GB546 Unit 8 Turnover Cost Model Example

What One Technician's Departure Costs: A Unit 8 Turnover Cost Model at $61,174

[Student Name]

Purdue University Global

GB546: Talent Acquisition and Retention

Unit 8 Turnover Cost Model

[Instructor Name]

[Date]

The plant, its rates and every cost are composite and illustrative; the sources cited are real.

To: Plant Manager, Halden Packaging and Test

From: HR Business Partner, Operations

Subject: The cost of one equipment technician departure

Scope

The model covers one technician earning the plant's median base salary of $75,348, $36.23 an hour. It begins with the resignation, runs through a vacancy of thirteen weeks, and ends when the replacement is signed off on the tool family twelve weeks after starting. Each cost is assigned to one of three blocks. Cascio et al. (2019) recommend separating costs that leave the company as cash from the value of time and output lost, because the second kind is real but harder to verify, and the blocks below follow that advice.

Block One: Cash

Overtime coverage: 18 hours a week for thirteen weeks at time and a half, with payroll taxes, $55.71 an hour, for $13,036.

Tool vendor service calls: 60 hours of vendor field service at $145 an hour for faults the remaining technicians could not cover, $8,700.

Advertising: $1,900.

Pre-hire screens: background, drug and credential checks, $680.

Sign-on bonus: $4,000. It is paid only because someone left and the replacement had to be attracted, so it belongs here.

Cash total: $28,316.

Block Two: Capacity

These costs are the value of paid time spent on the departure instead of on other work.

Separation processing: exit interview, final pay and access removal, $420.

Recruiter time: 30 hours at $48, $1,440.

Interview panels: two technicians and a supervisor across two rounds, $746.

Trainer time: about 110 hours of a senior technician's time across the twelve-week qualification, $5,100.

Unproductive wages of the new hire: the replacement produces about 30 percent of a qualified technician's output during qualification, so 70 percent of twelve weeks of base pay, $12,172, buys no output.

Capacity total: $19,878.

Block Three: Lost Margin

Even with overtime and vendor coverage, tools sat idle more often while the seat was empty: about 110 extra idle tool hours over the vacancy. The plant controller values an idle hour at $118 of contribution margin, not revenue, because revenue would count materials and other costs the plant avoids when a tool stops. Lost margin is $12,980.

Total: $61,174, about 0.81 of the technician's annual base salary. Cash is $28,316, capacity $19,878 and lost margin $12,980.

Less than half the cost of a departure ever appears as a separate expense, which is why turnover looks cheaper in the budget than it is on the floor.

Sensitivity

The two least certain inputs are the length of the vacancy and the number of idle tool hours. Each week of vacancy changes overtime and vendor costs by about $1,672, and each idle hour by $118.

Short case, ten-week vacancy and 60 idle hours: $50,258.

Base case, thirteen weeks and 110 idle hours: $61,174.

Long case, twenty weeks and 160 idle hours: $78,778.

A reader who rejects lost margin entirely can subtract it and still see $48,194 in cash and capacity costs in the base case.

Annual Cost

The plant loses about ten equipment technicians a year at its current 14 percent turnover. At the base case, those departures cost about $611,740 a year, of which about $283,160 is cash.

How to Use the Figure

The figure is most useful as a comparison price. A retention measure that costs less than $61,174 per departure it prevents pays for itself; one that costs more needs another justification. For the sign-on bonus in particular, the model suggests a test: if raising the bonus from $4,000 to $6,000 shortened the vacancy by even two weeks, the saving in overtime and vendor coverage alone, about $3,344, would exceed the extra $2,000. The plant should use the cash-only figure, $28,316, when a decision must be justified to finance in budget terms, and the full figure when comparing retention options with one another, since the capacity and margin costs are real even if they never appear as a separate line.

What the Figure Is For

Allen et al. (2010) caution that employers often underestimate turnover costs because the largest pieces are spread across budgets that nobody adds together. The $61,174 figure gives the plant a common price for a departure that later decisions can use, including the apprenticeship case in Unit 10. Hom et al. (2017) note that the costs of turnover extend beyond replacement to lost knowledge and disruption to remaining staff; this model does not price those effects, so it is likely an underestimate.

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., & Fink, A. A. (2019). Investing in people: Financial impact of human resource initiatives (3rd ed.). Society for Human Resource Management.

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