee with a new employee. The monetary loss could be recovered but the intangible cost has a greater impact overall. Let us see what is the opportunity cost here-


What a company really loses when an employee leaves


If retention was not possible, a company has now lost an employee who-

  • Is a valuable one knowing trade secrets, that is, loss of a company's IP;

  • Had gained expertise, due to which the responsibilities who worked with, peers, juniors or projects will get affected

  • Has handled multiple roles

  • Has good relationships with other team members, who might leave the company along with him, causing a ripple effect

  • Has an influence on clients- A client may even try to rethink the existing relations with the company

  • Has had the talent to maintain the quality of your service, which might take time to level after employing a replacement

So, the loss will be multi-fold. Moreover, things become worse if the incoming employee does not perform as per expectations.

Employee Replacement Cost

The cost of replacing a value also comes with much more time and energy cost:

First and Foremost is to search for an employee who can replace the previous one well. This will include time and attention:

-For Screening on various platforms, using references, verifying the two

-For Interviewing- which is done in various stages, especially to fill a position, thus requiring time from managers at various levels. This also includes assessment test cost, referral fee, referral checking

-Training Costs and Employee Equipment Cost


Another Important Point, which is hardly in anyone's control:

  • Above all, the negative impact left by the entire process cannot be measured;

  • The negativity spread in the team, the opportunities gained by the competitor companies, decreased motivation levels of other team members are adding fuel to the fire.

So, a company’s think tank needs to consider all these factors, understand the employee’s expectations, and make sure the majority are fulfilled. Valuable employees need to be retained and the others need to be managed in order to curb the negative effects.

Thoughts?

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