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   ARTICLE   |   From Scotsman Guide Residential Edition   |   January 2006

Cost of Conflict

Trouble among employees? It can cost companies time and money

In part two of a multiple-part series, Kevin Boileau details the financial costs that can be incurred from unresolved conflict. In part one, he addressed the levels of and ineffective approaches to conflict resolution. Future articles will discuss the ingredients of conflict, how to pinpoint conflict sources and a methodology that supports the process.

Unresolved conflict can cost a company a great deal of money. Among other things, it can lead to wasted time, lost employees, poor judgment, sabotage and theft, decreased motivation and lost work time because of stress or health issues.

Wasted time

Unresolved conflict can squander an enormous amount of company resources. Imagine that two people constantly conflict with each other in daily, hour-long meetings. They each earn an annual salary of $100,000 and work about 200 days a year. Let’s assume they spend a half-hour arguing unproductively.

Assuming an eight-hour day, this conflict costs the company — just in these meetings — about $60 an hour. If you add up the costs of your company’s unproductive, conflict-ridden meetings, the total could be considerable.

Lost employees

Companies invest a huge amount of time in hiring, training and retaining skilled employees, especially those at higher management levels. Many employees quit their jobs because of continuing, substantial interpersonal conflict. It may cost a company more money to lose key employees than to spend resources to resolve the underlying conflicts that lead to these departures.

When an employee quits, companies must consider lost productivity, in addition to future recruiting fees, interview time, possible salary increases for replacement employees and training costs. It could cost $120,000 to replace an employee who makes $80,000 a year — a 150-percent increase in costs.

Even if employees are not replaced and restructuring occurs, employers still face substantial time and monetary costs associated with strategic reconfiguring.

Poor judgment

Making sound business judgments requires employees to have good facts. In much of the decision-making process, getting accurate information requires reliance on other employees. If there is an unresolved conflict between a decision-maker and an information source, the information presented could be distorted. This causes a judgment based on inaccurate data.

Additionally, if several team members make a joint decision, conflict can contaminate the decision-making process as parties fight for esteem and power. This can cause irrational decisions or stifle the process if decisions cannot be made or executed. Assuming performance-impairment approaches 75 percent of its optimum level, a projected maximum profit of $500,000 could be whittled down to $375,000 through unresolved conflict.

Sabotage and theft

Sometimes employees are angry at and resentful toward their employers or managers. When this occurs, errors in judgment can take place that could seem accidental but really are manifestations of resentment.

Sleep deprivation and stress-based attention deficits can contribute to workplace damage. Occasionally, employees may feel so angry that they intentionally damage or steal company property. They may also sabotage other employees’ work, costing the company huge losses.

For example, if two employees hack into each other’s computers and steal or destroy valuable data, they will cost the company substantial hours when recovering the lost information. Two employees who each work for $50 per hour and set each other back 50 hours by destroying important information can cost the company at least $5,000 in data recovery.

Decreased motivation

Sometimes chronic unresolved conflict causes stress and anxiety so substantial that it impairs an employee’s motivation to do an excellent job. This can lead to low productivity and careless attention to the job details.

Although these losses are difficult to measure, they do exist. For example, assume that at optimum performance, an employee earns a company $1 million in net profits each year. Because of a substantial conflict with another employee, however, this performance is reduced by 25 percent, which costs the company $250,000.

Health costs and lost work time

Employees who are stressed because of conflict at work also have a tendency to miss workdays. High stress also can damage the immune system, thus enabling individuals to become more susceptible to illness. That is, there are sometimes psychogenic factors in illnesses, some of which are attributable to stress.

Medical care for sick employees also costs a company a great deal of money. Because the rate of claims affects the yearly premium, the more unresolved conflict leads to sickness, the more money it costs a company.

For example, assume that a team of five employees has unresolved conflict that leads to increased sick days and medical bills. A 5-percent annual increase in sick days for one employee would cost a company at least $5,000 at an annual salary of $100,000. If health-care costs for one employee average $6,000, a 10-percent increase in paid health benefits would cost an additional $600 per employee.

•  •  •

If you own or manage a mortgage-lending company, costs from unresolved conflict among your employees could be staggering. The above scenarios indicate potential warning signs, which may spur you to create a conflict worksheet. For each entry on the worksheet, estimate conservatively. Use real numbers.

Clues about unresolved conflict include employees who miss work, who bicker or who have left in anger. Other clues may be obviously poor decisions, property theft or damage, decreased production of specific individuals and increased health-care costs.

Investigating these phenomena may lead to specific cases of unresolved conflict. Once these are identified, your company can implement solid conflict-resolution processes that will increase productivity and job satisfaction for everyone.


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