Unveiling the Hidden Cost of Attrition in the BPO Industry:
A Comprehensive Template for HR and Business Leaders
In the dynamic world of Business Process Outsourcing (BPO), employee attrition is a significant challenge for companies. High attrition rates can adversely impact productivity, client satisfaction, and overall financial performance. As BPO leaders, it is crucial to understand the true cost of attrition to make informed decisions and implement effective retention strategies. In this blog, we will explore “how to calculate the Cost of Attrition in the BPO Industry” and gain insights into its implications for the organization.
Determine Attrition Rate:
Calculate the attrition rate for the specific time period you are analyzing. The attrition rate is usually expressed as a percentage and can be calculated using the following formula:
Attrition Rate = (Number of Employees Who Left / Average Number of Employees) * 100
Calculate the Cost of Attrition:
The formula to calculate the Cost of Attrition is as follows:
Cost of Attrition = (Number of Employees Who Left * (Separation Costs + Recruitment Costs + Training Costs)) + (Average Number of Employees * Lost Productivity) + Client Impact
Analysing the Cost and Its Implications:
After calculating the Cost of Attrition, you will have a clear understanding of the financial impact of employee turnover on your BPO. This data can be used to make strategic decisions to mitigate attrition and improve employee retention.
For the purpose of this Article I will be reflecting on Cost of Attrition in non-captive BPO and focusing only on major costs:
- Loss of Revenue
- Cost of Empty Seats
- Cost of Hiring
- Cost of Training
Note: We are still not touching upon Loss of Bids or existing clients due to high attrition, low AHT (Average Handling time) and FTR (First Time Resolution) because of lesser longevity of employees which could be significantly higher for the BPO and may at times even lead to closing down of business.
Further, we are going to compare between 2 Companies where Company A has high attrition (very much in line with where most BPOs find themselves currently) and Company B has lower attrition
For the purpose of this example we are keeping all other Key Parameter other than Attrition same for both the Companies
This table describes
- Number of Agents, currently working with the Company.
- Total Workstations, the Company has.
- New Requirement, assuming that both companies already have the order to fill to their full capacity.
- New Hires per month, keeping it constant for both Companies for the purpose of this Illustration.
- Current Attrition Rate for over 6 months.
- New Hire Attrition from Month 1 to Month 6.
Now lets define Primary Per Unit Cost which we will keep same for both the BPOs for the purpose of Calculation:
Now lets calculate Total Addition in Headcount over the period of next 6 months (I have taken Jan to June 23 for purpose of illustration of this example)
Now let’s calculate the actual impact on business from above 2 Examples where everything is same except for Attrition Rate
From the illustration above, a minor 3% variance in the overall monthly attrition rate, coupled with a focussed 35% reduction in early attrition (wiithin 6 months), has produced remarkable results for Company B. In a span of just six months, they’ve witnessed a noteworthy surge in their Top Line by INR 129.20 Million and their Bottom Line by INR 149.8 Million. This impressive boost is equivalent to an annual gain of approximately 300 Million. It vividly underscores the stark disparity between attrition-related expenses and the substantial returns that can be realized through a strategic emphasis on early employee retention.
Impact of Attrition and its Return is far from Cost of Hiring and Training. It is the responsibility of HR leaders to convey and demonstrate this effect to CEOs and CFOs. By doing so, they not only contribute to winning the ongoing talent war but also create immense value for the company by fostering a forward-thinking and winning organizational culture.
Umwelt.Ai is a SAAS based A.I Powered Employee Experience Management and People Analytics Platform, built by HR Leaders for HR and Business Leaders to Win War for Talent by boosting employee engagement, reducing attrition and building future ready work culture. We help Organizations listen to, understand and act on employee experience in real time using behavioral science, humanized conversations, A.I, data science and RPA.
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