INTRODUCTION

In the best of worlds, employees would love their jobs, like their co-workers, work hard for their employers, get paid well for their work, have ample chances for advancement, and flexible schedules so they could attend to personal or family needs when necessary. And never leave. But then there's the real world. And in the real world, employees, do leave, either because they want more money, hate the working conditions, hate their co-workers, want a change, or because their spouse gets a dre am job in another state. So, what does that entire turnover cost? And what employees are likely to have the highest turnover? Who is likely to stay the longest? It is however not an easy task for an HR manager to bridge the ever increasing demand and supply gap of professionals. HR manager is not only required to fulfil this responsibility, but also find the right kind of people who can keep pace with the unique work patterns in industry. Adding to this is the issue of maintaining consistency in performance and keeping the motivation levels high, despite the monotonous work. The toughest concern for an HR manager is however the high attrition rate.

ATTRITION Meaning of attrition: The wearing down of an adversary, making him weaker

by repeal attacking them or wearing down of resources i.e. the process of reducing the number of people who are employed by an organization by not replacing people who leave the job."
Defining attrition: "A reduction in the number of employees through

retirement, resignation or death" The action or process of gradually reducing the strength or effectiveness of someone or something through sustained attack or pressure. The gradual reduction of a workforce by employees' leaving and not being replaced rather than by their bein g laid off
ATTRITION RATE Definition: The rate of shrinkage in size or number of employees is known as

Attrition rate. It is usually expressed in percentage. An attrition rate, also known as a churn rate , can be a measure of two things. It can be a measure of how many customers leave over a certain period of time or how many employees leave over a certain period of time. An attrition rate can also be a combination of these two factors. Attrition rate in Indian IT industry has gone down and it has reached a level which was there in this industry 3 years back. This dip in attrition rate is not sudden. It happened to recent slowdown in world market. However experts are saying that the main reasons of the downfall of attrition rate does lesser number of new jobs in industry and companies prefer freshers over experienced employees as freshers are very cheaper as compared to experienced em ployees.

HOW TO CALCULATE ATTRITION RATE?

Ideally, attrition should be calculated on a monthly basis for companies that have over 50 employees for the first five years of its business. Subsequently, a quarterly index should be applied till a companys 10t h anniversary. After this, annual attrition figures should be measured and accounted for. This is the optimum within the services industry as companies tend to have different challenges at different stages of their business lifecycle; also, maturity achiev es stability around a companys 10th anniversary.
WHAT IS THE HR ATTRITION RATE FORMULA?

The Most Commonly Used Formulae Are :

Total Number of Resigns per month (Whether voluntary or forced) X 100 ----------------------------------------------------------------------------------------(Total Number of employees at the beginning of the month + total number of new joiners - total number of resignations)

Nu b of plo s p tions-in olunt s p tions 100 ------------------------------------------------------------------------------------*A plo ount *A . plo ount = J nu onth st n th + D b onth st n th

ot l in tions in onth ------------------------------------------------------------------------------------ot l H d Count t th b innin of th onth + ot l N Hi s ot l No.of plo l ft 100 -------------------------------------------

no. Of tt itions x 100 / A tu l E plo

s+N

Join d /100.

ATT

CYCLE

  



   

 

y Attrition brings decreased productivity. y People leave causing others to work harder y This contributes to more attrition, which contributes to increased costs

and lower revenue

y This forces additional cost reduction and austerity measures y This in turn makes working more difficult, causing the best performers

with the most external opportunities to leave Employee attrition, a big cause for concern for firms, ranges between 15 per cent and 20 per cent. A company is not hurt because a certain person has left. The company is hurt because he/she takes away certain knowledge, and there is no ready replacement i n the market.

Attrition, as such, is not a bad phenomenon. It has been known to exist all along. However, when jobs were scarce, the technology change was less rapid, voluntary attrition was small and companies managed it. However, with technology changing rapidly and manpower costs increasing, attrition is high and hurts badly. Large players often use money power to lure talent from smaller players. Companies also use the `location' bait to attract employees. While a certain percentage of manpower turnover is desirable to keep fresh blood coming in, and removing dead wood, higher percentages are definitely not good indicators of an organization's culture and people practices.

It is a challenge to find the right talent within constraints such as location , nature of work, compensation and benefits.

Fresh graduates joining an organization make it a point to leave within the first

year. They equip themselves not for performing their current job but for attracting a new one. Many a time, there is migration f rom bigger companies to smaller companies too, mainly because of the prestige associated with a certain project or a particular client. In some cases, smaller companies are even better paymasters than larger brands. The success rates of retention programs are much higher if the management uses a direct, employee-focused, approach and is ready to invest resources for the same.

