Calculating and applying total cost-per-vacancy

Defining total cost-per-vacancy (CPV)

Leaders intuitively know that vacant positions increase the workload of other team members, reduce productivity, harm employee morale, negatively impact quality, and ultimately result in lost revenue. To measure the overall impact of open positions on your bottom line, there is one critical business indicator: total cost-per-vacancy (CPV).

Understanding the cost of vacancies is imperative to managing expenses. With this information, leaders can:

• Determine the true business impact of talent shortages
• Make decisions about how quickly positions need to be filled
• Transform recruitment approaches
• Achieve organizational cost-efficiency

Impact of vacancies

Relying heavily on cost-per-hire metrics often leaves soft and hard costs related to unfilled positions unattributed. For example, after adopting CPV measures, organizations have found that 33-50% of overtime costs stem from unfilled positions. A formal calculation of CPV offers clear transparency into the direct and indirect impact of open vacancies, and enables organizations to mitigate the known risks.

Direct and indirect impact

Financial

• Increases agency usage
• Increases contract salaries
• Increases overtime costs
• Increases misuse of staffing incentives/bonuses
• Increases competitive pressures
  
  

Culture/Engagement

• Damages the morale of permanent staff
• Reduces ability to hire for cultural fit
• Puts quality of hire at risk
• Makes talent initiatives reactive, not strategic
• Limits leadership opportunity to focus on employee development
• Increases voluntary turnover rates
  
  

Productivity

• Leads to under-performance and loss of idea generation
• Creates reluctance to terminate substandard employees
• Increases need for management supervision of teams
• Limits leader focus on strategic initiatives

Where HR can begin

Calculating total cost-per-vacancy and learning the full ramifications of open positions enables organizations to make a positive impact on employee engagement, productivity and, most importantly, financial performance. Sharing this information with executive leadership validates HR’s critical role in driving organizational performance. On a more actionable level, calculating CPV provides the transparency HR leaders need to inform their strategic workforce plan and transform their approaches to talent acquisition and management – ultimately creating a highly efficient and effective talent function that attracts, engages and retains the right talent.