SWOT analysis

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SWOT analysis is a strategic planning method used to evaluate the Strengths, Weaknesses,
Opportunities, and Threats involved in a project or in a business venture. It involves specifying
the objective of the business venture or project and identifying the internal and external factors
that are favorable and unfavorable to achieve that objective. The technique is credited to Albert
Humphrey, who led a convention at Stanford University in the 1960s and 1970s using data from
Fortune 500 companies.

A SWOT analysis must first start with defining a desired end state or objective. A SWOT
analysis may be incorporated into the strategic planning model. Strategic Planning, has been the
subject of much research.[citation needed]

 Strengths: attributes of the person or company that are helpful to achieving the
objective(s).
 Weaknesses: attributes of the person or company that are harmful to achieving the
objective(s).
 Opportunities: external conditions that are helpful to achieving the objective(s).
 Threats: external conditions which could do damage to the objective(s).

Identification of SWOTs are essential because subsequent steps in the process of planning for
achievement of the selected objective may be derived from the SWOTs.

First, the decision makers have to determine whether the objective is attainable, given the
SWOTs. If the objective is NOT attainable a different objective must be selected and the process
repeated.

The SWOT analysis is often used in academia to highlight and identify strengths, weaknesses,
opportunities and threats.[citation needed] It is particularly helpful in identifying areas for development.
[citation needed]

Contents
[hide]

 1 Matching and converting

o 1.1 Evidence on the use of SWOT
 2 Internal and external factors
 3 Use of SWOT Analysis
 4 SWOT - landscape analysis
 5 Corporate planning
 o 5.1 Marketing
 6 See also
 7 References
 8 External links

[edit] Matching and converting

Another way of utilizing SWOT is matching and converting.

Matching is used to find competitive advantages by matching the strengths to opportunities.

Converting is to apply conversion strategies to convert weaknesses or threats into strengths or

opportunities.

An example of conversion strategy is to find new markets.

If the threats or weaknesses cannot be converted a company should try to minimize or avoid
them.[1]

[edit] Evidence on the use of SWOT

SWOT analysis may limit the strategies considered in the evaluation. J. Scott Armstrong notes
that "people who use SWOT might conclude that they have done an adequate job of planning
and ignore such sensible things as defining the firm's objectives or calculating ROI for alternate
strategies." [2] Findings from Menon et al. (1999) [3] and Hill and Westbrook (1997) [4] have
shown that SWOT may harm performance. As an alternative to SWOT, Armstrong describes a 5-
step approach alternative that leads to better corporate performance.[5]

These criticisms are addressed to an old version of SWOT analysis that precedes the SWOT
analysis described above under the heading "Strategic and Creative Use of SWOT Analysis."
This old version did not require that SWOTs be derived from an agreed upon objective.
Examples of SWOT analyses that do not state an objective can be "Human Resources" and
"Marketing."

[edit] Internal and external factors

The aim of any SWOT analysis is to identify the key internal and external factors that are
important to achieving the objective. These come from within the company's unique value chain.
SWOT analysis groups key pieces of information into two main categories:

 Internal factors – The strengths and weaknesses internal to the organization.

 External factors – The opportunities and threats presented by the external
environment to the organization. - Use a PEST or PESTLE analysis to help
identify factors
The internal factors may be viewed as strengths or weaknesses depending upon their impact on
the organization's objectives. What may represent strengths with respect to one objective may be
weaknesses for another objective. The factors may include all of the 4P's; as well as personnel,
finance, manufacturing capabilities, and so on. The external factors may include macroeconomic
matters, technological change, legislation, and socio-cultural changes, as well as changes in the
marketplace or competitive position. The results are often presented in the form of a matrix.

SWOT analysis is just one method of categorization and has its own weaknesses. For example, it
may tend to persuade companies to compile lists rather than think about what is actually
important in achieving objectives. It also presents the resulting lists uncritically and without clear
prioritization so that, for example, weak opportunities may appear to balance strong threats.

