Cost of vacancy

In many companies, there is still the misconception that costs can be saved through unfilled positions. What remains unconsidered is that, in theory, every employee has a share in the company’s success. If this is not the case, there have probably been management mistakes in the past.

It is also wrong to assume that one should wait out vacancies as long as possible and only react when the pressure from the rest of the workforce exceeds one’s own pain threshold. Leaving aside the individual economic contribution, this view neglects an initially almost invisible downward spiral. The rest of the workforce inevitably does more, but only reacts, puts out fires and no longer develops creative, innovative and productive potential. This leads to frustration, overload, breakdowns, dissatisfaction and inevitably to fluctuation.

At the same time, understaffing filters through to clients, partners and service providers, as well as, over time, to potential job applicants. The dilemma is perfect. At some point, this development can only be slowed down, stopped or even reversed with difficulty. The economic impact on the company in the long term is often glaring and can, in the worst case, lead to the cessation of business operations.

Calculating the exact amount of the cost of vacancy is a complicated task. Many factors play a role here that cannot always be precisely quantified in monetary terms. Harvard University has developed an approximate formula that is considered highly plausible by experts:

Annual salary/Working days * Factor * Time to Hire = Cost of Vacancy

It says:

• The annual salary for the gross annual salary earned in the position.
• The average number of working days per year.
• The factor for the contribution the job makes to the company’s turnover. This goes from 1 (little direct contribution) to 3 (much direct contribution).
• The Time to Hire for the average period in which the position can be filled.

This shows that with an average factor of 2, half a year of the unfilled position costs just as much as a full year’s salary for the same position. With factor 3, on the other hand, this value is already reached after 4 months.

The cost of vacancy thus serves two purposes. Firstly, it enables different vacancies to be weighed against each other and prioritised – even if the indicator should not necessarily be the only factor. In addition, the budget for recruiting can be derived from it in the next step.

Conclusion:

So unfilled positions not only cost money, you also risk industrial peace, customer satisfaction and ultimately, if all warning signs are ignored, the company.