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Psychometrics: Assessing the Business Case

10 Oct 2017

Psychometrics: Assessing the Business Case

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The use of robustly designed psychometric tests provides valuable insights into individuals and their capabilities, but implementing them into an organisation’s recruitment process can constitute a significant investment for a potentially cash-strapped HR department.

However, while foregoing a scientifically validated assessment tool to ‘go with your gut’ might seem like the cheapest option, the costs associated with making hiring mistakes are far more significant.

Take CEO Tony Hsieh, who estimates his own hiring mistakes have cost Zappos “well over $100 million. Excessive? Perhaps. More relatable may be the oft-cited figure from the US department of Labor, suggesting that bad hiring decisions can be equal to 30% of potential first year earnings for each role. Aside from the immediate financial consequences, these mistakes can have a persistent impact on a company’s culture.

The fact is that hiring the wrong person has tangible financial implications that dwarf the costs associated with implementing rigorous assessment and selection processes. However, it’s not always easy to see where these cost benefits and efficiency gains are obtained. In order to help you make the business case for adopting a more data driven approach to recruitment, here are three areas where making the wrong hiring decision exposes you to unnecessary risks.

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Hiring costs

Recruitment is associated with a range of costs, whether they come from external service providers, or in the form of hours worked by internal HR professionals.Advertising for a vacant position, screening applicants, and interviewing potential candidates all constitute considerable investments on the part of the organisation. What’s more, the process is made increasingly urgent by the need to reduce the time to hire and fill the productivity gap. As a result, there can be considerable pressure to hire ‘good enough’. Doing so however, may well be more expensive when it turns out good enough is not enough, and the hiring process begins all over again.

Onboarding and training

The end of the recruitment process is in some ways only the beginning; with the HR department turning their attention to the onboarding process. You’ve chosen your new team member, but before they can really get to work there are still a range of costs to consider; someone has to fill in all the paperwork, update the employee handbooks, and deal with all the provisioning issues. All this is even before we consider the costs in lost productivity that result from someone taking time to help your new recruit get up to speed. Whether you’re hiring 1 person to fill a specific vacancy or hiring +100 eager graduates as part of your yearly intake, getting them all the resources they require, and getting them on track to be productive contributors can be costly: in one report from Bersin by Deloitte, the average cost per hire (including various recruitment and onboarding costs) is $4000. Of course, the exact number will differ based on your individual circumstances, but with at least that much spent on each hire, is it really worth risking hiring someone who doesn’t ‘quite’ fit?

Lost productivity

Hiring an individual who cannot perform the tasks required, and lacks the learning agility to develop the necessary skills, will result in productivity losses. These losses could be as ‘minor’ as an individual turning in low quality or substandard work, or as severe as causing safety issues. These losses are not limited to their immediate tasks and responsibilities. Individuals perform best, and are happiest, when their skills are appropriate for the challenges they face. When those skills exceed the challenges, or are not sufficient to overcome the challenges, people become anxious, disengaged, and ultimately demoralised. Unfortunately for the rest of your workforce, disengagement is contagious, and continuously having to compensate for an incapable colleague can increase absenteeism, destroy staff morale, and reduce productivity across the board.

So, about those tests…

The costs associated with hiring the wrong person begin to add up when we focus on these areas. But there are also significant gains to be made by hiring someone whose motivations align with an organization's culture, and whose personality matches the responsibilities of their position. By using objective assessment tools in your selection process you not only improve the quality and productivity, or ‘job-fit’, of your new hires, but also remove the potential for your decisions to be based on subjectivity and bias. Ultimately, ensuring that your hiring decisions are based on data protects you from risk and sets you up for future success.

Curious about how you can improve productivity with psychometric assessments? Stay tuned for the next article from Central Test, or contact us at consulting@centraltest.com.