Calculating the Ongoing Costs of Testing

Sometimes when I’ve implemented a pre-employment testing program I’ve just been there to insert Tab A into Slot B in a way that keeps Lawyer C from showing up sending us all to Cell Block D (and also, hire good people in a cost efficient way). Other times, though, I’ve had to build a business case for implementing testing, and part of that business case is estimating how much this whole thing is going to cost.

Of course, there are one-time startup fees that vary widely depending on what you’re doing –you may do it in-house, hire an expensive consulting firm, or become a member of a consortium that offers testing services. Those are the costs that usually get the most attention, but it’s also important to include in any business case the cost of keeping things going once you’ve released it into the wild. Somebody is going to pay for testing materials, test administration, scoring, scheduling of candidates, and all that.

Given all this, I thought it would be interesting to write a little about the process I recently went through to do just this as part of developing a larger business case for a new testing program.

But first, a disclaimer: All data presented here are fictional. None of the numbers here are indicative of anything about my employer or anyone else. What I’m presenting is just a basic method and formulas populated by some fake data so that you can plug in the real thing on your own.

To tackle this, it’s best to build a model based on assumptions that build on each other to calculate bottom-line costs. The starting blanks that I try to fill in are these:

  • # of candidates tested per opening
  • # of openings per year
  • Length of test session in hours
  • Max number of candidates per session
  • Time in hours to prep for testing, score tests, clean up, etc.
  • Time in hours to schedule each candidate
  • Cost of test materials per test
  • Cost (other than labor) to score test
  • Test administrator’s annual salary

It may take some research to come up with educated guesses for these, but once you have them you label them “ASSUMPTIONS” and use them to calculate the following:

  • # of candidates tested per year
  • # of test sessions per year (round up if a fraction)
  • Hours per year administering tests
  • Hours per year on prep, scoring, etc.
  • Hours per year on scheduling
  • Total hours spent on testing per year
  • Cost per hour of administrator’s time (including benefits)
  • Cost per year for test materials
  • Cost per year for test administrator labor

Say, you know what would be handy for all this? A spreadsheet! Download it, or here’s a picture:

TestinG Expenses

It might take some research to get good estimates, but the idea here is that you can modify the numbers in the “Assumptions” area and see what the resulting costs are in the “Calculated Costs” area. You might also build multiple models to compare various options, like one vendor versus another or outsourcing test administration versus keeping it in-house.

Or if you’re REALLY on the ball (and you are, aren’t you?), you can include these costs in a formal utility analysis or break-even analysis. But even if you don’t go that far any of this info would be great to include in your business case.

If you look at the spreadsheet, you’ll see that most of the formulas in the “Calculated Costs” area are self-explanatory. The only thing that may need explanation are the labor cost estimates (i.e., the dollar cost for test administration, scheduling, etc.). This is something that a lot of people might overlook, but which I think is critical to include so that you get the complete picture and don’t get called out it by one of your stakeholders.

First, we make some assumptions about the test administrator/scheduler for the model:

  1. Number of paid hours per year including paid vacations/holidays (e.g., 40 hours a week x 52 weeks = 2,080)
  2. His/her annual salary (e.g., $45,000; see cell C13 in the spreadsheet and adjust your model accordingly)
  3. The cost of his/her benefits as a % of salary (e.g., 40%, see cell C14 and adjust accordingly if you have a better estimate for your situation)

Those assumptions made, we can make some quick calculations:

Annual salary / 2,080 = Hourly labor cost (e.g., $45,000 / 2,080 = $21.64)

Annual salary x .40 = estimated annual cost of benefits (e.g., $45,000 x .40 = $18,000)

Estimated annual cost of benefits / 2,080 = Estimated hourly cost of benefits (e.g., $18,000 / 2,080 = $8.65)

Hourly labor cost + hourly cost of benefits = Total hourly compensation (e.g., $21.64 + $8.65 = $30.29).

You can then use that to calculate labor costs for your administrator’s time, plus I’ve created a formula in that spreadsheet to calculate it automatically.

So there you have it. This is only a starting point and you may need to tweak to make it fit yoru circumstances. For example, if you have two different people doing scheduling and administration, you might break those costs out (or plug an average salary into cell C13 if they’re close). Or if you don’t pay your test administrators for vacations and holidays you would want to subtract those numbers from the 2,080 hours per year that they work. Or maybe you’re going to outsource test administration and you need to add a line in there for that.

But this template has been a good starting point for me. A lot of it is based on assumptions and educated guesses, but even that makes a big difference when you’re building your business case. Hope you enjoy, and if you have any comments, tips, or suggestions make sure to click on the “Comments” link below and let me know.

2 Comments on “Calculating the Ongoing Costs of Testing”

  1. Jamie,
    This is excellent! It makes me think about putting one together for the cost of background screening. Thank you for taking the time to put this together and share it with others.

  2. Jamie says:

    Glad you like it. Good luck!