Attrition rate in BPO

High Attrition Rate: A Big Challenge

Defining attrition: "A reduction in the number of employees through retirement,
resignation or death"
Defining Attrition rate: "the rate of shrinkage in size or number"
Introduction: In the best of worlds, employees would love their jobs, like their
coworkers, work hard for their employers, get paid well for their work, have ample
chances for advancement, and flexible schedules so they could attend to personal
or family needs when necessary. And never leave.
But then there's the real world. And in the real world, employees, do leave, either
because they want more money, hate the working conditions, hate their coworkers,
want a change, or because their spouse gets a dream job in another state. So, what
does all that turnover cost? And what employees are likely to have the highest
turnover? Who is likely to stay the longest?
Background of article
The IT enabled services (BPO) industry is being looked upon as the next big
employment generator (Nasscom predicts 1.1 million job requirement by the year
200 . It is however no easy task for an HR manager in this sector to bridge the
ever increasing demand and supply gap of professionals. Unlike his software
industry counterpart, the BPO HR manager is not only required to fulfill this
responsibility, but also find the right kind of people who can keep pace with the
unique work patterns in this industry. Adding to this is the issue of maintaining
consistency in performance and keeping the motivation levels high, despite the
monotonous work. The toughest concern for an HR manager is however the high
attrition rate.
In India, the average attrition rate in the BPO sector is approximately 30-35 percent.
It is true that this is far less than the prevalent attrition rate in the US market
(around 70 percent), but the challenge continues to be greater considering the
recent growth of the industry in the country. The US BPO sector is estimated to be
somewhere around three decades old. Keeping low attrition levels is a major
challenge as the demand outstrips the supply of good agents by a big margin.
Further, the salary growth plan for each employee is not well defined. All this only
encourages poaching by other companies who can offer a higher salary.
The much hyped "work for fun" tag normally associated with the industry has in fact

backfired, as many individuals (mostly fresh graduates), take it as a pas-time job.

Once they join the sector and understand its requirements, they are taken aback by
the long working hours and later monotony of the job starts setting in. This is the
reason for the high attrition rate as many individuals are not able to take the
pressures of work.
The toughness of the job and timings is not adequately conveyed. Besides the
induction and project training, not much investment has been done to evolve a
"continuous training program" for the agents. Motivational training is still to evolve
in this industry. But, in all this, it is the HR manager who is expected to straighten
things out and help individuals adjust to the real world. I believe that the new
entrant needs to be made aware of the realistic situation from day-one itself, with
the training session conducted in the nights, so that they get accustomed to things
right at the beginning.
The high percentage of females in the workforce (constituting 30-35 percent of the
total), adds to the high attrition rate. Most women leave their job either after
marriage or because of social pressures caused by irregular working hours in the
industry. All this translates into huge losses for the company, which invests a lot of
money in training them.
If a person leaves after the training it costs the company about Rs 60,000. For a
300-seater call centre facing the normal 30 percent attrition, this translates into Rs
60 lakh per annum. Many experts are of believe that all these challenges can turn
out to be a real dampener in the growth of this industry. This only raises the
responsibility of "finding the right candidate" and building a "conducive work
environment", which will be beneficial for the organization. The need is for those
individuals who can make a career out of this.
All this has induced the companies to take necessary steps, both internally and
externally. Internally most HR managers are busy putting in efforts on the
development of their employees, building innovative retention and motivational
schemes (which was more money oriented so far) and making the environment
livelier. Outside, the focus is on creating awareness through seminars and going to
campuses for recruitment.
Major Worries for the Industry
Reckless Start-ups- a vast majority of the 310 start-ups are headed for a dead-end
(according to Nasscom). Their capacity utilization is less than one of the three shifts.
Many of these companies that converted their empty basements and warehouses
into BPO units or firms with $10 million-20 million VC funds that ran out of cash
without creating anything more than white elephants. They have driven down prices
to grab business, but have failed to deliver. They were always clueless about
people, processes or technologies- the three key elements of the BPO business.