It is prudent not to eliminate too quickly any candidate SWOT entry. The importance of
individual SWOTs will be revealed by the value of the strategies it generates. A SWOT item that
produces valuable strategies is important. A SWOT item that generates no strategies is not
important.

[edit] Use of SWOT Analysis

The usefulness of SWOT analysis is not limited to profit-seeking organizations. SWOT analysis
may be used in any decision-making situation when a desired end-state (objective) has been
defined. Examples include: non-profit organizations, governmental units, and individuals.
SWOT analysis may also be used in pre-crisis planning and preventive crisis management.
SWOT analysis may also be used in creating a recommendation during a viability study/survey.

[edit] SWOT - landscape analysis

The SWOT-landscape systematically deploys the relationships between overall objective and
underlying SWOT-factors and provides an interactive, query-able 3D landscape.

The SWOT-landscape grabs different managerial situations by visualizing and foreseeing the
dynamic performance of comparable objects according to findings by Brendan Kitts, Leif
Edvinsson and Tord Beding (2000).[6]
Changes in relative performance are continually identified. Projects (or other units of
measurements) that could be potential risk or opportunity objects are highlighted.

SWOT-landscape also indicates which underlying strength/weakness factors that have had or
likely will have highest influence in the context of value in use (for ex. capital value
fluctuations).

[edit] Corporate planning

As part of the development of strategies and plans to enable the organization to achieve its
objectives, then that organization will use a systematic/rigorous process known as corporate
planning. SWOT alongside PEST/PESTLE can be used as a basis for the analysis of business
and environmental factors.[7]

 Set objectives – defining what the organization is going to do

 Environmental scanning
o Internal appraisals of the organization's SWOT, this needs to include an
assessment of the present situation as well as a portfolio of
products/services and an analysis of the product/service life cycle
 Analysis of existing strategies, this should determine relevance from the results
of an internal/external appraisal. This may include gap analysis which will look at
environmental factors
 Strategic Issues defined – key factors in the development of a corporate plan
which needs to be addressed by the organization
 Develop new/revised strategies – revised analysis of strategic issues may mean
the objectives need to change
 Establish critical success factors – the achievement of objectives and strategy
implementation
 Preparation of operational, resource, projects plans for strategy implementation
 Monitoring results – mapping against plans, taking corrective action which may
mean amending objectives/strategies.[8]

[edit] Marketing

Main article: Marketing management

In many competitor analyses, marketers build detailed profiles of each competitor in the market,
focusing especially on their relative competitive strengths and weaknesses using SWOT analysis.
Marketing managers will examine each competitor's cost structure, sources of profits, resources
and competencies, competitive positioning and product differentiation, degree of vertical
integration, historical responses to industry developments, and other factors.

Marketing management often finds it necessary to invest in research to collect the data required
to perform accurate marketing analysis. Accordingly, management often conducts market
research (alternately marketing research) to obtain this information. Marketers employ a variety
of techniques to conduct market research, but some of the more common include:

 Qualitative marketing research, such as focus groups

 Quantitative marketing research, such as statistical surveys
 Experimental techniques such as test markets
 Observational techniques such as ethnographic (on-site) observation
 Marketing managers may also design and oversee various environmental scanning
and competitive intelligence processes to help identify trends and inform the
company's marketing analysis.

Using SWOT to analyse the market position of a small management consultancy with specialism
in HRM.[8]

Strengths Weaknesses Opportunities Threats

Reputation in Shortage of consultants Well established Large consultancies
marketplace at operating level rather position with a well operating at a minor
than partner level defined market niche level
Expertise at partner Unable to deal with Identified market for Other small
level in HRM multi-disciplinary consultancy in areas consultancies looking to
consultancy assignments because of other than HRM invade the marketplace
size or lack of ability

SWOT Analysis Examples; Reports on Different Companies

SWOT analysis is also known as TOWS analysis.

