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The cost of vacancy - unfilled positions are expensive too

POSTED_ON 13.04.2022
Concept of the cost of vacancy

In this era of skills shortages, positions are increasingly remaining unfilled for extended periods of time. You might think that if operations are still continuing, there is no urgency and there could even be the potential to save some staffing costs, but you would be wrong – because an unfilled position creates more staffing costs than it saves.

Know How for Leaders

In this era of skills shortages, positions are increasingly remaining unfilled for extended periods of time. You might think that if operations are still continuing, there is no urgency and there could even be the potential to save some staffing costs, but you would be wrong – because an unfilled position creates more staffing costs than it saves.

The assumption the unfilled positions can be used to create budget savings is extremely widespread, especially in HR departments. From their perspective, the current status quo is simply being maintained, thus generating savings compared with the previous state of affairs. 

Unfortunately, this way of thinking ignores the fact that without staff, no business can 
be conducted. Ultimately, every single person at a company generates a set fraction of the company’s turnover. If anyone is missing, then overall success will be correspondingly diminished. This is the approach behind the ‘cost of vacancy’ concept.

Structure

As well as making up a direct fraction of corporate turnover, this primarily consists of components that cannot be precisely calculated. The size of this fraction may appear relatively small when calculated based on the relevant key figures, but it is the non-monetary consequences that pose a genuine danger for a company. This is because these have a negative impact on individual employees, the overall team, and consequently also customers and even the company as a whole. 

Labour shortages slow down every single process – from fewer customer phone calls through to monthly balances. To tackle this in the short term, work is distributed among the remaining members of staff and their workloads are increased. If this state of affairs is only temporary, perhaps lasting for a couple of weeks, the danger of significant damage remains relatively low. However, if the increased workload continues, damage eventually becomes difficult to avoid.

If this is reactive work that just involves fighting the next largest fire, it will adversely impact any potential for innovation. And even worse, this situation will affect job performance – causing stress and frustration, and sapping the motivation of all. This triad of inefficiencies results in time lost due to illness, and ultimately higher employee turnover. 

Even more vacancies, even higher workloads, even slower processes and consequently even more downtime. Unsurprisingly, this does not go unnoticed for long, and has an external impact on customers and potential employees. This means that positions remain unfilled for even longer – setting off a downward spiral.

Calculation

Calculating an exact cost of vacancy is a very complex task. It involves too many factors that cannot always be quantified with a precise monetary value. However, a good rule of thumb is that after 83 days, a vacancy costs as much as the associated gross annual salary.

Harvard University has developed a formula for a more precise calculation that is being hailed as very plausible by many experts: 

Cost of vacancy

This incorporates:

  • The annual salary, i.e. the net annual salary earned in the position.
  • The average number of working days per year.
  • The factor, i.e. the proportion of the corporate turnover that the position contributes. This ranges from 1 (little direct contribution) to 3 (major direct contribution).
  • The time to hire is the average period required to refill the position.

Take the example of a content manager in Zurich: he earned 90,000 CHF over an average of 254 working days in Zurich in 2021 and was given a factor weighting of 2, because he supports and assists customers independently but does not acquire new customers. We have also assumed that it takes 100 days to refill the position. The result:

Calculation of the cost of vacancy

This means that by leaving this position unfilled for just 100 days costs more than two thirds of what it would cost over the course of a year when filled.

Implications

The cost of vacancy serves two purposes. Firstly, it enables different vacancies to be weighed against each other and prioritised – although the cost of vacancy absolutely should not be the only factor taken into consideration.

Secondly, and much more importantly, this value can be used at the next stage in the process to derive a recruiting budget. It serves as orientation for how much should be invested in recruitment measures – from simple job advertisements through to using an external headhunter.

Conclusion

As well as costing money, unfilled positions also jeopardise peace within the company, customer satisfaction, and ultimately (if all the warning signs are ignored) the company itself – these could even be considered the risks due to vacancy. 

And finally: if you have not experienced any problems as a result of vacancies thus far, you owe your employees a huge debt of thanks for their commitment, as well as a sincere apology for being so blind to the situation and then a generous salary increase – ideally in that order. Because it is your employees who absorb management errors and keep the show on the road!
 

Do you have an open position?

Recruit now!

 
cost of vacancy

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