The 100-employee information technology department of a financial services compa
ID: 2792394 • Letter: T
Question
The 100-employee information technology department of a financial services company had a higher turnover rate. A survey of employees revealed that the reason that most of them left was dissatisfaction with the level of training. The average turnover rate was 23 percent per year. The cost to recruit and train one new employee was $56,625. To address the turnover problem, the company developed a skills training program that average 80 hours per year per employee. The average employee wage was $35 per hour. Instructor, classroom, and other costs were $170,000. QUESTION 6A: What is the total cost of training? The total cost of turnover? QUESTION 6B: If the turnover rate dropped 8 percent (from 23 percent to 15 percent), what was the financial benefit of the training program? QUESTION 6C: What was the ROI of the training program? QUESTION 6D: How much would the turnover rate have to be reduced (from 23 percent) for the training program to show a benefit?
Explanation / Answer
Total number of employees = 100
Employee turnover rate = 23%
Total Cost of Training:
New Recruits = 23% of 100 = 23 new employees.
Cost to recruit and train new employees = $56,625
Cost of training new employees (Cost of turnover)= 23 * $56,625 = $1,302,375
Cost of Skills training program = (80hrs * $35) 100 + $170,000 = $280,000 + $170,000 = $450,000.
If the turnover rate dropped form 23% to 15%, The financial benefit of the training program is:
Since the skills training was not in place earlier, when the turnover was 23%, we assume that no skills training was there for 23% turnover, only we include the skills training with 15% turnover.
Training cost of 23% turnover = 23 * $56625 = $1,302,375
Training cost at 15% turnover = (15% of 100)* $56,625 + cost of skills training $450,000 (calculated above)
= 15* $56,625 + $450,000 = $849,375 + $450,000 = $1,299,375
Savings = $1,302,375 - $1,299,375 = $9,000
Financial benefit is of $3,000
Return on Investment on training program = 3000/450000*100 = 0.67%
Since the turnover rate when reduced by 8% from 23% to 15%, It already showed a benefit of $3000.
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