MBAX 6441 Week 7 Turnover Cost Estimate Example

What One Level 2 Technician's Departure Costs Meridian in Atlanta: A Turnover Cost Estimate Built Component by Component, Multiplied by the Separation Count and Tested Against Its Weakest Assumption

Student Name

Walden University

MBAX 6441: Human Resources Management and Strategic Planning

Instructor Name

Month Day, Year

What One Level 2 Technician's Departure Costs Meridian in Atlanta: A Turnover Cost Estimate Built Component by Component, Multiplied by the Separation Count and Tested Against Its Weakest Assumption

Scope

Turnover is often discussed as a problem and rarely as a number. This estimate puts a number on it for one group at Meridian, the imaginary equipment-maintenance company behind this term's cases: level 2 biomedical technicians in the Atlanta region. The region employs 34 of them, and 6 left last year, a separation rate of about 18 percent. Their average base pay is about $58,000, roughly $1,115 a week, or about $1,450 a week with benefits and payroll taxes. Turnover cost varies by an order of magnitude across roles, so averaging a level 2 technician with an imaging engineer or a dispatcher would produce a figure that described none of them (Cascio & Boudreau, 2011). All figures are illustrative.

Components in the Order They Occur

Costs are listed in the order a departure produces them, which prevents counting the same cost twice and shows that the model follows a real departure.

Table 1

Cost of One Level 2 Technician Departure, Atlanta, Illustrative

Composite organization; figures illustrative and rounded.

Ramp Valued Honestly

The ramp line deserves explanation, since it is the component most often left out. A new level 2 technician does not work at full speed in the first months. Meridian's service records show that new technicians complete about 60 percent of the work orders an experienced technician completes in the first 12 weeks, mostly because they spend longer diagnosing unfamiliar equipment and call for help more often. The missing 40 percent of output is valued at the loaded labor cost of about $1,450 a week, giving about $7,000. Some would value lost output at the revenue it would have generated rather than at labor cost, which would roughly double the figure; this estimate uses the more conservative basis.

Coverage is the other large line. During the roughly 60 days a level 2 position stays open, peers absorb about half the work as overtime at time-and-a-half, and the rest is deferred, mostly preventive maintenance pushed later in its window. Deferred work has its own cost if inspections are missed, but that risk is noted rather than priced here.

The Total

Six departures at about $26,900 each cost Meridian about $161,000 last year for this one group in one region. That is roughly 8 percent of the group's annual base payroll of about $2 million. Across all 158 biomedical technicians company-wide, at a similar separation rate and cost, turnover would cost on the order of $750,000 a year, though that extrapolation is rough because costs differ by level and region.

Assumptions Flagged, Not Buried

Four assumptions carry the estimate. The 60-day time to fill comes from Meridian's recruiting records for the past two years. The overtime share comes from payroll data for the three vacancies filled last year. The 60 percent ramp comes from work order counts for new hires. The recruiting cost is an average and would be higher in a tight market. Of the four, the ramp is the weakest, because work order counts do not capture quality differences. The estimate also leaves out harder-to-price effects that the turnover literature emphasizes, such as lost customer relationships and the strain departures place on the colleagues who stay (Hom et al., 2017).

Testing the Weakest Assumption

If new technicians reach full output in 8 weeks instead of 12, the ramp cost falls to about $4,600 and the total to about $24,600 per departure. If they take 16 weeks, the ramp cost rises to about $9,300 and the total to about $29,200. The estimate is therefore reasonably stable, between about $25,000 and $29,000 per departure. Allen et al. (2010) argue that retention investment is easier to justify when turnover costs are estimated carefully, and even the low end suggests that reducing departures by two a year in Atlanta would justify spending about $50,000 on retention.

What the Number Should Change

The estimate gives managers a way to compare retention spending with its alternative. The compression adjustment proposed in the pay analysis would cost about $9,000 a year for Atlanta's level 2 technicians, a third of the cost of a single departure. Exit records show that two of last year's six leavers cited pay relative to newer hires. If the adjustment prevented even one such departure a year, it would pay for itself several times over.

References

Allen, D. G., Bryant, P. C., & Vardaman, J. M. (2010). Retaining talent: Replacing misconceptions with evidence-based strategies. Academy of Management Perspectives, 24(2), 48-64. https://doi.org/10.5465/amp.24.2.48

Cascio, W. F., & Boudreau, J. W. (2011). Investing in people: Financial impact of human resource initiatives (2nd ed.). FT Press.

Hom, P. W., Lee, T. W., Shaw, J. D., & Hausknecht, J. P. (2017). One hundred years of employee turnover theory and research. Journal of Applied Psychology, 102(3), 530-545. https://doi.org/10.1037/apl0000103