Calculating the Cost of Vacant Tech Positions

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There’s a common misconception that open tech positions save on payroll and benefits. However, taking too long to hire can negatively impact the top and bottom lines in ways that tech hiring managers may not have considered.

“Doing the math” can help shed light on the actual costs of unfilled positions. But even with that work, unless the results of your analysis strike a nerve, your pleas for speedier hiring may still fall on deaf ears, advised David Szary, senior VP of Lean Human Capital.

“Find the pain,” Szary said. “Tie the business case directly to the impact of understaffing on critical tech initiatives or higher expenditures for contractors, especially if you’re trying to persuade a CIO, CFO or IT director to take action.”

Here are some ways to calculate the actual cost of unfilled positions:

Direct Costs

Determining the direct costs of unfilled positions is fairly straightforward. Using 220 working days per year, calculate the daily salary for the position and multiply by the average time to hire:

  • Calculation: Position’s annual salary / 220 working days X average days to hire

Utilizing company data will strengthen your argument, but if specific information isn’t available, substituting reliable third-party data to calculate the cost of vacancy may likewise inspire change.

Here’s an example:

  • A recent report from Wanted Analytics placed the average time to hire for software engineers at 43 days.
  • The average salary for a software engineer is $102,075, according to the 2016 Dice Tech Salary Report; benefit costs typically run 30 percent of salary.

Plugging those numbers into the formula, a vacant software engineering position would produce preliminary cost savings of $25,935. That being said, you need to subtract the cost of contractors, outsourced services or overtime to fill in for the missing employee. Based on an hourly bill rate of $91, the cost of a contract replacement would run $31,304 for the 43-day period, which is $5,369 more than the cost of a regular employee:

  • Calculation: Salary savings + benefit savings – cost of contingent labor and overtime

Business Impact

Buggy software, delayed product releases, longer wait times for technical support can have a huge impact on customer satisfaction and key performance metrics such as revenue per employee. Here are some ways to calculate the business impact of tech vacancies:

Lost Revenue: Amara Miller, senior technical recruiter for Silicon Graphics International (SGI), divides the company’s total revenue by the number of employees and divides that by the number of working days per year (220) to calculate the daily lost revenue for each vacant position.

Revenue losses could be greater for employees in high-impact positions such as product managers, customer support analysts and software engineers. Using a simple salary multiplier between one and three is the easiest way to value the lost revenue from missing employees in revenue-driving roles:

  • Calculation: (Annual revenue / # of employees) / 220 working days X multiplier 1, 2 or 3 X average days to hire

Lost Profits: According to McKinsey, people are the real engines of wealth creation today. Is your engine firing on all cylinders? Here’s how to calculate the lost profit from an unfilled tech position:

  • Calculation: (Annual profits / # of employees) / 220 working days X average days to hire

Project Success/Failure: Since project managers use benchmarks to track performance over the course of a project, the PM can probably estimate the financial impact resulting from staff or skill shortages.

If you can’t get specific data from the PM, articulating a general business case may suffice. For instance, according to a study by the Project Management Institute, talent deficiencies significantly hamper 40 percent of strategy implementation efforts. And the average cost of a failed tech project from a business perspective is $10.8 million, according to a survey of executives.

In fact, 20 percent of executives say they increased staffing following a project failure. But why wait, when filling open positions today may ensure business success tomorrow?

Human Impact

Miller has established credibility and trust with SGI’s tech managers, so they heed her warnings about the effect of understaffing on employee stress levels, morale and absenteeism. But in most companies, financial decisions are usually based on hard facts rather than fears. Focusing on objective measures is usually the best way to illustrate the human impact of unfilled positions.

Turnover: Don’t even go there unless people are actually leaving due to long hours or frustration from staff shortages, Szary warned. But if attrition is rising, present data from exit interviews and climate surveys, followed by an estimate of the total cost of turnover.

Again, customized stats are best, but the calculations take time. Alternatively, PwC Saratoga calculates the cost of turnover as 1.5 times the projected base salary for departing exempt employees and 0.5 times the projected base salary for nonexempt employees. Using their formula, it will cost $35,000 to replace a software developer earning $70,000.

  • Calculation: Annual salary X 1.5

Time-to-Fill: The longer it takes to fill a position, the more it costs in terms of management and recruiting time, advertising and contract labor. If you don’t have time to crunch the numbers, CEB (formerly Corporate Executive Board) estimates the cost of an open position at $500 per day. Recruiting guru Dr. John Sullivan places the loss from missing out on a single game-changer, purple squirrel or innovator at over $1 million each. Now there’s a stat that executives can’t afford to ignore.

  • Calculation: Number of days a tech job is unfilled X $500
Image Credit: isak55/Shutterstock.com

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