This article covers the tremendous value that comes from adding “risk management” to recruiting. Now you are probably thinking, “I’m in recruiting, why on earth would I read an article about risk management?”
Well, first off because risk management would reveal which of the many recruiting outputs or results, when they are below standard, have the highest negative impact on corporate business results (the complete list can be found below). Also, when you quantify risk impacts, you automatically know the areas within recruiting that should be prioritized. Knowing the total impact of recruiting in dollars allows you to build a stronger business case and to negotiate for more resources. I estimate that adding risk management makes it possible to increase recruiting’s overall recruiting budget by as much as 20 percent.
Recruiting Has a History of Not Being Businesslike, and Business People Calculate Risks
In my corporate work, I have found that one of the primary reasons why recruiting is underfunded and underappreciated is because it does not operate in a “businesslike” manner, and thus, calculate risks. It’s not unusual for recruiting to omit businesslike features; for example, every other function except recruiting has quality metrics, forecasts, competitive analysis, and of course risk management. But only one in three HR departments has a formal Human Capital Risk Management effort in place. And even when HR has risk management, almost none of its tools filter down to recruiting.
Risk Levels Are Increasing and So Is the Importance of Risk Management
Simply reading the news will make you aware of the tremendous dollar costs associated with major risks like data security, weather damage, and terrorism. Recruiting leaders should also be aware that risks in recruiting have been increasing as a result of a volatile economy, higher turnover rates and the intense competition for talent. If you’re not familiar with risk management, it has four basic components. These include:
- Identifying the high-impact recruiting activities, that can’t be interrupted or reduced in quality (this factor has a great value because it alerts recruiting leaders and allows them to prioritize the areas in recruiting that produce the highest impacts).
- Quantifying the dollar impacts of weak performance in each high-impact area of recruiting (this factor provides great value during budget time because it allows you to show the impacts of underfunding in these prioritized areas of recruiting).
- Identifying the probability of any interruptions and reduced outputs actually occurring in the recruiting function.
- Developing plans to avoid or lessen the impacts of any high-risk event (i.e. a reduction in applicant volume or quality, the inability to hire people with the correct skill sets, or a major corporate PR disaster that drives way applicants).
To Be More Businesslike, Recruiting Must Calculate the Costs of Weak Recruiting
In the corporate world, everyone knows that the higher the value produced by a function, the higher priority it is assigned. When executives know the full costs of any identified risks to a value stream, they invest heavily to make sure that this value stream continues uninterrupted.
Most recruiting leaders and executives are shocked when risk-management calculations reveal the actual dollar value produced by a great recruiting function and the tremendous costs of a weak one. Currently, without these quantified risk calculations, recruiting leaders are forced to guess about the costs to the corporation of a weak employer brand, slow recruiting, a lack of diversity, and the cost of leaving some mission-critical positions unfilled. In fact, in growth companies, the cost of not having a continuous talent acquisition pipeline may be in the top three of all major corporate risks.
The best part is that is recruiting leaders don’t have to do any of the work because risk-management specialists do the calculations. Risk-management professionals can calculate (in dollars) the cost of the damage that would occur if the recruiting function were to be less effective. These calculations also reveal to recruiting leaders the specific recruiting outputs that when they underperform, damage overall corporate results the most.
The Highest Value Step — Identifying the Recruiting Outputs That When They Underperform, Have the Largest Negative Business Impact
Even if you do very little in the area of risk management, you must realize that there is tremendous value in simply identifying the areas of recruiting that have the greatest negative impact when they are underperforming. Once recruiting leaders know which recruiting outcomes, outputs, and results have the highest risk impact, they can at least prioritize them.
The Top 20 Weak Recruiting Processes That Do the Most Damage
The highest-risk, highest-dollar consequence recruiting results that normally have the highest business impacts are listed below. The recruiting process results with highest negative business impact results are listed first in both categories.
