What Is Weighted Average Attrition?
A company’s operations depend on its workforce, and a company that sees a high labor turnover rate typically has problems maintaining productivity. Also, a high turnover rate can strain company resources and waste valuable time. The attrition rate is the percentage of employees leaving the company within a specific time frame for various reasons. Weighted average attrition measures attrition rates over several reporting periods, as well as the reasons behind them.
If you're measuring attrition, you take the total number of employees that left the company, divide it by the average number of employees over that time and multiply it by the reporting period. To take a basic example, if your business has 20 employees in January, 18 in February and 16 in March, and you didn't hire anybody during that period, four people left the company in three months. Your average number of employees was 18, so your attrition rate was (4/18) x 3, or 66.7 percent. Under that scenario, you're losing two-thirds of your employees to attrition every year.
The weighted average attrition takes into account the weight of certain figures in the attrition rate. To calculate the weighted average, you’ll need to first group the employees by their reason for leaving the company, and then count the number of employees in each group. Assign each group a weight value based on the group’s relevance. For example, you might only have a few employees retire each year, so the retirees group will receive a lower weight. Conversely, if a larger number of employees quit for better paying jobs, this group receives a higher weight. Multiply the group counts by the assigned weight value. Divide the sum of weight-applied values by the sum of the assigned weights to get the weighted attrition rate.
If you calculate the weighted average attrition over several periods, you can track rising or falling turnover rates. While higher percentages indicate higher turnover, lower percentages indicate the opposite. Track these changes in relation to the typical changes in your industry, and consider the turnover among your staff in various categories, such as highly trained or exempt employees. Also, consider other factors, such as changes in management techniques, that might result in higher than normal turnover.
Knowing your weighted average attrition rate helps guide the budgeting process as well. Your company can use it to determine the number of new hires it needs to budget for on a quarterly or yearly basis, forecast future payroll needs, and inform additional hiring costs. If highly-qualified applicants in your field demand a signing bonus, for example, this information helps you budget how much cash you'll need to pay those projected hires
If the attrition rates in your company are high, you need to understand the reasons why, then take steps to reduce it. Exit interviews might help you understand the reasons employees are leaving. Likewise, surveys of employees coming in might give you an idea of the new employees’ views of the company. Also, take time to understand the issues current employees face in your workplace. You also need to keep an eye on industry standards. For example, many industries such as entertainment, advertising and information technology often experience high attrition rates, so your numbers might be in tune with your particular industry. These activities might shed light on the reason for the high attrition rates, and can help you take necessary steps to retain your best employees.
Weighted attrition rates point a steady finger at areas in your human resource management that you must address. For example, if highly qualified employees are leaving in large numbers, you might need to assess your company’s promotion policies. If your attrition rates indicate that your best workers leave after a few years, consider including this group in the decision-making process. This way, they’ll share in setting the company’s goals, and thus feel more involved and in tune with the company’s vision.
While high attrition sometimes results in increased financial costs and lowered productivity, attrition isn’t always a bad thing. It can help by bringing fresh talent to your company. New employees often come with experiences learned while working for other companies, and thus bring inventive methods of working to your company. This can help your company become more competitive and avoid stagnation. Furthermore, as your business grows, your existing employees might not have the skills needed to suit your new demands. Additionally, employees sometimes quit because of personal issues, which might be a positive event for your company because these issues might hamper productivity. This further heightens the importance of the weighted attrition rate. Tracking it lets you know where you need to focus your efforts to retain and recruit top employees.