Question

From the Starbuck risk “The loss of key personnel or difficulties recruiting and retaining qualified personnel could adversely impact our business and financial results “ Write a one page explain how training new employees adversely affect the balance sheet.

Answer 1

It is true that loss of key personnel, difficulties in recruiting and retaining qualified personnel affects adversely impact business and financial results. A company is said to be surviving or performing well only due to key decisions made by the key personnel. Day to day decisions whether it is operational, financial, investment etc, it is vital for the company in its own way. The professional experience and qualification together is required to be in the key managerial positions and take decisions. It is not so easy to replace such positions with any one who do not have adequate professional experience or professional qualification. The cost that the company incurs on these personnel is high however the benefit the company derives from these personnel is also high. Once the key personnel is lost, the company has to suffer a lot to replace them in a timely manner with same level of expertise. Sometimes it is required to simultaneously train the new joiner during the presence of resignee such that company incurs extra cost without any extra benefit and the cost incurred on these employees is very high. Sometimes if the company is not able to replace on a timely manner, then the vacancy in the position will cause a lot of damage to the company. How ever well trained the new employee will take time to increase productivity by understanding the company and its practices

These are the direct costs incurred by the company and can be traced easily

1. Pay the notice period that new Joiner has to pay in old company due to immidiate joining in our company

2. Pay joining bonus in order to encourage the joiner with good professional experience

3. Pay referral bonus to existing employee for having referred good employees

4. Training cost of the employees

There would still be untraceable costs like

1. Less productivity during inital period of joining by new employee

2. Loss due to or decrease in profit due to Incorrect decision making due to lack of complete knowledge of the company

3. Reduction in product or service quality.

Because of these costs it adversely affects balance sheet.