Introduction
Environmental opportunities are only potential opportunities unless the organization can utilize resources to take

advantage of them and until the strategic leader decides that it is appropriate to pursue the opportunity. It is

therefore important to evaluate environment opportunities in relation to the strengths and weaknesses of the

organization's resources, and in relation to the organizational culture. Real opportunities exist when there is a close

fit between environment, values and resources. An evaluation of an organization's strengths and weaknesses in

relation to environmental opportunities and threats is generally referred to as a SWOT analysis. The following report

will look closely into the SWOT's concept, its main aspects, and criteria for successful and effective SWOT analysis.

Main Aspects of SWOT Analysis

SWOT has a long history as a tool of strategic and marketing analysis. No one knows who first invented SWOT
analysis. It has features in strategy textbooks since at least 1972 and can now be found in textbooks on marketing

and any other business disciplines. Its advocates say that it can be used to gauge the degree of "fit" between the

organisation's strategies and its environment, and to suggest ways in which the organisation can profit from

strengths and opportunities and shield itself against weaknesses and threats (Adams, 2005). However, SWOT has

come under criticism recently. Because it is so simple, both students and managers have a tendency to use it

without a great deal of thought, so that the results are often useless. Another problem is that SWOT, having been

conceived in simpler times, does not cope very well with some of the subtler aspects of modern strategic theory,

such as trade-offs (De Witt and Meyer, 1998).

Strengths
Determine an organisation's strong points. This should be from both internal and external customers. A strength is

a "resource advantage relative to competitors and the needs of the markets a firm serves or expects to serve"

(http://www.css.nccu.edu.tw/mepa/mepa_course/2005/kao/ 20060221_1.ppt#1). It is a distinctive competence when

it gives the firm a comparative advantage in the marketplace. Strengths arise from the resources and competencies

available to the firm.

Weaknesses
Determine an organisation's weaknesses. This should be not only from its own point of view, but also more

importantly, from those of the customers. Although it may be difficult for an organisation to acknowledge its

weaknesses, it is best to handle the bitter reality without procrastination. A weakness is a "limitation or deficiency in

one or more resources or competencies relative to competitors that impedes a firm's effective performance"

(http://gift.postech.ac.kr/admin/bbs/data/summer_session_2004/ Corporate%20Strategy_ver

%5B7%5D_final(1).ppt).

Opportunities
marketplace. After all, opportunities are everywhere, such as the changes in technology, government policy, social

patterns, and so on. An opportunity is a major situation in a firm's environment. Key trends are one source of

opportunities. Identification of a previously overlooked market segment, changes in competitive or regulatory

circumstances, technological changes, and improved buyer or supplier relationships could represent opportunities

for the firm.

Threats
No one likes to think about threats, but we still have to face them, despite the fact that they are external factors that

are out of our control, for example, the recent economic slump in Asia. It is vital to be prepared and face threats
even during turbulent times. A threat is a major unfavourable situation in a firm's environment. Threats are key

impediments to the firm's current or desired position. The entrance of new competitors, slow market growth,

increased bargaining power of key buyers or suppliers, technological changes, and new or revised regulations

could represent threats to a firm's success.

Because SWOT is such a familiar and comforting tool, many students use it at the start of their analysis. This is a

mistake. In order to arrive at a proper SWOT appraisal, other analyses need to be carried out first.

 Since opportunities and threats mostly arise from the environment, SWOT analysis needs to take account

of the results of a full environmental analysis.

 It is impossible to gauge what an organisation's real strengths are until you have assessed its strategic

resources - in fact, strategic resources and strengths are the same thing. There is a tendency for students

to put down anything vaguely favourable that they can think of about a company as a strength. This

temptation needs to be resisted - a strength is not a strength unless it makes a genuine difference to an

organisation's competitiveness. The same is true of weaknesses.

