Forecasting Attrition With HR Data
Employee turnover is one of the most significant business costs. Quit rates reached historically high levels in 2021, and while that trend shows signs of cooling, they have not yet returned to pre-pandemic levels yet. LinkedIn places the average worldwide employee turnover rate at 10.9%.
Companies are understandably watching these movements, given that the average cost for replacing an employee can range from 50% to 200% of the employee's annual salary, according to Gallup. Based on the average wage, this means the average employee replacement cost can range anywhere between $25,000 and $100,000. And this is a conservative estimate, according to Gallup.
These numbers alone should suffice to make minimizing turnover a priority at any organization. But there are also many other reasons, including:
- Loss of vital skills: This not only sets the company back in areas where the skills were critical, but it also means finding replacements is likely to be more challenging and time-consuming.
- Loss of productivity: A new employee can take up to six months to become as productive as existing employees.
- Loss of synergy: Morale can be greatly impacted when a valued team member leaves the company, and it can make it difficult for newcomers to find their place, thus reducing team harmony and affecting synergies to the point where one departure may incite others.
- Loss of opportunities: Employees leaving the business prohibits the company from improving the collective knowledge base and experience.
Clearly any talent management strategy should seek to reduce turnover. Can HR analytics help?
Finding the Root Cause of Attrition
Attrition, by definition, doesn't just consider employees who leave an organization voluntarily. It also includes employees who exit the business through other ways such as involuntary dismissal, retirement, change of role, promotions or advancements.
While even the best HR teams can't prevent some of these events — nor would they want to in the case of career progressions — a good talent management strategy should nevertheless plan for these movements to occur at certain points in time. Part of that planning entails forecasting, which, in turn, requires understanding of weak or vulnerable areas within the organization.
HR leaders should seek to uncover patterns or trends in departures across the organization to find the potential root cause of their attrition. For instance, bad hiring decisions — that is, onboarding workers who are not a good fit for the role or the company — often cause high turnover. Another common cause of attrition is inadequate compensation. Companies that do not provide competitive pay or benefits packages when compared to similar roles or peers in the industry are likely to have higher attribution rates, especially in today's tight labor market.
Remote workers have been leaving their employers in great numbers post-pandemic, and many said they are doing so because of the company's return-to-the-office policy or because of the proximity bias that has developed in the hybrid workplace.
Attrition analytics can help HR leaders find the root cause of the problem and predict when employees will leave and why. With this data, employers can make changes to improve attrition rates.
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Improving Retention Rates Through Data-Driven Analytics
Like any other business strategy, attrition should be projected. Having a backup or contingency plan in the event of expected and unexpected departures is the only way to minimize the extent of the losses identified earlier — vital skills, productivity, synergy and opportunities. And though it may sound complex, forecasting employee attrition can be easily done, and many businesses are doing it right now to reduce recruitment costs.
HR leaders can take the lead on this initiative by answering three questions:
- Who is leaving?
- When are they going?
- Why are they going?
If you can answer these questions, you can start making changes to your business to maintain a healthy workforce. And the more data you collect, the more trends you can observe. For instance, if most departures come from remote IT workers, digging deeper within that department may provide the answer to the company's attrition problem.
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Data can also highlight trends around the frequency of departures. For instance, within certain teams, turnover may be occurring every six months, while within others it takes closer to three years to see movement. The type of work can be a cause — and can be normal and expected — but it can also be a different reason that needs to be addressed, such as a difficult manager or lack of resources.
Knowing the frequency of turnover inside each department compared to the overall organization can also help plan workforce-related needs. If the norm within the industry is a three-year turnover rate among certain teams, HR should make sure they onboard and train replacements before the team finds itself short-staffed and lagging behind in productivity.
Exit interviews are also critical in this process. They help determine why people are leaving, so long as they are done right with total transparency and honesty. But identifying trends in exit interviews can help prevent attrition in the future.
"Analyzing data on factors such as job satisfaction, pay and benefits, and work-life balance, HR professionals can identify areas where improvements need to be made in order to keep employees from leaving," said Boris Jabes, CEO and co-founder of San Francisco, CA-based Census.
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The Role of HR
As the central hub for people-related matters, HR plays a critical role in minimizing attrition. But HR leaders alone can't achieve results. The key to reducing involuntary turnover is in the data that is being collected — who, when and why — and how it is analyzed.
"By simply gathering data about employees' interactions as they go about their job, companies can quickly identify and take action to resolve points of friction, which will result in reduced turnover and improved workforce productivity and performance," said Christophe Martel, CEO of technology company FOUNT in Washington, DC.
And it takes a lot of data to be able to accurately identify relevant trends. It is only once this information is collected and analyzed that business leaders can then take steps to improve their business environments to reduce attrition and improve performance.