This is designed for HR and Recruiting managers as a sample guide to developing cost of a vacancy. I make no assertion that this method is perfect, but it may solve challenges many HR teams have encountered.

1. Calculating A Realistic Cost of Vacancy Jeremy Shapiro, SVP Hodes iQ Posted @ my blog http://measuringtalent.wordpress.com Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

2. How much does it cost an organization when a seat is left empty? Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

3. How much does a single cost you? Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

4. How much does a single cost you? Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

5. How much does a single cost you? Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

6. How much does a single cost you? Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

7. How much does a single cost you? Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

8. All we are saying is this: If employees generally do not bill at an hourly rate, and they do provide incremental monetary value, then the value they create can happen in “chunks”. Ok ,I’ll bite, what is “Chunky” Cost? Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

9. A “Chunky” Example: Jim Jim manages 10 clients. One of those clients has a need for his company’s services valued at $1,000. The client will wait until Jim is back from his 10 day vacation in Cabo to talk with Jim about the need. Company doesn’t lose the revenue. But, if the client has to wait 15 days, he says, “forget it, I’ll call Jim’s competitor.” Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

10. We can use that to create a realistic totalcost of vacancy inside most organizations. What’s our criteria for realistic? Make this skeptical, grumpy finance guy comfortable with the analysis. Now that We’ve Defined “Chunky” Cost Stop showing me average revenue per employee and telling me it’s cost of vacancy!! Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

11. For Cost of Vacancy Purposes, Let’s Assume That salary represents the value an organization places on the roles of their staff. It’s almost always the largest cost component of an organization, we must be adding value somewhere. I’m never going to Hawaii again. I am worth 10x my salary, of course. Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

12. The Formula We Will Use We will calculate it step by step in a few slides. Calculating Total Cost of Vacancy (Revenue per employee per day) * (Total days a job was left vacant) (# days to compensate for “Chunky” work) Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

13. Defining Variables Calculating Total Cost of Vacancy Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

14. Step 1: Create a “Naïve” Revenue Per Employee Average Calculating Total Cost of Vacancy Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

15. Step 2: Create an average Revenue Per Employee Per workday Calculating Total Cost of Vacancy Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

16. Step 3: Decide on how many days on average the organization does not suffer from a financial impact from someone being out. This is the “chunky” work. Example. Time “chunks” are5 days This is an average used in a financial model. Don’t get too caught up in individual performance or different departments. This will be used for sensitivity to the business. Your gut is actually helpful here. What will your financial person acknowledge as reasonable? We’ll call this variable “Sensitivity” so that we don’t get smirks in our meeting, ok? Calculating Total Cost of Vacancy Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

17. Step 4: What are the total days of vacancy? Example: 1,000 days vacancy Step 5: Calculate Total days of vacancy / Sensitivity Example: 1,000 days / 5 days sensitive = 200 adjusted vacancy days Calculating Total Cost of Vacancy Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

18. Step 6: Calculate adjusted cost of vacancy Adjusted vacancy days * Revenue per employee/day Example: 200 vacancy days * $634 rev per employee per day = $126,800 Calculating Total Cost of Vacancy Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

19. Want to see an example spreadsheet? I’ve posted an example here for you to look at: http://spreadsheets.google.com/pub?key=tzXzfCER_s-rv2V540ZLhCw&output=html Calculating Total Cost of Vacancy Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

20. Your turn! Have you tried this technique? Post a note below or at measuringtalent.wordpress.com and tell everyone what you learned? Calculating Total Cost of Vacancy Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.

21. Thanks! Jeremy Shapiro, SVP, Hodes iQ, jshapiro@hodesiq.com Blog: http://measuringtalent.wordpress.com LinkedIn: http://www.linkedin.com/in/jeremyashapiro Web: http://www.hodesiq.com Twitter: hrmetricsguy Author: Jeremy Shapiro, SVP, Hodes iQ. Readers are welcome to reproduce slides with credit given to author.