For example, look at Southwest Airlines and Amazon.com. Both companies have important groups of potential

customers to whom they offer poor service. Southwest ignores business passengers, and will not accept transfers

from other airlines. Amazon makes people wait days to receive books that they can obtain instantly from their

neighbourhood bookstores, and pay a delivery charge for the privilege. Surely, these are major threats. Southwest

and Amazon have chosen not to give those customers priority. Serving them would divert resources from the firm's

core markets, and dilute service to their main customers. Not serving them is certainly not a weakness; in a

paradoxical way, it may be a strength.

The wizardry of SWOT is the matching of specific internal and external factors, which creates a strategic matrix and

which makes sense. It is essential to note that the internal factors are within the control of organisation, such as

operations, finance, marketing, and other areas. On the contrary, the external factors are out of the organisation's

control, such as political and economic factors, technology, competition, and other areas. The four combinations

are called the maxi-maxi (strengths/opportunities), maxi-mini (strengths/threats), mini-maxi

(weaknesses/opportunities), and mini-mini (weaknesses/threats). Weihrich (1982) describes the four combinations

as follows:

1. Maxi-maxi (S/O). This combination shows the organisation's strengths and opportunities. In essence, an

organisation should strive to maximise its strengths to capitalise on new opportunities.

 2. Maxi-mini (S/T). This combination shows the organisation's strengths in consideration of threats, e.g. from

competitors. In essence, an organisation should strive to use its strengths to parry or minimise threats.

3. Mini-maxi (W/O). This combination shows the organisation's weaknesses in tandem with opportunities. It

is an exertion to conquer the organisation's weaknesses by making the most of any new opportunities.

4. Mini-mini (W/T). This combination shows the organisation's weaknesses by comparison with the current

external threats. This is most definitely defensive strategy, to minimise an organisation's internal

weaknesses and avoid external threats.

How to Write a Good SWOT Analysis

A successfully conducted SWOT involves identifying the following:

 The things an organisation does particularly well (strengths) or badly (weaknesses) at present.

 The factors that in the future may give the organisation potential to grow and increase its profits

(opportunities) or may make its position weaker (threats). Opportunities and threats normally arise from

changes in the environment, but sometimes have their origin inside the organisation - for example, if key

machinery or people, functioning very effectively at present, are likely to break down or retire in a few

years' time, that is a threat.

It is important to bear in mind what a SWOT is for. It is intended to summarise a strategic situation, with a view to

deciding what the organisation should do next. A SWOT analysis should contain sufficient information for any

reader to be able to see why a particular issue counts as a strength, weakness, opportunity or threat, and what the

implications are for the firm that you are analysing.

For the same reason, there is no room for equivocation in a SWOT analysis - a factor can be a strength or a

weakness, but not both. For example, a firm's IT system may provide good management reports but poor

production control information. It is pointless to put this down as both a strength and a weakness that partially

cancel each other out, since managers have only two choices: either they upgrade the system or they do not

(Mintzberg, 1990). This means that you need to come to a definite answer to the question: On balance, is the IT

system a strength or a weakness? Perhaps the lack of good production information is important, in which case the

system needs to be upgraded. Perhaps it is vital to maintain the flow of management information, in which case the

system should not be touched (Thompson, 2002). SWOT analysis aims to differentiate factors from being bad or

good for the company's performance. In a SWOT analysis, the strengths and weaknesses of resources must be

considered in relative and not absolute terms. It is important to consider whether they are being managed
effectively as well as efficiently. Resources, therefore, are not strong or weak purely because they exist or do not

exist. Rather, their value depends on how they are being managed, controlled and used.

SWOT analyses should only pick out issues that have a substantial effect on a firm's competitive situation. You

should avoid the temptation to put down under "Strengths" almost everything you can think of that is vaguely

favourable to the firm, and to classify anything remotely unfavourable as a weakness. It should be rare, to make a

genuine difference to the organisations' profitability - a strategic resource. A weakness, similarly, is something that

affects the organisation's cost or differentiation advantage. Old-fashioned equipment and authoritarian

management styles, for instance, are only weaknesses if they lead to increased costs, poor quality or bad customer

service (Thompson, 2002; Adams, 2005).

