A new Standard issued by The American National Standards Institute (ANSI) describes the definition, assembly, display and documentation techniques required to produce a cost-per-hire metric, a commonly used measurement in human resource (HR) functions. Cost-per-hire is a measure of the effort exerted, defined in financial terms, to staff an open position in an organization.
Cost-per-hire metrics have been used for decades in organizations, though previously no standard formula had been widely adopted. The new ANSI Standard serves to provide HR professionals and managers with a methodology to establish hiring and workforce management budgets as well as serve as a benchmark for assessing recruiting effectiveness and the efficiency of staffing processes.
ANSI, who co-developed the Standard in collaboration with The Society for Human Resource Management (SHRM) report that a central requirement in developing the CPH Standard is to provide standard tools to practitioners wishing to calculate a cost-per-hire metric, while recognizing that organizations operate differently; one organization may incur a type of cost that another organization may not. This Standard allows for variance within organizations while still providing a robust methodology for creating a standard CPH metric.
The Standard is designed as a tool to allow an organization to determine accurate and comparable costs of recruitment through a standard algorithm to calculate the recruiting costs to be incorporated into cost-per-hire. The Standard is structured at a high level. Specific consideration and responses are also addressed for consideration by individual organizations based on specific hiring environments and requirements.
The report describes three types of cost-per-hire formulas:
Cost-per-Hire, Internal (CPHI): Defines a formula and methodology for creating the CPH measure appropriate for a particular organization. This metric is not designed for comparison with other organizations’ CPH data. It is designed to be a comprehensive reflection of cost and hire data for a single organization.
Cost-per-Hire, Comparable (CPHC): Defines a formula and methodology for creating the CPH measure appropriate for comparison across organizations. This metric uses a similar methodology to CPHI; however, it uses a subset of data that is more likely to be used across organizations and is helpful in building acceptably strong comparisons of costs between organizations.
Recruiting Cost Ratio (RCR): Defines a formula and methodology comparing the total cost of hiring against the total compensation of the newly hired individuals in the first year of their employment. This formula varies from the CPHI or CPHC only in the denominator; whereas CPHI or CPHC are ratios of costs to the number of hires, the RCR is a ratio of costs to total first-year annual compensation of the new hires.
While the equation provided by ANSI is the same for each, the report applies different constituent elements to the calculation depending upon the circumstance and measurement purpose.
Source: The American National Standards Institute (ANSI)