Calculating the True Cost of Workplace Conflict

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If your organization or team is involved in an ongoing conflict, it is crucial to calculate its true financial and marketplace costs. Beyond the obvious losses of productivity and morale, conflict can also steal the valuable time and attention of leadership, damage market reputation, and repulse top job seekers and clients.

Case Study:

XYZ corporation has been dealing with a conflict within one of their work groups for the past three months. There are 10 people on the team and their salaries average $45,000/year, a very modest income by today’s standards. Their conflict is “medium” in severity- everyone on the team feels the conflict, but just half seem to be directly affected by it.

Trust between some team members has been lost. No one has quit or been fired just yet, but there are rumors that a few team members are beginning to put out their resumes. There are no legal issues or claims to date, but H.R. and leadership have been involved and aware of the problem for some time.

In unresolved conflict, tangible and intangible costs accrue monthly. We will consider both. Below is a breakdown of the standard costs associated with our modest conflict case study along with some explanation as to how we arrived at these numbers:

Cost #1: Wasted Time— based on the specific factors above, this cost is $9540/month. This accounts for the loss in which XYZ Company paid employees for time worked and got nothing.

Cost #2: Wasted Opportunity— $11,924, for billable hours, services that were not performed.

Cost #3: Lost Time (Absenteeism)– $477, lost performance due to conflict-related absenteeism.

Cost #4: Lost Opportunity— revenue lost because services/products were not performed/manufactured/sold) –$596

Cost #5: Turnover– if no one has left or been fired because of this conflict, this is $0.

Cost #6: Legal Support—the time and involvement of internal or outside legal counsel. In this case, it is also $0.

Total Cost of the Conflict: $22,537/month x 3 months = $67,611

Other Considerations and Explanations:

If human resources, company leadership, or legal counsel is involved in working on the conflict, the cost of conflict will rise considerably. For example: The average H.R. director earns $85,283 or $42.54/hour (50 weeks and 2 weeks of vacation.) The average company leader or attorney (internal or contracted) makes far more. Hours spent in meetings and follow-up discussing a particular conflict is time lost for other projects and opportunities.

Turnover: The above example also assumes that no one has left the team or was fired because of the conflict. In reality, this frequently occurs but is not always obvious. Whenever the voluntary or involuntary departure of an employee takes place there are associated costs– termination, severance, recruitment, training, development, etc. Turnover costs typically average 30% of the position’s salary. If a $45,000 employee is lost, it will then take $13,500 to recruit, train and develop a replacement.

Average Salary of Team Members: The average salary of the team members in this example is just $45,000. This is considerably less than the average salary of a professional team member. Engineers, IT staff, managers, nurses, doctors, salespersons, to name just a few, all make far more than $45,000/year. Conflict, too, at higher, management levels can swell the financial, morale and marketplace impact exponentially.

Typically, the revenue generating rate of employees is equal to 2.25 times their salary. So a $45,000 employee would be expected to generate $101,250 of revenue for his or her organization. If this employee is 20% less productive due to an unresolved conflict, in three months, that employee alone has cost the organization an average of $5062.50.

Team Size and Impact: Many teams consist of far more than 10 people. Most teams engage intimately with at least one other work unit impacting the productivity of other departments as well.

Absenteeism is typically calculated at a rate of 4%. This figure will vary based on the severity of the felt conflict.

If there are 10 people working 4.3 weeks a month, five days a week, this equals 21.5 days x 10 people or 215 total work days for the whole team/month if no one misses a day. Four percent of this total means that one member of the team is absent, on average, 8.6 days a month. The above case study estimate for absenteeism, then, is a conservative one. It reflects only is a small fraction of the cost of all absent days- that portion which might be directly attributed to the conflict.

Intangible Additional Costs

Beyond the above, there are other difficult to measure, intangible but real, costs that are often associated with an ongoing conflict. They include:

·      Loss of creativity and innovation

·      Loss of focus and problem solving ability

·      Delays in market entry

·      Loss of company reputation, “bad press”

·      Loss of morale, job motivation and productivity

·      Loss of future talent (as word gets out about a conflictual organization, the best job candidates will quietly choose to work elsewhere)

·      Presenteeism—employees are present but disengaged

·      Increased client complaints and lost accounts

·      Employee health claims

·      Stress and other legal claims

Counting the Costs–A Final Word

As you think about your current conflict, it is important to consider all of the tangible and intangible factors above. Similarly, when you think about possible solutions and interventions, be sure to consider their true costs and likely returns as well. For example, if an unresolved conflict has conservatively cost your organization $100,000 over the past few months, a 10% investment in solving that problem permanently would be a sound business decision.

Why? Because even if the intervention only solves 20% of the problem (a worst-case scenario) you would still have received double on your investment. Not a bad return. And, that said, you can expect the right conflict management intervention to deliver excellent results.

What works? We have found the following intervention elements to be highly effective in resolving conflicts similar to the one above:

  • Comprehensive vetting of expectations, “pain points” and possible solutions with an eye toward identifying the “low hanging fruit” as a place to begin negotiations.

  • Focusing involved parties on interests, mission and values, not entrenched positions.

  • Providing a safe, facilitated forum for honest communication, respectful disagreement, creative problem-solving and new beginnings.

  • Key: Putting in place measures of accountability to ensure agreements are followed.

At the end of the day, after to engaging with more than 500 organizations since 1997, we have observed most conflict arise when employees or teams feel unheard, ignoredand disrespected. Listening to and honoring perceptions, regardless of whether you agree is the beginning of re-establishing trust, respect, and a team that functions optimally, internally, and with other departments and clients.

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