Hiring Mistakes: The Cost of a Bad Hire

When it comes to costly workplace mistakes, few carry as hefty a price tag as making a wrong hire. It’s estimated that some companies could lose up to $50,000 by making a single bad hire.

According to a recent Entrepreneur article, half of hiring and HR managers estimate that bad hires have cost their companies, “thousands of dollars.” If you think that is scary, Zappos CEO Tony Hsiegh once estimated that bad hires had cost his company, “well over $100 million.”

The case for hiring right

A study by the Society for Human Resources Management (SHRM), noted that a bad hire also decreases the morale and productivity of the team on top of financial costs. Other findings in the survey include:

• 60% of hiring managers report that bad hires don’t get along with co-workers
• 41% of hiring managers estimate the cost of a bad hire in the thousands
• On average it takes five weeks to fill a staff-level position and 7.5 to fill a management position

Obviously, the best solution is to not make a bad hire in the first place. And while there is no 100% foolproof way to prevent an occasional bad hire, there are ways to significantly reduce the risks of hiring a dud — and increase your chances of choosing a star performer for the role.

Understand your needs

Experts say bad hires are often the result of the job description not matching the job criteria.  The result: a new hire joins the organization and it quickly becomes clear that he or she does not possess the skill-set to effectively execute the job. The key is to create a job description that is laser-focused on the actual skills and competencies required for the job.

First, you need to develop a needs analysis for the particular job you are trying to fill:

• List the five major responsibilities of the vacant position —those areas in which the employee will be spending the majority of time every day.
• List the critical skills or special knowledge necessary to perform each responsibility.
• Review your performance requirements and separate those that you “must have” from those that would be “nice to have.”
• Determine what educational background is necessary to do the job and what educational background is desirable. Be sure that you differentiate between the two. Use education as an indication of the candidate’s determination and ability to learn. But don’t rely too heavily on academic criteria for your ultimate decision making.
• Decide what depth of experience you need. Give yourself a range, but be prepared to consider promising candidates from outside that range.
• Make sure candidates have the skills and experience to do the job well.
• Ascertain if the candidates are willing to do what it takes to succeed.
• Be comfortable that you can manage them.

Slow down and evaluate ability first

The work is piling up. Your boss is pushing you to make a hire. Candidates are filling your voicemail with “checking on the status” messages. In this tight candidate-driven market, you will need to move candidates quickly through your hiring process in order to not lose them. However, resist the urge to make a snap decision. Hiring experts say that rushing to judgment is a top reason employers make bad hires. Explain to everyone involved the need to follow the process and fully vet top candidates. A little more time up front is nothing compared to the time and money lost with a dud hire.

At the heart of every interview is an honest reading of employment history. You should start off with questions that are easy both to ask and answer — it helps the interviewee to relax and helps you to hit your stride.

Here are some basic questions you can ask to evaluate ability:

• What were the three most important responsibilities in your previous job?
• What special skills or knowledge did you need to perform these duties?
• What achievement are you most proud of?
• What was the most important project you worked on at that job?
• What have you learned from the jobs you have held?
• In what way has your job prepared you to take on greater responsibilities?
• What are your long-term goals and how will this job help you reach them?

In addition to interviewing, many employers conduct skill evaluations to further determine ability. If appropriate for the open position and level of candidate, these tests can provide hiring authorities with objective evaluations of a wide range of critical skill sets.

Have you ever had a bad hire that kept you from growing your business? How did it affect your bottom-line?