Lists of strengths and weaknesses should not include factors that are common to every firm in an industry. For

example, you could not count "well-known brand" as a strength for a firm in the jeans or cosmetic industries such as

L'Oreal, since many brands are equally famous. Instead of writing that main opportunities of the company are

overseas expansion and brand extension, it is crucial to replace it with a broader definition and explanation. The

example of a more successful explanation could be: "Eastern European markets, with developing spending power

and proven appetite for Western consumer brands, represent opportunity. 25% of existing sales in airport outlets

are to customers travelling to these countries". Another example could involve: "Competing firms have extended

brands to cosmetics, spectacles, jeans and stationery. Likely opportunity for this firm to follow suit" (Adams, 2005).

Instead of saying that the threat of a firm is in exchange rate fluctuations, the statements of: "Appreciation of euro

versus dollar likely to lead to reduced value of US profits (25% of total)" or "This is a specific threat that affects this

firm because of its high proportion of US sales" could be appropriate (De Witt and Meyer, 1998).

In order to write a good SWOT the following criteria must be taken into account:

 Make your points long enough, and include enough detail, to make it plain why a particular factor is

important, and why it can be considered as a strength, weakness, opportunity or threat. Include precise

evidence, and cite figures, where possible.

 Be as specific as you can about the precise nature of a firm's strength and weakness. Do not be content

with general factors like economies of scale.

 Avoid vague, general opportunities and threats that could be put forward for just about any organisation

under any circumstances.

  Do not mistake the outcomes of a strength (such as profits and market share) for strengths in their own

right;

 Improvement is not the same as strength - do not confuse the two;

 Avoid contradicting yourself in the course of the analysis, by having strengths and weaknesses that are

essentially different aspects of the same strategy of resource. Come to a reasoned conclusion about

whether the good points outweigh the bad ones, or vice versa.

Where to Find Information for SWOT Analysis

Students when finding the essential information for conducting SWOT analysis, would have to look at company's

business reports, annual reviews, published performance data on financial resources, marketing and operations,

including current suppliers and key stakeholders groups.

It can also be helpful to search various journals on marketing, strategy and human resources to find out more

published and referenced information on the company's past experience, its current position and future objectives.

SWOT Analysis Limitations

A key element of strategic option formulation is the matching of organizational strengths and weaknesses with

opportunities and threats which exist in the marketplace. SWOT analysis is widely recognized in the marketing and

strategic management literature as a systematic way of achieving this end. A number of critics however have

claimed that the output from a SWOT analysis is often either trivial or so broad as to be relatively meaningless in

the context of making actual marketing decisions. Mintzberg (1990), for example, states that the assessment of

strengths and weaknesses may be unreliable, being bound up with aspirations, biases and hopes. Therefore, it is

important for strengths and weaknesses to be defined in the context of a situation. As a consequence, a creative

problem-solving tool such as brainstorming may thus be a useful help in overcoming this difficulty.

SWOT analysis can be used in many ways to aid strategic analysis. The most common way is to use it as a logical

framework guiding systematic discussion of a firm's resources and the basic alternatives that emerge from this

resource-based view. What one manager sees as an opportunity, another may see as a potential threat. Likewise,

a strength to one manager can be a weakness to another. Different assessments may reflect underlying power

considerations within the firm or differing factual perspectives. Systematic analysis of these issues facilitates

objectives internal analysis (Hill and Westbrook, 1997; Markides, 1999). Understanding the key opportunities and

threats facing a firm helps its managers identify realistic options from which to choose an appropriate strategy and

clarifies the most effective niche for the firm.

One of the historical deficiencies of SWOT analysis was the tendency to rely on a very general, categorical

assessment of internal capabilities. The resource-based view came to exist in part as a remedy to this void in the

strategic management field. It is an excellent way to identify internal strengths and weaknesses and use that

information to enhance the quality of a SWOT analysis. Similarly, value chain analysis identifies elements of a

company's capabilities and operations that are useful in conducting a SWOT analysis.

