Step 1: Calculate the total cost of external recruitment.
This involves adding the agency fee, advertising, and management time.
- Agency Fee: 15% of 80,000=0.15∗80,000=12,000
- Advertising Costs: 2,000
- Management Time: 40 hours * 100/hr=4,000
- Total External Cost = 12,000+2,000 + 4,000=18,000
Step 2: Calculate the total cost of internal recruitment.
This includes the internal process time, training for the promoted employee, and the cost of filling their old position (backfilling).
- Management Time: 10 hours * 100/hr=1,000
- Advanced Training Cost: 5,000
- Backfill Recruitment Cost: 3,500
- Total Internal Cost = 1,000+5,000 + 3,500=9,500
Step 3: Compare costs and make a recommendation.
- External Cost: 18,000
- Internal Cost: 9,500
- Cost Saving with Internal Recruitment: 18,000−9,500 = 8,500
Recommendation:
Based on the financial data, internal recruitment is the more cost-effective option, saving the company $8,500. This method is also likely to be faster and can act as a significant motivator for other employees. Therefore, the company should promote the internal candidate. However, this recommendation is conditional on the company's confidence that the $5,000 training course will successfully equip the employee with the necessary senior-level skills. If the role requires a unique skill set not present in the company, the higher cost of external recruitment might be justified as a strategic investment to acquire new talent.