Factors Affecting Attrition

There are various reasons why people leave their current job. These reasons may vary from individual to individual and when data are collected from a large number of individuals leaving or who have left an organization, some consistencies may be observed-providing more insights as to why people leave in large numbers. If these are controllable -one attempts to control. If these are not within the control of the organization, the organization should prepare itself for managing attrition.
Managing attrition does not mean reducing attrition only. It could also mean

bringing down the negative effects of attrition and increasing the positive effects of attrition. To increase the positive effects of attrition and reduce the negative effects, appropriate retention and capacity utilization or talent utilization tactics should be used. In one of the organiz ations, attrition has been used as brand building opportunity. Thus an organization may say that we provide talent for other companies or they may say that if you join us your brand value goes up and you get good jobs etc. Today when a person leaves it causes a lot of disturbances in the organization. If it is a small organization the disturbance is even greater. Hence it is important to understand and manage attrition. There can be various reasons for people leaving their current jobs.

WHAT IS ATTRITION ANALYSIS?

Attrition analysis is a study in which an analysis gives the data on what is the current attrition trend in the company. Its an analysis done by taking time, manpower strength & no. of people resigned into consideration to derive the final outcome. i.e., Attrition % = (No. of separations/Total employees) *100
:: A MODEL OF THE TURNOVER PROCESS::

Causes of job dissatisfaction

Job dissatisfaction

Thinking about leaving

Looking for alternative

Compare alternative

Intension to quit

Actual turnover

Reasons for Leaving the Organization: 1) Supervisor relations:

The quality of the supervision an employee receives is critical to employee retention. People leave managers and supervisors more often than they leave companies or jobs. It is not enough that the supervisor is well-liked or a nice person, starting with clear expectations of the employee, the supervisor has a critical role to play in retention. Anything the supervisor does to make an employee feel unvalued will contribute to turnover. Frequent employee complaints center on these areas.

Lack of clarity about expectations Lack of clarity about earning potential Lack of feedback about performance Failure to hold scheduled meetings, and Failure to provide a framework within which the employee perceives he can succeed.
2) Pay & benefits:

Over half made changes based on exit interview information, and these included reviewing salary structures, forming employee retention committees,

establishing alternative work schedules, and introducing bonus plans. The survey also asked the HR professionals to rank the effectiveness of several retention tools. Traditional benefits apparently work the best. The respondents ranked health care benefits as the most effective retention tool, followed by competitive salaries, competitive salary increases, and c ompetitive vacation and holiday benefits. Interestingly, some of the newer and trendier benefits did not fare as well. Based on the survey findings, the best action for employers trying

to boost their retention rates is to analyze salary and benefits packa ges to determine if they measure up to the competition. Policies and Benefits Can Reduce Turnover 3). Corporate communications: The ability of the employee to speak his or her mind freely within the organization is another key factor in employee retention . Does your organization solicit ideas and provide an environment in which people are comfortable providing feedback? If so, employees offer ideas, feel free to criticize and commit to continuous improvement. If not, they bite their tongues or find themselves constantly "in trouble" - until they leave

4) Performance Management System :

There may be very few performance appraisal exercises that are devoid of criticism of bias any subjectivity however, most of the efforts to dispel the bias and subjectivity are restricted to changing appraisal formats & systems that include switching over to techniques like 360 Degree Appraisal & Team Assessment using MBO criteria or modern approach Balanced Scorecard.

5) Organization Policies and Strategies :

No matter the circumstances, never, ever threaten an employee's job or income. Even if you know layoffs loom if you fail to meet production or sales goals, it is a mistake to foreshadow this information with employees. It makes them nervous; no matter how you phrase the information; no matter how you explain the information, even if you're absolutely correct, your best staff members will update their resumes. I'm not advocating keeping solid information away from

people, however, think before you say anythi ng that makes people feel they need to search for another job.

6) Likelihood to stay :

Your staff members must feel rewarded, recognized and appreciated. Frequently saying thank you goes a long way. Monetary rewards, bonuses and gifts make the thank you even more appreciated. Understandable raises, tied to accomplishments and achievement, help retain staff. Commissions and bonuses that are easily calculated on a daily basis, and easily understood, raise motivation and help retain staff. You can bet that w ork is about the money and almost every individual wants more.
7) Opportunity:

Talent and skill utilization is another environmental factor your key employees seek in your workplace. A motivated employee wants to contribute to work areas outside of his specific job description. How many people could contribute far more than they currently do? You just need to know their skills, talent and experience, and take the time to tap into it. As an example, in a small company, a manager pursued a new marketing plan and logo with the help of external consultants. An internal sales rep, with seven years of ad agency and logo development experience, repeatedly offered to help. His offer was ignored and he cited this as one reason why he quit his job. In fact, the recog nition that the company didn't want to take advantage of his knowledge and capabilities helped precipitate his job search

8) Recognition:

A common place complaint or lament we hear during an exit interview is that the employee never felt senior managers knew he existed. By senior managers I refer to the president of a small company or a department or division head in a larger company. Take time to meet with new employees to learn about their talents, abilities and skills. Meet with each employee periodica lly. You'll have more useful information and keep your fingers on the pulse of your organization. It's a critical tool to help employees feel welcomed, acknowledged and loyal.
9) Learning Organization:

Your best employees, those employees you want to ret ain, seek frequent opportunities to learn and grow in their careers, knowledge and skill. Without the opportunity to try new opportunities, sit on challenging committees, attend seminars and read and discuss books, they feel they will stagnate. A career oriented, valued employee must experience growth opportunities within your organization. The easiest to solve, and the ones most affecting employee retention, are tools, time and training. The employee must have the tools, time and training necessary to do their job well or they will move to an employer who provides them Today when a person leaves it causes a lot of disturbances in the organization. If it is a small organization the disturbance is even greater. Hence it is important to understand and manage a ttrition. There can be various reasons for people leaving their current jobs.

: EMPLOYEE ATTRITION IN INDIA:

Staff attrition (or turnover) represents significant costs to technology and business process outsourcing (BPO) companies. High attrition rates drive up training costs, and increase human resources, recruiting, and productivity costs. They also increase the prospect of customer service complaints or quality problems, and create substantial continuity problems for longer -lived projects. There are many causes for attrition including, retirement and death. However, most attrition is due to employee turnover. Employees leave their jobs for a number of reasons including: wanting more money, poor working conditions, irregular working hours, lack of advancement opportunities, lack of job security, difficulties with coworkers, desire for change, better opportunities, and family reasons. High wage inflation is another major factor in job hopping.
:: ATTRITION RATES & COST IN INDIA::

In India, the average annual attrition rate in the business process outsourcing (BPO) sector hit a high of close to 50% a few years ago. Better attrition management and the 2008 -2009 global economic slowdown have helped reduce the figure to 24-30%, but this still has a significant impact on costs and quality. Furthermore, attrition rates in Indias business process outsourcing (BPO) industry are about 8 percent higher than the national average. Some companies believe that the attrition rates in India and the costs associated with themare so high that they can override the benefits of lower wage costs. For example; while wages in call centers in Indian ar e less than one-eighth of those in Northern Europe, it has been reported that Hewlett Packard have found the cost per ticket (the cost of processing a query) was double in India due to the inability of the staff to resolve customer queries efficiently because of language barriers and inexperience. The issue is not with

the quality or education of the staff and still less with the investment in technology. It is simply attritionpeople do not stay long enough to be taught or to learn the job. Indias government is acutely aware of the attrition issue and has introduced several initiatives to create BPO jobs in rural areas of the country.
:: MANAGING ATTRITION IN INDIA ::

To ensure that attrition rates are kept to a minimum, businesses need to redesign their reward and recognition packages to help the industry hold onto staff and to find the right kind of people who can keep pace with the unique work patterns. According to Oscar De Mello, country head of Hay Groups Reward Information Services in India, adjusting pay might not automatically lead to higher operating costs for BPO companies. By creatively designing their total reward package towards more short-term incentives and benefits, and linking the package to performance, companies can ensure that th ey get higher productivity without hefty increases in salary costs and minimize attrition costs and issues at the same time. Hays Group recommends providing a better balance of short- and long-term benefits such as performance bonuses, employee stock option plans and retention bonuses; effectively communicating details of compensation plans to encourage employee buy -in; and promoting non-financial benefits such as career development, job rotation and transparent performance management systems. First, if you are working on a longer-term project, understand your partners attrition rates and their management practices. Some firms manage attrition well, while others simply try to hide it. Second, review your team structure and ensure that there is sufficient information sharing and collaboration so that the loss of any one person does not set you back. Finally, get to know your key

team members. Not only will this help reduce attrition, but help you minimize the down side if you do lose a key team member
COSTS OF TURNOVER

The impact of employee turnover on company performance is often understated by organizations. This describes how the cost of turnover is can be calculated using some basic organizational parameters. The purpose of this document is to provide talent cost of turnover calculator with insight into how costs are calculated and the reasons why certain costs were include or excluded form the calculator. The calculator should only be used as a guide in understanding the impact of turnover on a company. If the desire is to understand the true cost of turnover then it is suggested that a greater degree of analytical work is undertaken.