1 – 13 The recruiting process results, that when they are below standard, create the most business damage …
- Hiring a large volume of below-average performers — because it can occur over so many jobs, the cost of hiring below-average performers is the highest impact area of all. Because you can expect at least 10 percent lower productivity over the many years that all of the weak hires stay with the firm. Poor performers also cost the company in increased absenteeism, tardiness, manager time needed to devote to them, and increased training costs.
- Hiring below-average performers in revenue-generating jobs — the highest-impact jobs are revenue-generating jobs. As a result, the dollar loss from hiring weak performers is much greater in revenue-generating and revenue-impact jobs. Hiring a large number of weak performers who produce as much as 10 percent less over many years in these positions will result in a significant total loss of revenue. Slow hiring in these positions also has a high impact because no revenue is generated when each position is vacant.
- Failing to hire enough innovators — innovation often has the highest return of any business activity. Poorly designed or executed hiring processes have no chance of hiring innovators. This lack of innovators might reduce the revenue impact added by newly hired innovators by as much as 10 percent per year. And with fewer innovators, there is less chance that other employees will be motivated and energized by those innovators. Most firms don’t identify innovators during the hiring process, so they can calculate the loss that results from failing to hire them.
- Failing to hire enough leaders — leaders provide a great value, and they are scarce. A lack of leadership bench strength is the No. 1 talent risk factor identified by senior executives. Failing to hire enough leaders or those with leadership potential can cause the future direction of the business to be unclear and also restrict the growth and the efficiency of the business.
- Losing a large percentage of top candidates because of hiring delays — because top candidates are in such demand, they are gone within 10 days. So unnecessarily extending the time to fill means that the added performance and innovation that these high-value top performers would’ve added if you acted quicker is lost. Most firms simply don’t calculate the value lost when they unnecessarily lose top candidates due to time delays.
- Hiring a high percentage of individuals with the wrong skill sets — the new hire with the wrong skills will take longer to do the job, and they will make more mistakes. So consistently hiring individuals with a reduced or the wrong skill set will reduce productivity and increase training costs. Not having the advanced skill sets that are required may reduce innovation and restrict the company from going into new business areas.
- Hiring a high percentage of employees who prematurely quit — when top-performing new hires leave soon after hiring, in addition to the lost performance, all of the money invested in their training and hiring is lost prematurely. Obviously, there will be no productivity in this vacant position until the position is refilled.
- Hiring any “failed employees” who must be terminated — the costs of the damages that a failed new hire can do on the job is significant. In addition to the lost investment in training and hiring, the added costs of discipline and termination must also be counted. A single bad hire can disrupt the performance of an entire team. And finally, there will be no productivity in that position until they are replaced.
- Hiring a high percentage of slow “time to productivity” employees — new hires who are slow to catch on will take months more to reach their minimum productivity levels. Underperforming during those months results in numerous costly errors, accidents and wasted salary dollars because you are in effect overpaying them during their period of below standard performance.
- Losing a large percentage of top candidates to your competitors — in head-to-head competitions to recruit top candidates, a poorly designed or executed hiring process will lose those candidates to competitors … therefore increasing the competitor’s capability, while simultaneously reducing your own.
- Failing to hire enough diversity into key positions — a lack of diversity in design, sales, and customer service positions negatively impact corporate revenues. Lack of diversity may also drive away others who prefer to work in a diverse environment.
- Hiring a high percentage of employees with questionable backgrounds — poorly designed or executed reference checking systems may result in weaker new hires with hidden issues that will surface later.
- Hiring a high percentage of individuals who “don’t fit” the corporate culture — routinely hiring individuals who don’t “fit” will damage or dilute the culture and make the organization less effective. Hiring individuals who are a “bad fit” for the job/manager may harm the cohesion of the team that they join.
Seven recruiting department responsibilities that when poorly executed, create negative business impacts.
Recruiting leaders create negative business impacts when they allow …
- Legal and compliance process issues develop — poorly designed or executed hiring processes can result in EEOC actions, lawsuits, a negative online image, and negative publicity in the press. When criminal activity is missed during reference checking, new hires may do illegal things while on the job, resulting in negligent hiring lawsuits.
