The quality of hiring decisions of an organisation, significantly impacts on all aspects of its strategic viability. Besides the direct cost implications of poor placement decisions there also are indirect consequences related to customer satisfaction, lost opportunity and morale, to mention but a few.

But what is the cost of poor hiring decisions? The hiring process involves advertising, interviews, administration, induction and on-boarding, training and relocation expenses. In addition, it takes time for a new employee to become effective.

Many different informed estimates can be found for the cost of ineffective hiring. Some estimate the direct cost to be in excess of 30% of the person’s annual salary and benefits, and this excludes the placement fee which could be as high as 20% – 33% of the person’s annual salary. The more influential the role involved, the more expensive become the direct cost of poor hiring decisions.

The direct costs, however, pale in comparison to the indirect costs – especially at higher levels in the organisation. Indirect costs may include severance expenses and legal fees, retrenchment packages, staff replacement costs, loss of customers, damage to the organisation’s reputation and brand, as well as effects on team morale and productivity. Estimates of indirect costs come to 100% of annual employment costs to 250% in the case of a key employee.

How to minimise the impact of bad hires on the bottom line

• Analyse jobs to understand the job requirements
• Capitalise on social media and volume based screening techniques
• Sell your company to attract the right people
• Expand the talent pool
• A CV alone is insufficient, check references
• Capitalise on the assessment of all job applicants and combine holistic assessment with interviews
• Ensure a culture fit with the targeted team and the organisation
• Clarify the job specification, performance expectations and objectives
• Orientation / onboarding of new employees is important
• Monitor performance closely

All of this is of course common knowledge. The question of “how” remains, though.

Cognadev’s four-tiered approach:

1. Analysing job-related competency requirements of work
2. Screening on social media by conducting low-cost volume assessments and organising these data to build a robust talent pool. Assessments used include an automated profile / CV, personality, values, motivation, cognition, vocational interest and performance risk assessments
3. In-depth individual assessment of a person’s cognitive capacity and preference, their world view and their motivational drive
4. Competency based reporting and developmental guidelines

HR as Investors in People

It is not just the cost impact of poor hiring decisions that should be considered, but also the immense possibilities which are created by matching people and work. Human beings are indeed wired differently and without knowing whom you are dealing with, your chances of causing harm to the individual and the organisation are significant. By assisting others to identify their talents so that they may find direction in their lives, we can contribute to their engagement in their work in a meaningful way. To reduce this process to numbers is neither possible nor desirable.

We can set aside the primitive calculations that are normally used to manage risk and loss in HR. Instead, we suggest following the advice of the philosopher and economist Nassim Taleb; the golden rule of investment is to look for optionality.

“Optionality is the property of asymmetric upside (preferably unlimited) with correspondingly limited downside (preferably tiny).”

Taleb advises us to identify optionality by eliminating what will not work, not just by searching for what will work. It is hard to tell via assessments which of two individuals, both with excellent profiles, will perform best. But if we find evidence of that which will prevent success in an environment and act upon it, then we have increased our chances of observing future success by eliminating those obstacles to it.

In a very real sense HR act as investors might, seeking to maximize their investment in people.