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The Cost of Losing a Developer

September 4, 2007 | Author: PM Hut | Filed under: HR Management

The Cost of Losing a Developer
By David Carr

Do management understand the true cost of replacing a developer? Sometimes it seems that they really do not. Recently the company I work for have been going through a lot of cost-saving measures; one of which is not awarding pay rises this year. Not only are there no raises, there is no cost of living increment either. As you will understand, this has left many of the developers unhappy and several are attending interviews.

As a conscientious chap, and one firmly on side with the developers, I decided to work out what it would cost us should one of our middle-level developers go through with the threat and leave. To set the context, a middle-ranking developer earns around £29,000. My belief is that this developer should have an increase this year of a minimum of £1,000. So what will that £1,000 cost if they jump ship?

Here are my top five costs and first-year estimates for the loss the company would take in replacing a developer.

1. New Employee Salary

Let’s assume that when we employ, we have to do so at the increased £30,000 average. That’s including the £1,000 that would have kept our existing employee happy. We break even against our original £1,000 cost.

Running total cost: £0

2. Agency Fees

Generally speaking, our developers are employed using an agency that expects a fee of 20% of the employee’s salary. This is usually taken in two chunks; the first on employment, the second after six months.

Running total cost: £6,000

3. Lost Time in Interviews

Assuming we interview five candidates for a minimum of three hours each, we lose two days in opportunity costs for everyone involved. At £1,000 per day for consultancy, that is at least £2,000 down the toilet.

Running total cost: £8,000

4. Development Time Lost

If only it was easy to have your new recruit ready to go on the day the previous employee leaves. If it takes two months to find a replacement and only one month of notice is required from your old employee, that is a lot of lost development time. If you only work at 50% efficiency you can assume that you lose at least ten days development time. If the old employee requires a week of handover time, add another 2½ days. Worse still if you can’t risk keeping the employee in the business!

Running total cost: £20,500

5. Skills Gap Cost

Assuming that the previous employee has been with the company for a while, their skills will be well developed in the areas that are necessary for the business. At first, the new employee will probably not possess the same qualities. They may need a couple of training courses (bye bye £2,000) to start with and a couple of weeks to do them in. Following this, whilst they learn the systems, the company and the customers they will not only be unproductive but they will also be impacting the performance of the other fee-earners. Let’s assume one month of lost time for the new employee and two weeks of impact for the existing team. Total cost of training and orientation - £17,000

Running total cost: £37,500

Clearly this is not a good situation. For the loss of a good employee because of the impact of a cost-of-living pay rise the company could easily lose more than the total salary of the leaver. This does not include the cost of the loss of intellectual property or customer relationships. This can be even more, especially if the developer owns the relationship with the customer.

Employers beware!

David Carr is a Software Development Manager responsible for team management, project management and software development using Microsoft technologies. This article was reproduced with permission from his blog, which can be found at http://david-carr.blogspot.com/.

Article original source: http://david-carr.blogspot.com/2007/08/cost-of-losing-developer.html

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