Conclusion
SWOT helps a company to see itself for better and for worse. Companies are inherently insular and inward looking

SWOTs are a means by which a company can better understand what it does very well and where its shortcomings

are. SWOTs will help the company size up the competitive landscape and get some insight into the vagaries of the

marketplace.

SWOT analysis has been a framework of choice among many managers for along time because of its simplicity

and its portrayal of the essence of sound strategy formulation - matching a firm's opportunities and threats wit its

strengths and weaknesses. Central to making SWOT analysis effective is accurate internal analysis - the

identification of specific strengths and weaknesses around which sound strategy can be built.

Implementation of swot analysis

S.W.O.T. Analysis is a very effective way of identifying Strengths and Weaknesses, and of
examining the Opportunities and Threats faced by companies today. Carrying out an analysis
using the SWOT framework helps focus activities into areas of strength and where the greatest
opportunities lie.

In order to carry out a successful SWOT Analysis, the following questions need to be answered.

In the area of Strengths the following should be used:

1) What advantages does the company hold?

2) What does the company do well?,
3) What relevant resources does the company have?,
4) What do other people see as the company's strengths?

In the area of Weaknesses the following questions should be used:

1) What can the company improve?
2) What does the company do badly?,
3) What should the company avoid?

This is considered from an internal and external basis. Consideration has been given as to
whether other people seem to perceive weaknesses that are not seen.

In the area of Opportunities the following questions should be used:

1) Where are the good opportunities facing the company?

2) What are the interesting trends the company must be aware of?

Useful opportunities can come from such things as:

1) Changes in technology and markets on both a broad and narrow scale.

2) Changes in government policy related to your field.
3) Changes in social patterns, population profiles, lifestyle changes, etc.
4) Local Events.

After looking at the opportunities and strengths the question was asked whether these open up
any opportunities. Alternatively, the weaknesses were looked at and the question was asked
whether these open up opportunities by eliminating the weaknesses.

In the area of Threats the following questions were used:

1) What obstacles does the company face?,

2) What is the competition doing?,
3) Are the required specifications for the job, products or services changing?,
4) Is changing technology threatening the position?,
5) Do bad debt or cash-flow problems exist?,
6) Could any of the weaknesses seriously threaten the business?

By using these questions, one can easily understand the structure of a given company with
respects to a SWOT analysis. Of course, a little research and some interviewing will always
make for the most accurate results

Development of policies
Some suggested steps on how to develop work-life balance policies and practices in your workplace include:

Assess employer and employee needs

Conduct cost/benefit analysis

Assess employer and employee needs

The first step in developing work-life balance policies is to find out what the needs are of the organisation as

well as the needs of the employees.

A good starting point for employers is to:

 undertake a needs analysis by identifying the organisation?s key operating requirements such as

client contact hours, equipment operating needs, minimum staffing requirements, workflow and

workload peaks and troughs, and determining which work-life balance policies and practices might suit

these operational needs

 develop a business case for introducing work-life balance policies and practices. It is important to

identify any specific problems or issues that are affecting the efficiency of the business to determine if

there is a business case for developing and introducing work-life balance policies. Issues that should

be addressed include absenteeism, recruitment and retention/turnover, return rates from parental

leave, length of service and productivity

It is important to establish base line levels of the above issues (e.g. absenteeism, retention/turnover),

because they provide benchmarks against which any improvements can be evaluated. This data could be

collected through personnel records and exit interviews. Personnel records can provide information on

employees? absences, leave taken by employees, number of resignations, and the length of service of

different employees. Exit interviews may provide information on the reasons why people are leaving the

organisation.

