Opportunity costs of losing employees

If you have studied business or economics, you’ll know what an opportunity cost is. Just in case, an opportunity cost is the cost forgone by choosing one course of action over another. I often ask my students ” what is the opportunity cost of who sitting here listening to me? Can you put a money value on it?” Usually one or two of them realise that they could be out working, so they answer with the minimum wage rate, which is a reasonable answer.

Two things prompted me to write this post. First, someone I know was made redundant as a systems trainer a few years ago, due to the role being outsourced. Now, after much failures by the outsourcing company, that same person is back in the company as a contractor earning a tidy daily fee. Why? Well, the outsourcing/redundancy meant a huge body of knowledge was lost from the company, which to cut it short resulted in poor systems training. I wonder how much this mistake actually cost the company?  WI had this thought in the back of my mind when I read a post on Marc Lepere’s Blog on the CIMAGlobal website.  Marc talks about the opportunity costs of employees. It’s not something I have ever thought about, but I think he is right on the button. Marc’s company have devised too useful concepts called Cost of Replacing Talent® (CORT) and Cost of Loosing Talent®. Taking both together, you can imagine a substantial cost of losing valuable staff.  In my example, the cost of loosing talent included a massive knowledge loss, which is a cost that might be hard to put a monetary value on but is a cost.  Within the CORT is an estimate of the opportunity cost of replacing staff, which is something like the time in weeks it take the new staff to become effective.  This could be up to 30 weeks for senior managers, according to the post.  So be careful when putting too much pressure on your staff; losing the good ones costs more than you might think.