lt /A Formula for Success: /

By Jaana  Ylipaavalniemi 
Director,Services and Development 
Talentor  Finland 

Cost savings per employee per year = (r x SD x Z) - (C/P)

There you have it, the Brogden formula. Don't you sometimes wish to have precise mathematical tools to add validity to your services, measure their success and help to market these services to your internal or external clients and customers? This is one such tool, and I am about to explain it to you. But first allow me this short introduction, which clarifies my reasons for sharing the formula.

Recruitment challenges and their possible solutions were discussion topics of one of my recently held seminars. A short screening question helped me to establish that practically all members of my audience, who represented companies with different profiles, share the same goal for the present and the near future. This goal is to find qualified personnel to fill key positions in their companies. While finding potential candidates may be difficult as such, adequately assessing their suitability and motivation may sometimes be equally, if not more challenging. This should not discourage us, especially since we know how much can be gained as a result of successful evaluation. In the case of a good match, the level of the new employee's commitment to the company is increased, which subsequently affects his or her performance level and, through it, the company's overall success and prosperity.

We must also consider the opposite, i.e. the potentially disastrous repercussions of not carrying out the assessments and hiring the wrong candidate. Negative consequences of a bad recruitment decision, both in terms of costs and psychological damage, are manifold. The most obvious outcome is dissatisfaction experienced by employer, employee, or both. In the case of employee, such dissatisfaction may lead to decreased effectiveness at work resulting from feelings of inadequacy or lack of motivation. Downslide in productivity may reach disastrous levels during the notice period, but even a slight deterioration of an employee's work quality automatically transfers into loss of profit by the employer. Further costs may be associated with a need to initiate a new search, selection and assessment procedure. Activities that accompany such procedures include (but are not limited to) planning an advertisement campaign, selecting media channels, screening applications and managing candidates, scheduling and conducting interviews, negotiating work contracts, and other activities. Any of the above may have a steep price, depending on the level of the position to be filled. Furthermore, once a selection is made, there is a price for the time and effort spent introducing the new employee to the company's inner and outer stakeholders, making an induction plan and conducting orientation. The sad picture of unnecessarily incurred losses is complete when we add to the equation the somewhat lowered (compared to optimal) working effectiveness of the new employee during his or her first month(s) at work and the potential losses associated with it. Altogether these costs quickly and easily add up to multiple digit figures.

What are then the success factors of a recruitment process and are there any real ways to measure the monetary value of success in recruitment? Most of us in the recruitment business would not hesitate to answer the first question. In order for the recruitment assignment to be successful it should rely on strategy driven approaches, include both competency and personality profiling, use reliable methods and apply them in ways that support employer image. The answer to the question about accurately measuring the actual price of success in recruitment is harder to find. Different researchers have tried to calculate the costs of various selection methods, and, more importantly, of their return rates. The formula that I am about to present to you is one such attempt at estimating (in real monetary terms) return on investment into different recruitment procedures. Initially it was introduced by Brogden (in: Furnham, Adrian (2005). The Psychology of Behaviour at Work. Psychology Press: Hove and New York, pp.141-143) as part of his argument in favour of investing in recruitment and selection procedures.

THE BROGDEN FORMULA: RETURN ON THE USE OF A RECRUITMENT SELECTION METHOD Cost savings per employee per year = (r x SD x Z) - (C/P)

where

r = validity of the selection procedure (correlation coefficient),

SD = the standard deviation of employee productivity/performance in Euros,

Z = the caliber of recruits (standard score on the selection test used),

C = the cost of selection per applicant P = the proportion of applicants selected

Example 1. Reference checking method

The validity of reference checking as a selection method in recruiting is estimated at approximately 0,13 (according to F.L. Schmidt and J.E. Hunter, The Validity and Utility of Selection Methods In Personnel Research, 1998) and the costs associated with the procedure are known to amount to about 200 Euros. Let us suppose that the SD for a certain position is 30 000 € (i.e. there is that much variation between the average and the highest rate of performance in this position), Z norm value equals 1 (Z=0 for the average test score and Z>0 refers to a higher than average score on the test), and P value equals 0,1, (i.e. one in ten candidates is selected). If we feed these numbers into our formula, we arrive at 1.900 € cost savings per selected employee per year (compared to random recruitment):

(0,13x 30 000€ x 1) - (200€ /0.1) = 1.900€

Example 2. Multi-method aptitude assessment

The validity of the multi-method aptitude assessment as a recruitment selection method is estimated at approximately. 0,68 and its corresponding costs - at 1000 Euros. If we keep the same values of the SD, Z, and P as in the previous example, cost savings per selected employee per year are calculated in the amount of 10.400 € compared to random recruitment:

(0,68 x 30 000€ x 1) - (1000€ /0.1) = 10.400 €

As is obvious from the above, higher validity of a selection method brings greater return on using such method. Other factors that increase returns on the use of a selection method are high caliber of recruits and the high standard deviation, i.e. high heterogeneity of the candidate pool with respect to the candidates' potential value for their prospective employer(s).

I decided to recommend the Brogden formula to you as a method of putting a real monetary value on the success of different recruitment procedures.

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