The key areas used in the calculation of turnover are:

y New Hire costs

Once a person has been employed an organization ge nerally spends significant resources in the induction and administration of bringing them into the organization.
y Lost productivity

The hidden costs associated with lost productivity of employees prior to leaving the organization and new less skilled emplo yees are one the largest components of the total cost associated with turnover.

y Dysfunctional and avoidable turnover

Determining the level of dysfunctional and avoidable attrition provides a perspective on the scope of control that a company has to manage their turnover costs. Determining the cost of turnover is the first step in the process of developing a management plan. To deal with an attrition issue effectively the reasons for turnover and an understanding of the demographics of turnover need to be understood. Undoubtedly, the financial costs of turnover have attracted the attention of academics and practitioners alike. Besides the more familiar costs associated with the administration of terminated employees the economic costs such as productivity losses need to be included in any calculation. In particular, departure of employees - especially experienced or talented ones - may threaten overall firm productivity or client retention. Furthermore, personnel losses may endanger the firms future opportunities in the marketplace or the morale of their remaining work force. Human resource accounting experts Cascio, Hom and Griffith define exit expenses as having two main components - direct and indirect costs. A company incurs both direct and indirect costs that result in losses in production dollars and overall production volume, as well as increased administrative costs. Direct Costs are actual dollars spent each time an employer has to attract, select, and induct a replacement for an employee who le aves the organization. Indirect costs are those expenditures attributable to turnovers affects on production - that is costs for incomplete or disrupted work, loss of quality, etc. The cost of turnover can be calculated by measuring the time taken to administer each activity plus the direct costs such as advertising costs. The turnover costs calculated using the calculator represent dollars spent. The potential loss of revenue if these dollars were invested elsewhere or through lost productivity is not calc ulated. Therefore, the figures are an indication of the

minimum costs that the organization is subjected to when an individual leaves the company.
y Administration & Sourcing costs

The most visible cost of turnover is incurred by organizations in the area of recruitment administration and sourcing. The time associated with processing terminated employees and recruits places a burden on organizations where staff turnover is excessively high. The assumption is that this is largely an administrative task conducted by people at 80% of the average company salary. In addition the direct costs to a company for recruitment agency and advertising costs are highly transparent.
1. Process Administration: Resignation Administration -

The time taken to administer a resignati on will include activities such as: conducting exit interviews & processing of administrative tasks. The time taken to perform these activities is ideally measured as a result of analyzing the processes involved.
Recruitment Administration -

A large amount of time is often spent in administering the recruitment process. Writing the job ad, posting it onto job boards, organizing agencies and reference checking all require the use of organizational resources, whether internal staff or outsourced. The hours spent involved in these activities does need to be factored into the cost of turnover.
2. Sourcing Costs: Agency expenses -

The cost of sourcing a successful applicant from an agency may be one of the largest single direct costs associated with recruitment.

Advertising costs -

The cost associated with posting job ads to job boards or traditional media such as newspapers can be significant. The average cost per vacancies is used within the calculation.
3. Interview Costs: Interview -

A core component of recruitment administration is the cost associated with interviewing applicants. Interviews make use internal resources. The more interviews held and the greater the number of candidates interviewed the larger the costs associated with these activities.
Testing -

Companies are making greater use of psychometric and aptitude testing in their recruitment processes. These tests can be costly to administer and as such need to be factored into the overall attrition costs.
Travel -

Companies may pay the costs associated with bringing an applicant to the interview location. Although this may not be done for every candidate an average is used in the I4 calculator.

FACTORS TO CONSIDER IN THE COST OF ATTRITION What You Want To Identify Are Your Organization's Costs For:


New employee recruitment, especially for recruiting the kind of diverse staff a great organization wants?

Management time for trips to job fairs & colleges, screening applications time, interviewing, meetings to make decisions?

 

Newspaper, journal, Internet and other ads Technology specialist time for placing recruitment and job info on the organization web site

 

Brochure and flyer printing, folding, addressing, and mailing Personnel staff time processing applications, answering phones, dealing with certifications, and other inquiries, etc.

 

New employee initial orientation New employee training during the first year or two? (both that just for new employees and all other organization training )

Reduced results when an employee leaves with what they have learned from trial and error, and a different new employee is hired without that hard won experience and starts over at the beginning again.

Loss of work flow continuity when employees leave o r are not because they are not as successful as required?

rehired

:: CONSEQUENCES OF ATTRITION::

The labour turnover can have a number of serious consequences, both negative and positive.
On The Negative Side, Turnover Can Have The Following Consequences:

Management time spent orienting, evaluating, coaching, developing, and supporting new employees who are not retained?  Significant replacement costs.  Significant operational disruption.  Loss of key skills, knowledge and experience.  Employee dissatisfaction and loss of morale.  Further turnover may be stimulated by an increase in the workload, or pressure on, those who remain.  A service contractors ability to take on new work may be impeded.  Productivity and creativity may diminish. 
On The Positive Side, However, Turnover May Have The Following Consequences:

 Vacant posts provide opportunities for re -structuring sections or departments.  Vacancies in key posts will increase internal promotion prospects.  Promotion of innovation, flexibility.  Reduction of playbill costs initial employment cost of replacement staff may be lower.  Displacement of poor performers.  Adjustment of staffing mix to provide greater flexibility.