Poor Infrastructure- the industry has more to worry about than just reckless startups. Primary among those is infrastructure. While telecom networks are state of the
art, getting a connection still takes up to three months. Unreliable power supply is
forcing units to create their own back-ups. Roads are bad and airports are in dire
need of repairs and upgrades.
High Attrition-another major problem is the high attrition and growth aspirations of
the workforce. At least 60,000 of the 171,000 workforce change jobs every year.
About 80% of them look for better leaders. Team leaders want to upgrade to
supervisors, quality professionals or operations heads. The HR problem threatens to
soon become grave. Good agents are becoming hard to find and with tardy
infrastructure, big moves to the much talked about smaller towns will take longer.
This means costs will rise making it difficult for small VC-funded companies to
survive.
Attrition rates
US 42%
Australia 29%
Europe 24%
India 18%
Global Average 24%
* Source-Times News New York
Purpose of Writing this Article
Staff attrition (or turnover) and absenteeism represent significant costs to most
organizations. It is odd, therefore, that many organizations neither measure such
costs nor have targets or plans to reduce them. Many organizations appear to
accept them as part of the cost of doing business - a sign of increasing job mobility
and decreasing staff loyalty perhaps, a matter to be regretted but just 'one of those
things.' They add a sum in their budgets for 'temp staff' and 'recruitment' and forget
about it.
However, it seems to be one of the areas in which HR can make a difference - and
one that can be measured in quantifiable, financial terms against targets.
An attrition rate in call (or contact) centres has become legendary. Indeed, the
attrition rates in some Indian call centers now reach 80%. This is an extreme figure
but the average attrition rates in Indian call centers are up around 30-40%.
However, it is interesting to note that the attrition rates in India - and the costs
associated - are so high that they can override the benefits of lower wage costs.
While wages in call centres in Indian are less than one-eighth of those in Northern
Europe, it has been reported that Hewlett-Packard have found the cost per 'ticket'
(the cost of processing a query) has doubled "due to the inability of the staff to
resolve customer queries efficiently because of language barriers and

inexperience." It is said that this increased cost has made HP's move from Ireland to
India "completely pointless," and that it can never recover the (substantial) costs of
the move. It is further reported that GE Capital has moved a call centre back to
Australia "after staff attrition rates of 70% wiped away any potential cost savings."
The issue is not with the quality or education of the staff - and still less with the
investment in technology. It is simply attrition - people do not stay long enough to
be taught or to learn the job. The staff may be cheaper but if they cannot do the
job, what's the point? Managing attrition is not just a 'nice thing to do' in Indian call
centres. It is the route to their survival.
Far from accepting attrition rates as part of the cost of doing business, it is surely
something that all organizations should address, and equally surely it is an area in
which HR can take a lead - measure attrition, seek its causes, set out solutions and
target performance.
Components to be taken into consideration, while calculating attrition rate
I request HR professionals not to drive their own formulas to calculate attrition rate.
In terms of numbers, attrition rate means:
Total Number of Resigns per month (Whether voluntary or forced) divided by (Total
Number of employees at the beginning of the month plus total number of new
joinees minus total number of resignations) multiplied by 100.
If calculating in monetary terms, it includes the following:
Costs Due to a Person Leaving
Calculate the cost of the person(s) who fills in while the position is vacant. Calculate
the cost of lost productivity at a minimum of 50% of the person's compensation and
benefits cost for each week the position is vacant, even if there are people
performing the work. Calculate the lost productivity at 100% if the position is
completely vacant for any period of time.
Calculate the cost of conducting an exit interview to include the time of the person
conducting the interview, the time of the person leaving, the administrative costs of
stopping payroll, benefit deductions, benefit enrollments.
Calculate the cost of the manager who has to understand what work remains, and
how to cover that work until a replacement is found.
Calculate the cost of training your company has invested in this employee who is
leaving.
Calculate the impact on departmental productivity because the person is leaving.
Who will pick up the work, whose work will suffer, what departmental deadlines will
not be met or delivered late.
Calculate the cost of lost knowledge, skills and contacts that the person who is