- Weak recruiter performance — the damage caused by below-average performing recruiters is almost always underestimated. Weak, poorly trained, or overworked recruiters may hire individuals who produce 10 percent below average. Weak recruiters may only be able to land top candidates by offering them significantly more compensation, dramatically raising your salary costs. And remember that each of these costs will be multiplied over every year that a weak recruiter’s new hires stay with the firm. In addition, underpaid or overworked recruiters will leave prematurely, reducing the candidate pipeline and losing the money invested in recruiter training and hiring costs. If a top-performing recruiter leaves and goes to a competitor, they will likely raid their former firm, dramatically increasing the costs of losing them.
- A weak employer brand — underfunding the employer branding function or having a weak employer brand strategy will severely restrict your ability to attract a high enough volume of quality candidates. A weak brand attraction will mean that fewer new hires will be top performers and more job postings will have to be placed to make up for the weak brand. And that means that instead of having the luxury of sorting through a large volume of top-quality candidates, you have to pay 10 percent more just to hire average candidates. There are also lost opportunity costs associated with missing out on talent who would’ve applied and accepted a job if they would have been attracted by a stronger employer brand.
- Weak sourcing or assessment — if there is a poorly designed or executed sourcing process, the most qualified candidates won’t be identified, so the quality of hire will be significantly lower. This will result in the need for additional sourcing searches, and that will increase overall hiring costs. In addition, if there is a poorly designed or executed candidate screening and interviewing process, qualified candidates will be unnecessarily screened out and this will require the screening and interviewing of additional candidates. Poor screening will mean that some weak performers will be hired by mistake, decreasing productivity.
- Ineffective offers — if there is a poorly designed or executed finalist offer process, the offer rejection process will be high, and top candidates will be driven away by bad offers. The increased need to reopen searches will raise overall hiring costs and hiring a second- or third-choice candidate will reduce productivity.
- A bad candidate experience — treating applicants and candidates poorly can cause them to tell their friends, social media contacts, and colleagues not to apply. But the damage is increased when they out of frustration tell their friends and colleagues not to buy or recommend your product.
- The use of an inflexible recruiting strategy — the best firms operate under a recruiting strategy that flexes with the changing recruiting cycles. Shifting is required because the economy dictates the best way to recruit. Weak recruiting results are guaranteed when you use the same recruiting strategy and tools when the unemployment rate is low, as you do when it’s high. Recruiting processes designed to work when there is a shortage of labor and mostly active candidates simply will not work in growth periods when talent is scarce and there are few active candidates. The consequences of not shifting your strategy and your tools when the economy changes are dramatic in every area of recruiting.
Each of these recruiting-result risk factors have such a high impact that you should ask risk management professionals to calculate the dollars of business impact associated with each one. Internally within recruiting, each one should have a performance metric with a minimum passing score attached to it. Because of their high impact, each of these results (and the recruiting processes associated with them) should be periodically monitored and continually improved.
Every major business function in any major corporation has a risk management process, with one glaring exception, recruiting. Even though the corporation relies heavily on a continual supply of high-quality talent, corporate recruiting leaders have taken head-in-the-sand approach towards identifying, managing, or mitigating the risk associated with recruiting.
That’s a mistake because risk management calculations can show executives the tremendous cost associated with having an underperforming recruiting effort which cannot meet the talent pipeline demands at growing firms. Yet despite its importance in the corporate world, you won’t find “risk management in recruiting” in a single conference brochure or even with a Google search. Lack of attention to the topic is strange because we live in a world where risks literally increase every day. In a high-risk environment, every business professional has the obligation to identify and mitigate the major risks in their area. And as an added advantage, knowing your high-risk and high-impact areas allows recruiting leaders to prioritize and focus your recruiting on those areas.
If you are a recruiting leader, take a walk over to your corporation’s risk management group and partner with them. Do it for the good of the corporation but also to get a major bump in your budget.