Reference no: EM13335201
Best Eastern Bank, a rapidly-growing retail bank in the New York City Metropolitan area, has established itself as a cost-leader by charging low service fees to its customers. Best Eastern must reduce some of its Human Resources costs starting in 2013 in order to maintain low service fees and remain competitive. Two vendors have submitted proposals to Best Eastern Bank's HR Department to help reduce new hire staffing costs through pre-employment testing.
Best Eastern had 350 replacement hires in 2011 at an average cost of $4,500 per new employee (including all recruitment, selection, and training costs); this level of hiring and average cost/hire is expected to remain stable for each of the next three years unless a project is implemented. Use the data for Project A and Project B below to complete the following three tasks. Use 2011 hiring activity and average cost per hire as the basis for all projected savings.
Task 1: Calculate total project savings and total project costs for 2013, 2014, and 2015 for Projects A and B.
Task 2: Calculate net savings (utility), benefit/cost ratio, and ROI for Projects A and B
Task 3: Discuss at least TWO factors or issues that might cause projected net savings to be too high or too low.
Proposal A: this vendor is offering Best Eastern Bank a validated selection testing system that will reduce replacement hiring. A reduction is hiring will be possible because applicants with better knowledge, skills, and motivation will be hired. Under this proposal hiring will be reduced to 315 in 2013, to 275 in 2014, and to 250 in 2015. The licensing cost to use the testing method is $100 per applicant; the vendor estimates a test-to-hire yield ratio of 3 to 1 (33%).
Proposal B: This vendor proposes a validated selection test that will reduce new hire training costs by $1,000 per new hire because of more efficient selection for skills. This reduction in training costs will start in 2013 and continue through 2015. The selection test will cost $150 per applicant and assumes a test-to-hire yield ratio of 4 to 1 (25%). This proposal anticipates that Best Eastern Bank will continue to fill 350 positions per year 2013 through 2015.
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