When developing a business case it is important to link your organisational goals and objectives to the work-

life balance policies? goals. For example, if your organisation aims to deliver a personalised service, a good

knowledge of your clients? needs is necessary. Work-life balance policies may increase employees?

commitment to the organisation leading to a reduction in turnover. This means that staff knowledge about

clients is preserved, enabling the organisation to provide better and more personalised services to their

clients.
A business case may also be needed to convince management and employees of the importance of work-life

balance policies.

The needs of employees in relation to balancing work, family and lifestyle commitments can be ascertained

through:

 asking employees individually (this may work best in small workplaces)

 open discussion with employees in staff meetings

 focus groups

 asking employees through general employee surveys, or through their managers and supervisors

 a formal work-life balance survey

Organisations should find out what employees would like to see introduced. To get this information,

employers may:

 provide employees with a list of work-life balance policies which employers are prepared to offer

and a list of other initiatives employers may consider making available

 ask employees if they would be better able to balance their work, family and lifestyle responsibilities

if any of these work-life balance policies were introduced

 ask employees which options they would use if they were made available

Success of a survey depends on individuals trusting the survey process. It is essential to ensure

confidentiality of individual survey responses. Confidentiality of data refers to procedures used to preclude

invasion of privacy. The greater the sensitivity of the information the greater the care that must be

exercised in obtaining, handling, and storing the data. Employees are more likely to falsify their responses if

they believe that their identity will be known from their responses.

It is therefore important to ensure confidentiality of surveys by taking every reasonable attempt to protect

access to the responses. To ensure confidentiality, the following guidelines are suggested:

 Access to completed surveys should be limited to authorised staff

 Data should be stored in files accessible only to the survey manager and his/her authorized staff or

representatives

Conduct cost/benefit analysis

As part of the business case for introducing work-life balance policies, a cost/benefit analysis of proposed

initiatives should be conducted to ensure that the benefits will outweigh costs.

Any costs associated with the development and implementation of work-life balance initiatives, for example

the cost of additional equipment in setting up a family room or working from home arrangements, should be

calculated over the life of any purchased equipment and be offset against savings associated with

productivity of employees, and retention of skilled productive employees.

Organisations should consider their reasons for introducing or improving work-life balance policies in terms

of less absenteeism, less sick leave, lower turnover, and increased length of service. If an organisation is

introducing certain work-life balance policies aimed to reduce staff turnover, employees should calculate the

cost of staff turnover, which includes costs associated with:

 paying out accrued hours and leave entitlements

 temporary replacements or overtime until the job is filled

 advertising, selection and recruitment

 induction, and on and off the job training time for the new employee

There are tools available which can help you calculate the costs associated with turnover of employees and

absenteeism:

 Turnover: The Equal Opportunity for Women in the Workplace Agency (OEWA) provides an online

tool to calculate turnover costs.

 Absenteeism: To calculate the total costs of absenteeism per employee for a defined period, the

following formula by Gijs Houtzagers (2003) can be used:

ACE = (ML (WH + EBC) + S (RH + SBC) + OC)/E

ACE - Total costs of absenteeism per employee for a defined period

ML - Total employee hours lost to absenteeism for a defined period, including illness, accidents,

compassionate absences (e.g. funeral) and emergencies, but excluding annual leave

WH - Weighted average hourly pay for the various occupational groups in the organisation

EBC - Cost of employee benefits per hour per employee (= 35% of WH)
S - Supervisor hours lost in dealing with absenteeism for the defined period.

To get this figure:

 Estimate the average amount of hours lost per supervisor per day

 Determine the number of supervisors who have to deal with absenteeism

 Define the total of working days for the defined period

 Multiply these three figures

RH - Average hourly pay for supervisors

SBC - Costs of supervisor benefits per hour per supervisor (= 35% of RH)

OC - Estimation of other costs:

 Temporary staff

 Training time for temporary staff

 Loss of production

 Quality loss

 Overtime for replacement of absenteeism

 Costs of external agencies that provide support on absenteeism

 Costs of HR dealing with absenteeism.