What is the cost of conflict in your organization? I found an interesting analytical tool presented by Daniel Dana, Ph.D. at his website www.mediationworks.com . I’ve added my own ideas too. Use this analysis to understand specifically how conflict affects your bottom line.
Here’s an example:
The conflict: At Acme Biotech, two managers have fundamentally different views of how people should be managed. One manager, Joe, is autocratic and likes to use power. The other Adrian, has a more cooperative mode. They work in the same division and must share employees. Turnover in their division is 65%. They recently were involved in a divisional decision to upgrade a laboratory for $150,000. It took ten weeks to make the decision and meetings were acrimonious. As a result, two employees left in disgust. Joe and Adrian are both highly qualified, important managers to the organization so senior management finally restructured the division to keep them away from each other. After the lab was installed, several incidents occurred between Joe’s and Adrian’s subordinates resulting in some damaged equipment. Investigations revealed apparent inadvertence and carelessness.
The analysis is subjective. You are not looking for precision, however. Rather, your interest is in potential savings if conflict can be transformed into positive peace.
$150,000 x 30% x 20% = $10,000
$150,000 x 20% = $30,000
2 x $45,000 x 33% x 50% =$14,850
$150,000 x 10% = $15,000
$150,000 x 10% = $15,000
- Wasted time. Conflict wastes the time of anyone who is involved in it. Surveys of managers shows that they spend between 30% and 45% of their time dealing with conflict. We can roughly quantify the time wasted in the conflict between Joe and Adrian by taking their salary and benefits (let’s say $75,000 each) and multiplying by 30%. Let’s also say they’ve been in conflict for 10 weeks (20% of the year). This is a subjective estimate, but works for this analysis.
- Reduced decision quality. Conflict causes people to distort information to their best advantage. In addition, Joe and Adrian were locked in a power struggle that further contaminated the objective information needed for clear decision making. How might this have affected the laboratory upgrade decision? Again, we are estimating based on subjective evaluation, but let’s assume poor decision making led to a decision that was 20% more costly than it otherwise might have been.
- Loss of skilled employees. Generally, about 50 percent of all voluntary departures are due to conflict, while 90 percent of all involuntary departures are due to conflict. The cost of replacing an employee includes recruiting costs, application and interviewing, and training. Let’s say that this is 33% of the annual salary of an employee. Acme lost 2 employees due to voluntary separation and each employee was paid $45,000 per year. The cost of the conflict in this category might be:
- Restructuring due to conflict. Senior management decided that the way to solve the conflict between Joe and Adrian was to restructure the operations so they would not have to work together. This is a common solution, but has costs. Let’s assume that the restructuring caused an efficiency loss of 10% of the combined salaries of Joe and Adrian. If you wanted more precision, you might take 10 percent of the salaries of all of the affected employees. We will be conservative, however.
- Damage to property—sabotage or carelessness? A direct correlation exists between conflict and lost, stolen or damaged property. Most of the cost is hidden as "accidental" or "inadvertent," but is certainly greater than most managers realize. Let’s assume that inventory and equipment losses due to conflict amount to 10% of the value of the equipment. In this case, we have a new laboratory worth $150,000 that was the center of a storm. Later incidents caused some losses.
- Lowered job motivation. Conflicts of the type between Joe and Adrian obviously affect employee motivation. For the period of this conflict, 10 weeks, 6 employees were affected. If we use their salaries as a basis for measuring productivity and we assume a 10% erosion in motivation due to the conflict, we obtain:
6 x $45,000 x 20% (10 weeks/52 weeks) x 10% = $5,400
Already we’re at $90,000 for this single, ten week conflict between two managers. Even if we are 25% percent off of our estimates, we are still over $65,000 in hidden losses. We still have not accounted for the other losses attributable to this conflict: lost work time; and increased health costs due to the stress of the conflict.
If your organization has more than 50 employees, you know you have conflict that is affecting your bottom line. If you are in a smaller company, the hidden cost of conflict could be an even greater percentage of your total revenues.
My point should be clear. Unmanaged and unresolved conflict is costly to a company’s bottom line. This is why positive peacemaking is eminently sensible to even the most buttoned-down CFO-it saves money.
The Way of the Peacemaker: Conflict costs money and directly affects the bottom line. Peacemaking, on the other hand, is not only right, it’s financially sensible.