Unmanaged employee conflict is perhaps the largest
reducible cost in organizations today and probably the
least recognized.
It is estimated that over 65% of performance problems
result from strained relationships between employees
not from deficits in individual employees´ skill or motivation.
Interdependent workplace relationships are a fertile soil
from which conflict can sprout. Organizations are lush
gardens hosting many flourishing varieties of this annoying
and resource-sapping weed.
Now let´s look at how this weed saps financial health and
vitality. This article can be used as a self-administered
instrument.
* Use the worksheet at the end of this article
with the following instructions to calculate the strictly
financial costs that a particular conflict incurs, aside
from its impact on quality of worklife and job satisfaction.
Worksheet Instructions
First, identify one conflict that is very familiar to you,
either by having been a participant or a close observer.
It may be a conflict that is still current, or one that
happened in the past. Jot down a key word or phrase to
help you stay targeted on that particular conflict.
The "cost factors" listed on the worksheet are the primary
ways that conflict incurs financial costs. Not all cost
factors are relevant to every conflict, but every conflict
incurs cost by several of these means. Analyze your
targeted conflict by asking yourself, with regard to each
cost factor in turn, "Did/does the conflict I am analyzing
have the effect of . . . . . . " If you answer yes,
calculate its dollar cost in the ways suggested, and enter
your estimate in the space provided. When you are completed, sum the column to derive an estimated total cost.
Factor 1: Wasted time
Invariably, conflict distracts employees from otherwise
productive use of their time. A classic management study
("A Survey of Managerial Interests with Respect to Conflict"
by Kenneth W. Thomas and W. H. Schmidt, Academy of Management Journal, June 1976) revealed that up to 30% of a typical manager´s time is spent dealing with conflict.
A more current study of practicing managers ("Managers as Negotiators" by Carol Watson and Richard Hoffman, Leadership Quarterly, 7(1), 1996) showed that 42% of their time is spent reaching agreements with others when conflicts occur.
Estimate the amount of time wasted by each person who is/was
affected by the team conflict. Then calculate the financial
cost as a fraction of monthly or annual salary or wage,
including the value of insurance and other fringe benefits
(typically at least 50% of gross salary).
For example, let´s say each of four employees wasted 40 hours during a six month period because conflict disrupted their work. And, let´s say the annual salary of each employee is $40,000.
Forty hours is one week of work time, which is one-fifty-second of one year´s salary. A year´s salary is generally about two-thirds of total compensation. So, the dollar value of the four employees´ wasted time is $4615.38.
Factor 2: Reduced decision quality
Decisions made under conditions of conflict are always inferior to decisions made when cooperation prevails. This is true for two reasons.
First, we know that good decisions must be based on an optimum quantity and quality of objective information. If information is withheld or distorted by those who are depended upon to provide it (which nearly always happens when
information providers are in conflict with the decision-maker),
then the decision cannot be the best one possible.
Second, if conflict is present between people who share
decision-making authority, as in the case of team-based
decisions, the resulting decisions are likely to be
contaminated by the power struggles between those people.
A precise estimate of cost is probably impossible. But
ask yourself, "What opportunities were lost by poor
decisions that were affected by this conflict, and what
might have been gained if a better decision had been made?"
Considering these influences on decisions made by the
people affected by your target conflict, estimate their
cost and put the figure on the line provided.
Place a
conservative (i.e., on the low side of the range of its
potential financial impact) figure there, even though
the actual cost may be highly variable and very uncertain.
Guideline: 50% of the dollar impact of decisions that were
made while the conflict was going on (e.g., estimate \
if a team was disputing whether to purchase a \ piece of equipment.)
Factor 3: Loss of skilled employees
Organizations invest in employees´ skills by paying a
premium salary upon hiring and by providing training
thereafter. Exit interviews, which ascertain reasons for
terminations, reveal that chronic unresolved conflict acts
as a decisive factor in at least 50% of all such departures.
Conflict accounts for up to 90% of involuntary departures,
with the probable exception of staff reductions due to
downsizing and restructuring. Raytheon Corporation
determined that replacing an engineer costs 150% of his/her
total annual compensation.
This determination was reached
by accounting for lost productivity, recruiting fees,
interviewing time, staffing department employee salaries,
orientation and retraining costs, etc. So, replacing an
employee whose annual salary is $40,000 incurs a cost of
$90,000.
If one or more employees departed at least
partially because of the conflict you are analyzing,
figure the cost to your organization.
For example, using conservative estimates, let´s say that
one employee voluntarily resigned, and that his/her
decision to leave was only 50% due to the conflict.
Using Raytheon´s figures, the dollar cost of this factor
is half of $90,000, or $45,000.