Employee Retention, Organisational Behavior

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Financial Accounting

Akanksha Bhalla 403 Telecom Xth Trimester MBA-Tech
This document contains an analysis on the Importance of Controlling & Reducing Employee Turnover. It discusses the impact of a high turnover on the running of the organization, monetary expenditure incurred and the influence on the company’s image. Date: 10th August 2009

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QUESTION 1: In money terms, why did Jessica want to reduce turnover? UPS’s operations in Chennai that Jessica took over heavily relied on its workforce. It involved an enormous workforce of 2300 workers who were responsible for processing of about 45000 packages an hour, which generated a revenue worth of INR 250 million for the organization. In an activity whose productivity is largely dependent on the speed of operation, manual labor and whose efficiency is a measure of the quantitative output (no. of packages) within a stipulated time period can be regarded to be largely worker dependant. Such an organization should always strive to ‘get’ and ‘keep’ high-performing employees. Apart from providing them with wages and incentives it becomes imperative -to provide them pleasant working environment, to continuously enhance their knowledge and skill by offering trainings and organizing other cocreational activities. However in such cases where the magnitude of work force is large & the organization is unable to keep employee turnover in control, as in this case where the turnover went up to almost 50%; the monetary losses incurred are massive. The money losses may be categorized as follows:  RECRUITMENT COST  COST OF NEW HIRING  TRAINING COST  COST DUE TO PERSON LEAVING  LOW PRODUCTIVITY COST Page | 2

Cost of training the person who has left Cost of Orientation & training material Cost of existing employee performing the Cost of departmental training Cost of persons conducting training Lost Supervisors productivity TRAINING COST vacant job responsibility COST DUE TO A Cost of lost Knowledge, skill and contacts PERSON LEAVING RECRUITMENT COST Cost of hiring process Scheduling & conducting phone and working interviews NEW HIRE COST Screening applicants LOST PRODUCTIVITY COST Initial (First 2-4 weeks) work contribution-25% productivity Cost of Supervisor’s time in building introducing the new staff member. level, gradually grows to 50% and 75% by 13th -20th week hence costing the company 75%, 50% & 25% of the full salary respectively during this time period. To avoid the tangible costs incurred in all these activities Jessica had to reduce turnover on an immediate urgent basis. In the attempt to do the same she offered training programs; gave preference to applicants who were keen to take up part time jobs, trained supervisors to tackle difficult management situations etc; these endeavors proved successful as the Page | 3

Cost of hiring temporary relief


Cost of bringing a new person in the organization

attrition rate dropped from 50% to 6%, an annual saving estimated at INR 1 million was recorded due to reduced turnover & 20% reduction is lost work days was seen. These initiatives taken by Jessica also positively affected the intangible costs and social capital which play a role in organizations success, as reduced turnover enhanced companies’ reputation and performance (e.g. fall in delivery errors from 4% to 1%; a more stable workforce ). EFFECT OF TURNOVER ON PRODUCTIVITY/COST Cost Decreases as Productivity Increases due to DECREASED TURNOVER

Cost Increases as productivity reduces due to INCREASED TURNOVER

Hence a relationship between the organizations turnover and its financial performance can be established & is demonstrated from the graph below (an inverted U). An increase in turnover decreases financial performance however only after a certain turnover rate (15%) has been achieved. This minimum turnover rate

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