leaving is taking with them out of your door. Use a formula of 50% of the person's
annual salary for one year of service, increasing each year of service by 10%.
Subtract the cost of the person who is leaving for the amount of time the position is
vacant.
Recruitment Costs
The cost of advertisements; agency costs; employee referral costs; internet posting
costs.
The cost of the internal recruiter's time to understand the position requirements,
develop and implement a sourcing strategy, review candidates backgrounds,
prepare for interviews, conduct interviews, prepare candidate assessments, conduct
reference checks, make the employment offer and notify unsuccessful candidates.
This can range from a minimum of 30 hours to over 100 hours per position.
Calculate the cost of the various candidate pre-employment tests to help assess a
candidates' skills, abilities, aptitude, attitude, values and behaviors.
Training Costs
Calculate the cost of orientation in terms of the new person's salary and the cost of
the person who conducts the orientation. Also include the cost of orientation
materials.
Calculate the cost of departmental training as the actual development and delivery
cost plus the cost of the salary of the new employee. Note that the cost will be
significantly higher for some positions such as sales representatives and call center
agents who require 4 - 6 weeks or more of classroom training.
Calculate the cost of the person(s) who conduct the training.
Calculate the cost of various training materials needed including company or
product manuals, computer or other technology equipment used in the delivery of
training.
Lost Productivity Costs
As the new employee is learning the new job, the company policies and practices,
etc. they are not fully productive. Use the following guidelines to calculate the cost
of this lost productivity:
Upon completion of whatever training is provided, the employee is contributing at a
25% productivity level for the first 2 - 4 weeks. The cost therefore is 75% of the new
employees full salary during that timeperiod.
During weeks 5 - 12, the employee is contributing at a 50% productivity level. The
cost is therefore 50% of full salary during that timeperiod.
During weeks 13 - 20, the employee is contributing at a 75% productivity level. The
cost is therefore 25% of full salary during that timeperiod.
Calculate the cost of mistakes the new employee makes during this elongated
indoctrination period.
New Hire Costs
Calculate the cost of bring the new person on board including the cost to put the
person on the payroll, establish computer and security passwords and identification
cards, telephone hookups, cost of establishing email accounts, or leasing other

equipment such as cell phones, automobiles.

Calculate the cost of a manager's time spent developing trust and building
confidence in the new employee's work.
Lost Sales Costs
Calculate the revenue per employee by dividing total company revenue by the
average number of employees in a given year. Whether an employee contributes
directly or indirectly to the generation of revenue, their purpose is to provide some
defined set of responsibilities that are necessary to the generation of revenue.
Calculate the lost revenue by multiplying the number of weeks the position is
vacant by the average weekly revenue per employee.
Conclusion: It is clear that there are massive costs associated with attrition or
turnover and, while some of these are not visible to the management reporting or
budget system, they are none the less real. The 'rule of thumb' appears to be very
inaccurate indeed and, while it depends upon the category of staff, it is probably
better to estimate around 80% of salary as a truer rule of thumb - and this will be on
the conservative side.
What does this mean? Well it means that if a company has 100 people doing a
certain job paid 25,000 and that turnover or attrition is running at 10%, the cost of
attrition is:
(Total staff x attrition rate %) x (annual salary x 80%)
100 staff at 10% attrition means 10 people leave and are replaced each year.
A replacement cost of 80% of a salary of 25,000 means the cost of each
replacement is 20,000.
The cost of turnover is therefore 10 x 20,000 or 200,000 a year.
The oncost to the overall salary bill is 8%.
(Saving 8% of salary costs would make the average HR manager a hero.)