One of the issues which the public sector has to decide is to what extent they should apply redundancies in order to implement savings.
No doubt redundancies will be announced flowing from Defence cuts today and the Public Sector Spending Review 2010.
What is interesting and an issue we are looking at our White Paper on Redundancies and Change Management is the possibility of costing how much a redundancy is to an organisation.
Yes, you have statutory redundancy costs which is set in a Ready Reckoner,(age x years of continuous service x capped weeekly pay) but what about the time and cost of management and staff in dealing with the actual redundancy?
The CIPD developed a formula to deal with this very issue.
The CIPD’s formula says the cost of redundancy = (n x R) + (X x H) + (X x T) + ny(H + T) + Wz(P - n), where:
n = number of people made redundant
R = redundancy payments
X = number of people subsequently hired
H = hiring costs
T = induction/training cost
y = percentage quitting post-redundancy
W= average monthly staff salary
z = percentage reduction in output per worker caused by lower morale
P = number of people employed prior to redundancies
The CIPD established a direct cost to employer of up to £16,375.
John Philpott of the CIPD observed : “While the average direct cost to employers of making redundancies can reach £16,375, on top of this are hidden or indirect costs resulting from the effect of redundancy on survivor employees, such as higher labour turnover and a fall in staff productivity.
“The formula shows how redundancies can impede quick recovery from the downturn. This doesn’t mean that restructuring can’t take place but it should be with a view to the long term and not short-term cost cutting.”
Any attempt to quantify redundancy costs is welcome but this formula does not take into account the time spent in planning a redundancy and legal costs such as when an Employment Tribunal takes place.
What about the stress and time spent in dealing with a court case?
From a Union perspective, it would have far mileage in opposing public sector cuts by seeking to build on this research and to illustrate why job losses are not in the public sector's financial interests.
There is long way to go before all the parties(government, management, employee, union, taxpayer) in the public sector identify the financial costs in managing a change management programme.
Any redundancy consultancy must include the overall financial impact of job losses and these can be indirect costs.
Justin Patten, Trainer