The Direct and Indirect Costs of Poor Recruitment Practices

Posted by Berkshire Associates on October 21 2015

recruitment practices
Bad recruiting strategies can cost you more than you realize.

As an experienced HR professional, by now you know a few of the common mistakes involved in recruiting. More importantly, you know how to leverage an applicant tracking system to help overcome some of those pitfalls—especially the ones that may otherwise go unnoticed. However, do you know the real benefits of that meticulous approach? As it turns out, the costs of an inadequate recruitment process—or one that doesn’t incorporate the best in applicant tracking software—may be higher than you realize, according to HRMorning.com.

In any industry, it’s important to understand the difference between direct costs and indirect costs. Here is a quick refresher:

  • Direct costs: The measurable fiscal impact of a decision. The direct cost of your recruiting program is the sum of the work hours, advertising costs, website optimization, and so on. Ideally, the quality of the employees you hire offsets the direct cost of your recruiting strategy.
  • Indirect costs: The projected or undefined impact of a decision—or lack thereof. Cost avoidance, or the way an action can prevent unforeseen expenses or poor performance, is another way of describing the indirect costs. In short, direct costs are what you can measure and see while indirect costs are the factors that are harder to quantify precisely.

With that said, read on for a few of the direct and indirect outcomes of a mediocre recruitment process.

1. Failure to optimize your website
While you may save a little money in the immediate term, allowing your Webpage to remain invisible to search engines will undoubtedly result in a failure to attract the talent you need. As a result, your direct costs will include the additional spending on increased advertising elsewhere, more time spent having an open position including the lower performance that comes with that, and turnover costs if your first couple hires don’t pan out. Your indirect costs will reflect the potential opportunities lost—missing out on that one applicant who would have taken your team to the next level, or taking a hit to your reputation as candidates pass over your organization.

recruitment practicesDo you know how to add up the expenses of a poor recruiting strategy?

“Your indirect costs will reflect the potential opportunities lost.”

2. Bypassing a pre-screen questionnaire
As a way to save yourself some time, effort, and up-front costs, you might be tempted to avoid the pre-screen test in favor of maximizing the overall number of candidates you bring in. But not only does that defeat the purpose of the pre-screen—to select candidates based on your needs—it costs you more in the long-term. Direct costs here include time spent sorting through applications you can’t use or interviewing those who slip through the cracks, while indirect costs include putting off eminently qualified applicants who feel they are overqualified based on the listed requirements.

3. Ignoring the ATS
An applicant tracking system can help you take care of both of those shortcomings above along with a bevy of other needs in your recruiting strategy. But like all software platforms, they cost effort and money to implement initially. However, with the right strategy you can improve your bottom line and your recruitment process all at once. Those organizations that avoid the ATS lose out by paying more for paper and time spent sifting through applications. Indirectly, there is the increase in human error automation would have otherwise prevented as well as the loss of business that can occur as other, more advanced organizations outpace yours.

It can be difficult to project the long-term costs of hiring decisions, especially when they involve individuals who were never hired in the first place. However, that’s all the more reason to cover your bases and develop processes to accompany a powerful ATS platform.

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Tags: Recruitment Process, HR Training