Hidden Costs of In-house Training for New Employees

The article was written by our guest blogger Hriso Hadjitschonev. Hristo has 20+ years of experience and is a highly respected professional in the industry. He manages teams of 100+ people and is responsible for 7 different products with more than $100 million annual revenue. In the past 10 years, he has specialized in Software Project and Team Management, Development Process Management and Strategy Development and Planning.

Every company has some kind of in-house training in the company for onboarding new employees. It doesn’t matter if the new colleague has experience, there is always a time that the company invests in order to make him adjust to the working environment. Of course the experience is essential to shorten the onboarding time, but it can’t replace it. The new employee should at least get familiar with the specific internal practices in the company regardless the sector the company operates in -trade, production or services.

This approach is especially applicable in the companies, that run software development and in the following article I will describe more precisely the situation in this field.

The IT industry is hungry for resources especially in the last years. According to the latest data, in the next five years there will be lack of IT specialists and in Europe it will be around 900 000 people. One slight part of the shortage is recognized in Bulgaria as well. This leads to creation of many different, in some cases even exotic forms of trainings to answer this high demand. And while universities, at this point are unable to respond in quality and quantity to this demand, luckily there are different academies, post graduating qualification centers and different ways to prequalify professionally.

All this training forms are wonderful, but most of them, if not nearly all of them don’t give solution to the problem mentioned above – the in-house onboarding training for company’s practices and processes. Let try to evaluate this problem from another perspective – the invested resources.

First, let us check what kind of resources we need when we hire new employee with low or no experience (which I will name it as “junior employee”). In order to measure it we will define his monthly costs, including all direct and indirect costs and for the experiment we assume that they are 2000 BGN. Also we will assume that the costs for a highly qualified employee are at least 4 times higher. We accept that the newly appointed employee will need an additional basic technology training.

Based on the onboarding practices of some companies in the industry, there is a period between 2 and 4 months training about the processes until the new hired employee acquire the necessary working culture and knowledge in order to be able to contribute effectively to the team or company according to the hiring level. During this time a common practice is to be assigned a mentor that supports, helps, advice, give tasks and control and other, in order to let new employee learn about the process.

Another onboarding practice is to organize in-house full-day corporate trainings that is within 3-4 weeks and on different topics using in-house instructors. The number of newly hired junior employees on a monthly basis in a company sized 150-200 employees rarely exceed 5 people, maybe more realistic figure will be 2-3 people. To ensure that the quality of the training is high, lecturers and mentors are picked among the highly qualified employees.

So let’s calculate the direct costs that arise on the basis of three months period during the onboarding period:

6000 BGN for new employee

7200 BGN for mentoring

2600 BGN for internal instructors

Does the things end here? Unfortunately there are indirect costs that could be rarely or never calculated. The time of the highly qualified employees used in the onboarding process can be considered as lost profits. As it can be seen in the example above that time is around 2 man-months. And if for the purpose of the experiment we assume that the minimum return of investment of a company in the industry is 2 times the direct cost for employee, we can say that hiring new junior employee costs the company about 5 times more than the direct costs invested and it is only for the first months. Scary, right?

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