Cost Benefit Analysis
Pre-employment screening is a highly advised tactic leveraged by many businesses. Companies that fail to check their job applicants often place themselves at a higher level of risk, opening the door to internal theft, embezzlement and other issues in the future.
An effectively implemented pre-employment screening programme ensures that only the most suitable candidates are being hired for a particular position. Apart from this, screening candidates can also help identify those individuals who will fit best within an organisation and be more likely to stay for the long term. It helps a firm weed out poor performing candidates, which may cut hiring and subsequent firing costs for an employee unable to properly meet company expectations which can be costly for the company.
Assumption : –
Assumption I : When a background check it done all hires are good (GH) whereas when a background check is not done 50% Hires are good and 50% hires are bad (BH).
Assumption 2 : The package being ordered by the client Education Check + Employment Check + Reference Check + Criminal Record Check ).
Assumption 3 :The Cost of the package is INR 4000.
Assumption 4 : The good hires will remain with the company for a long time whereas the bad hires will remain with the company for a year at which point they will be terminated.
Statistics reveal that : –
Education Verification Flags – 10%
Reference Check Flags – 24%
Employment Screening Falgs – 20 %
Criminal Record Check Flags – 6%
Note: Background Screening tends to eliminate applicants with important RED Flags.
Cost Of Investment : –
Cost Of Investment = INR 4000 (the assumption is on the higher side however , we are being conservative and it allows us to buffer our Assumption 1 that Background screening always results in a good hire)
Note : The basis assumption that underlies the background check industry is that past behavior is the best predictor of future behavior. Therefore , the package assumed here would be useful in predicting whether an applicant will perform well in a simple job environment in an entry level position.
Return = P+M+C+Th+A+Ac+MT+Te+R+Tr+Oc : –
P = Productivity of a Good Hire – Minus Productivity of a Bad Hire
M= Effect on Morale of a Good Hire – Effect of Morale on a Bad Hire
C= Value of Customers
Th = Cost Of Theft caused by a Bad Hire
A= Cost of Absenteeism of a Bad Hire minus the Cost of Absenteeism of a Good Hire
MT = Value of Management Time Spent on a Bad Hire minus the Value of Management Time Spent on a Good Hire
Te = Cost of Terminating a Bad Hire
R= Cost of Recruiting the Replacement of a Bad Hire
Tr = Cost of Training a Replacement of a Bad Hire
OC = Other Costs of a Bad Hire minus Other Benefits of a Good Hire
Note : Based on average costs identified from research and supported by educated estimations the benefit of background screening on on the entry level position would be as follows.
Matrix Structure basis the assumption that Entry Level Salary in a retail Outfit is INR 10,000 pm:-
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Productivity :
Assumption : BH is worth 10% less than his salary and GH is worth 10% More Than his Salary BH : Worth INR 1,08,000 Productivity : Productivity gained from a GH over a BH is INR 24,000 pa |
Morale :
Morale is useful to keep the workplace happy and the staff focused Assumption : BH has 1% negative impact on the productivity of 5 coworkers and GH has 1% positive impact on the productivity of 5 coworkers BH : Costs the company an Extra 6000 in Morale Related Productivity Morale : Morale Related Productivity gained from a GH over a BH is INR 12,000 pa |
Customer :
Happy Customers Spend More and through referrals introduce more customers and unhappy customers tell 10 times more people than if they received good service Assumption : Average customer spends INR 2000 pa and each hire handles 100 customers for the year BH : Customers handled by BH spend 10% less or cost 1 customer . Spend Customers : Value of the customer and or business gained from a GH over a BH is INR 40,000 per year |
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Theft :
Employees having access to Inventory and sometimes cash . According to statistics 12% employees commit theft and risk increases during economic crisis Assumption : Assuming 0% of GH’s steal , therefore 24% of BH’s steal. BH : Steals Goods and Money worth 10% of annual Income i.e 12,000 and 24% of BH’s are thieves Theft : Theft prevented by a GH over a BH is approximately INR 2880 |
Absenteeism :
Punctuality & Attendance is a major issue for all employers Assumption : BH’s are absent 5% of their shift BH : Costs the company INR 6000 a year in absenteeism Absenteeism : Absenteeism prevented by a GH over a BH is INR 6000 |
Accidents :
Result in damaged products , claim of workers compensation & increased staff sick time Assumption : GH works carefully and BH is careful only 50% of the time. Each accident costs INR 4000 BH : Has 2 accidents in a year. Accidents : Value of accidents prevented by a GH over a BH is INR 4000 |
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Management :
Termination of an employee requires a large amount of management time . Assumption : Simple termination requires a whole day of Manager’s time . The Retail manager is paid INR 3000 per day. Management : Management Cost that will be avoided by a GH over a BH is INR 3000 |
Termination :
The Employee is entitled to Severance of Termination pay. Assumption : GH stays with a company for a longer time and BH ‘s are terminated after 1 year. Termination will be equal to 2 weeks wages which is INR 5000 BH : 50% BH’s are terminated with a clear cause and not entitled to severance pay Termination :Termination Cost that would be avoided by a GH over a BH is Rs 2500 |
Recruiting :
Recruiting e.g advertising etc incurs huge expenses . However since entry level position we would not take that into account Assumption : Considering only management time in reading and sorting applications , interviewing , and making hiring decisions etc. Therefore this process takes a half day of managerial time previously valued at INT 3000 per day BH : Has to be replaced after a year Recruitment : Value of recruitment costs prevented by a GH over a BH is INR 1500 |
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Training :
During training the employee is half as effective as a standard employee and will require help from a professional staff trainer (paid twice as much or more) or experience staff (twice as productive ) as that of the employee Assumption : Trainer is able to train 2 members at the same time and that the training period of an employee is 2 weeks then the training costs is INR 9320 and INR 80 is the training material BH : will have to be replaced after a year Training : Value of training Costs prevented by a GH over a BH is INR 10,000 |
Other Costs :
Countless Other possibilities exist eg GH prompted to leave because of BH bullying or sexual harassment . |
Final Equation is Thus : –
P+M+C+Th+A+Ac+MT+Te+R+Tr+OC= Return
24,000+12,000+40000+2,880+6,000+4,000+3,000+2,500+1,500+10,000+OC (Buffer) = 1,05,880
However since we have used our own assumptions , lack of background screening only results in 50% BH’s and the return shows the additional cost of a BH over a GH , therefore we should half our return before completing the ROI Equation.
Therefore
= 52940/4000= 13 approx.
The above example holds true if the check is done in the most authentic manner which is guaranteed by iScreening Services Pvt Ltd .
(Credit : Dean Drysdale, Carole Bonnani & Phil Shuttlewood)
