Comments on: Quality of Hire: The Missing Link in Calculating ROI (Part I of a Series) http://www.ere.net/2009/10/02/quality-of-hire-the-missing-link-in-calculating-roi-part-i-of-a-series/ Recruiting News, Recruiting Events, Recruiting Community, Social Recruiting Tue, 14 Feb 2012 01:03:49 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Dr. Tom Janz http://www.ere.net/2009/10/02/quality-of-hire-the-missing-link-in-calculating-roi-part-i-of-a-series/comment-page-1/#comment-15565 Dr. Tom Janz Fri, 02 Oct 2009 17:56:38 +0000 http://www.ere.net/?p=10136#comment-15565 <b>Great article Lou.</b> Your heart and instincts are absolutely in the right place as you focus on quality of hire vs. cost per hire. There is a science to this that has been around since the 50s, when Hubert Brogden first published an article on the financial utility of selection tools (“The Dollar Criterion”). Since that time, Cronbach, Schmidt & Hunter, Boudreau, Cronshaw & Alexander, Cascio, and others, including myself, have written books and articles that move our understanding forward. <b>Here are some lessons from that literature that could add impact and rigor to what you have laid out.</b> 1] In quantifying the potential impact of enhancements to recruitment program effectiveness, you multiply annual hiring volume by annual total comp per hire. Here you are selling yourself short. Enhancements to any asset should be calculated over the value life cycle of that asset. Investing in improving hiring accuracy or ennhanced initial sourcing will deliver benefits over longer than just one year's hiring. And people hired deliver value over their average tenure with the firm, not just one year. The likely life of a recruiting program effectivness investment ranges from 1-5 years. A 3 year analysis window often fits. So the equation becomes-- Number of hiries made by this recruiting system over the past three years X the annual total comp of those hires X the average tenure of the hires. That is the Human Asset Spend. Even for medium sized businesses this is often a big number and not one that can be debated for long by sentient beings. (These days, asking how many hires the firm will likely make over the NEXT three years--the most relevant quantity-- just yields a lot of blank stares and the whole process grinds to a halt right there.) There are other scientifically derived and debated components to get at average talent mix, financial contribution, and ultimately ROI that we pointy headed academics call population corrected validity, standard deviation of performance in dollars, selection ratios, and, ultimately, ROI. They are based on a well known and algebraeically proven formula called the Selection Utility Equation. Its not rocket science, but it is people science. I hesistate to take up more space at this time. I sense my welcome is wearning thin already. The conclusions align well with yours in any case. Sometimes, its nice to have science on your side as well. Great article Lou. Your heart and instincts are absolutely in the right place as you focus on quality of hire vs. cost per hire.

There is a science to this that has been around since the 50s, when Hubert Brogden first published an article on the financial utility of selection tools (“The Dollar Criterion”). Since that time, Cronbach, Schmidt & Hunter, Boudreau, Cronshaw & Alexander, Cascio, and others, including myself, have written books and articles that move our understanding forward.

Here are some lessons from that literature that could add impact and rigor to what you have laid out.

1] In quantifying the potential impact of enhancements to recruitment program effectiveness, you multiply annual hiring volume by annual total comp per hire. Here you are selling yourself short. Enhancements to any asset should be calculated over the value life cycle of that asset. Investing in improving hiring accuracy or ennhanced initial sourcing will deliver benefits over longer than just one year’s hiring. And people hired deliver value over their average tenure with the firm, not just one year. The likely life of a recruiting program effectivness investment ranges from 1-5 years. A 3 year analysis window often fits. So the equation becomes– Number of hiries made by this recruiting system over the past three years X the annual total comp of those hires X the average tenure of the hires. That is the Human Asset Spend. Even for medium sized businesses this is often a big number and not one that can be debated for long by sentient beings. (These days, asking how many hires the firm will likely make over the NEXT three years–the most relevant quantity– just yields a lot of blank stares and the whole process grinds to a halt right there.)

There are other scientifically derived and debated components to get at average talent mix, financial contribution, and ultimately ROI that we pointy headed academics call population corrected validity, standard deviation of performance in dollars, selection ratios, and, ultimately, ROI. They are based on a well known and algebraeically proven formula called the Selection Utility Equation. Its not rocket science, but it is people science. I hesistate to take up more space at this time. I sense my welcome is wearning thin already. The conclusions align well with yours in any case. Sometimes, its nice to have science on your side as well.

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