What Is The Cost of a Bad Hire?

20 October, 2021
What Is The Cost of a Bad Hire?

While nobody seems to agree and exactly how much a bad hire costs a company, a poor hiring decision generally considered to be something every company wants to avoid.

One of the biggest tragedies around a bad hire is the idea that it could have be prevented. Looking back at the hiring of a bad employee, it's easy to spot the red flags. The trick is, spotting those red flags before you even make a job offer.

The COVID-19 pandemic has put everything under the microscope, including hiring decisions. If your company didn't dedicate a lot of time effort and resources to identifying the causes and impacts of a bad hire, now is the time to do so.

Factors to Consider

To be clear, all bad hires do not cost the same. For instance, a badly performing, toxic executive will cost a company far more than an unproductive person picking orders in a warehouse.

Also, the cost of a bad hire it's compounded by the length of time that bad employee is allowed to stay in the company. Anyone who has spent time working a job knows that bad employees, bad managers and bad executives can thrive based on bias and office politics. The longer these people are tolerated, the more they cost the organization.

It's also important to consider how much was invested in the bad hire. If the person in question required intensive training and the purchasing of expensive assets that cannot be reused, all of that goes to waste and should be considered part of the cost of hiring that individual. 

Direct Costs

The costs of a bad hire can be divided into direct and indirect costs. direct costs are those that can be easily attached to a dollar figure. For instance, if the average worker produces 100 widgets a day and the bad hire only produces 50 widgets a day, it's easy to measure the lost productivity and by extension how much that employee cost the company.

In addition to lost productivity, direct costs include lost sales, refunds issued to customers, training costs, resource costs and remuneration paid to the bad hire.

Indirect Costs

The indirect costs of a bad hire are much harder to calculate than simply adding up widgets that were never produced.

One of the biggest indirect costs associated with a bad hire is the impact on team dynamics. At the department level, colleagues of a bad hire will feel less motivated and less engaged in their jobs. If the bad hire is at the executive level, their impact will have a companywide dampening effect on teamworking, motivation and engagement.

Another major indirect cost is how a bad hire effects a company's brand and reputation. This cost can be significant if the bad hire was in customer-, client- or public-facing role. With the power of the internet and social media, bad customer service and negative interactions can quickly become amplified, even go viral.

We Can Help Your Organization Avoid Making Bad Hires

At Quanta, our refined methods are specially designed to help our clients avoid making less-than-optimal hiring decisions, whether it’s for a full-time position or part-time role. Please contact us today to find out how we can help your company.

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