The High Cost of Vacancy
Cost of Vacancy (COV) is an increasingly popular metric that is revealing hidden drains resulting from protracted recruitment horizons. While most managers have long understood turnover costs and recruitment costs, many have been blinded to productivity drains and other costs of vacancy that over time may be subtracting substantially from the bottom line. Learn more about this crucial metric and why you must be tracking it in order to ensure optimal results for your organization.
People rarely realize that an open position puts you at a deficit that uses up other resources and affects your bottom line,” says HR Specialist Diane Wright. Every day the position goes unfilled your company is hemorrhaging the revenue produced by the absent employee. According to Wright, “The cost is higher with key positions requiring specialized skill sets.” And in industries where time to market is a driver of success, the financial impact is even more acute.
It's simple. Every position, whether support or revenue generating, has a role to play in a company. If you allow a position to remain unfilled, you create a productivity vacuum. This vacuum necessarily results in mounting costs that will continue to escalate for each day a slot remains empty.
There is no standardized formula for calculating of the COV, because the factors vary regarding specific positions and industries. One simple formula is to divide the number of your company’s employees into your company’s total yearly revenue to arrive an an average annual contribution. Then divide this number by the number of working days in a year (typically 260 minus vacation days, sick days and other PTO) to determine the average revenue produced by an employee on a daily basis. For example, if you have 50 employees and your yearly revenue is $1,000,000, your average annual contribution would be $20,000. This number divided by 240 (260-20 days of time off) gives you a COV of $83.33 a day. If it takes you 30 days to fill a position, the cost in lost productivity alone is $2,500.
Bearing the Burden
When there is a void, a manager responds by redirecting resources to fill it. This means diverting time and energy away from the team’s daily duties. “It begins as a disruption for those who fill the role and the longer the vacancy the more of a burden it becomes,” says Wright. It can have a negative impact on the morale of employees who are diverted and wonder why management can’t find a suitable replacement.
The Effect on Supervisors
Supervisors often take it upon themselves to fill the void left behind by lending a hand. While it initially sends a positive message to employees, in reality it becomes a drain on time that could be spent on more strategic management issues, not to mention interviewing and recruiting promising candidates. When there are too many vacancies or ones that go on for too long, managers get anxious. “Managers sometimes reach for the panic button and scramble to hire sub par performers,” says Wright. In the midst of a vacancy, managers may also be more reluctant to get rid of poor performers.
The Bottom Line
Ultimately, diminished productivity negatively impacts the customers a company serves. When turnover is not addressed with aggressive recruiting for quality replacements, businesses end up paying the price in time and money. Vacancies in management and team leader positions have a multiplier effect on productivity and recruiting top of the line employees.