Bad recruiting is an expensive habit, and few realize just how bad it is. We calculated what a bad recruiting decision means for your bottom line.

Too many people still have the idea that recruiting is just a routine HR task. And at least as many think that a normal job interview will give very good results when done by an expert.

Both assumptions are false. Even one wrong recruitment has an enormous cost – so enormous that, when choosing an employee, you should use something completely different than an interview based on gut feeling. If the meaning of these discoveries were really understood, it would show up immediately in the profits of many companies.

A follow-up study: Metsä Group

We worked together with Metsä Group to carry out a comprehensive follow-up study to find out how many errors Psycon’s personal assessments have resulted in. In the course of the monitoring, Metsä Group recruited a total of 98 people employees through Psycon, each of whom went through a personal assessment.

We worked with the customer to find out how well a recommendation based on a personality assessment predicts actual work performance. We first asked supervisors to grade the employees with a number to see how well they were doing on the job. After that, we looked for a deeper understanding from the data. The customer’s own HR department interviewed all the recruited supervisors. We also asked the recruited person to give their own view on how work had gone so far. This was done about half a year after the start of employment.

Did personal assessment predict anything?

An exceptionally large amount of data was collected using several different methods. One by-product of the process was a master’s thesis in psychology, which will be announced in the next few weeks.

So, what was the outcome? There were 98 recruits, of whom 97 turned out to be successful hires. There was one overly positive recommendation. This rounds up to 99 per cent, which clearly exceeds the average predictive value of a personal assessment.

So what? What’s so good about this finding? Well, for one thing this finding is not just academic. It has a clear economic benefit for the customer.

The cost of errors

Even the publicly available figures tell many things. Metsä Group’s profits for 2016 were EUR 442 million, and the company had 9,300 employees. Simplifying from this, you could say that one employee affects yearly profits to the tune of EUR 47,500, so 100 people have a combined effect of EUR 4.8 million.

If you also factor in the cost of errors in recruitment, which is at least a third of an employee’s annual salary and add-on costs, then the situation becomes very interesting. The estimated cost of a bad recruitment is at least something like EUR 30,000 per person.

In addition to the direct costs, the indirect costs of a recruitment that doesn’t work out should be taken into account. Lost earnings must also be factored in. The ongoing project for which the person was recruited may end up being months behind schedule, and the company may even lose the client.

A rough calculation shows that as few as five mistakes in recruiting a hundred employees would cost the customer over half a million euros. That’s far, far more than the combined cost of a hundred personal assessments!

In reality, the true cost of a failed hire is even more depressing. Most of the studies that have been done on this problem show that not even nine out of ten recruits turn out to be the right fit for the job. Ten recruitment mistakes cost a company an average of EUR 1 million euros – and, of course, all this means less profits.

In short, saving in the wrong place may not be a good idea.