When handled well, conflict resolution can save a company time and money and help maintain a healthy work environment. Unfortunately, conflict management is rarely perfect, and most companies lose many thousands of dollars each year due to workplace disputes. Here’s how you can estimate the true costs of conflict in your organization.
The Direct Costs of Employee Conflict
Conflict costs are calculated in many ways, but the most prominent metrics used include time lost due to problem-solving steps and resolution.
Robyn Short, conflict specialist and mediator, reports that $359 billion in paid hours (the equivalent of 385 million working days) is wasted each year in the US because of conflict. This is based on the idea that the average American employee, earning $17.95 per hour, spends 2.1 hours weekly dealing with conflict. If you do the math with the number of employees in your business, the costs add up, regardless of your company’s size.
Other researchers have found similarly staggering results. Professors Tanya Menon and Leigh Thompson interviewed 83 executives (of whom 87 percent had more than 10 years of work experience) to put a price on how much their companies lost each day because of people issues. They reported an average daily loss of more than $7,000 per each of the 20 issues presented, leading to millions of dollars lost annually in their organizations.
A few of the top interpersonal problems include:
Hiring the wrong employees
Leaders who do not inspire employees
Avoiding conflict that employees know exists
You don’t have to be part of a major study to calculate your costs due to interpersonal conflict. Resologics, a consulting agency based in Berkeley, California, developed a conflict calculator that helps organizations calculate exactly how much they spend on conflict resolution each year. They track data and costs for factors like when a percentage of a team is affected. This extends the true cost of conflict beyond lost productivity and provides high-level views including the calculation for loss of trust and the loss of employees.
If you can assess the actual amount lost each year due to employee conflict, you can take steps to proactively improve those numbers and make your workplace better.
Conflict Management and Negotiation Skills Course by Bob the BA - March 7, 2018
Additional Hidden Costs of Employee Conflict
Lost time is certainly a factor in calculating the costs of employee conflict. But time spent in mediation or working through problems is only part of the conflict resolution process. There are additional costs you can expect from conflict within organizations.
One silent cost of conflict comes from disengaged employees. These workers feel like their problems won’t be addressed, so there’s no reason to put in the effort and work required to grow the company. Dale Carnegie Training created an interesting infographic explaining employee engagement and why it matters in the workplace. For example, the three key drivers in employee engagement are:
Relationship with their direct manager.
Belief in senior leadership.
Pride in working for the company.
Dale Carnegie Training found that 80 percent of employees who were dissatisfied with their direct manager were actively disengaged in the company, meaning they don’t care about their jobs and are failing to do their best work. On average, 26 percent of the American workforce is actively disengaged with their employment situation.
Unfortunately, disengaged employees might not leave and instead stay at your company for years, creating a toxic work environment and reducing productivity. These team members might realize they hate their jobs, but stick around because of the time invested in getting hired versus the costs of looking for a new position — known as the “sunk costs fallacy.” And it’s not just disengaged employees who think this way: the company has also invested time and money in their hires.
David Burkus, author of Under New Management, actually makes a case for paying disengaged employees to quit. “Companies that pay people to quit are acting rationally and ignoring sunk costs,” he writes. “They realize they can’t really head off a future problem by investing more time and money in someone who isn’t a good fit.”
The productivity to the company in replacing a poor employee outweighs the cost of the “quitting bonus.”
Disengaged employees can also drive up absenteeism in the workplace, though any employee that experiences conflict can find themselves suddenly coming down with a cold.
One study on absenteeism looked at more than 400 employees from six industries to analyze the work environment the day before they called in sick.
“We found that problems in relationships with colleagues and superiors were more frequent in the days just before sick leave than on other days,” researcher Hanna Hultin tells HeartMath. “Individuals with a minor ailment were more likely to report sick when they expected that the following workday would be particularly stressful.”
An employee might decide to escalate a minor cold into a major illness if their work environment has unresolved conflicts.
Increased Employee Turnover
Absenteeism might cost companies a few days, but turnover can cost businesses several weeks or months of lost productivity, especially if highly-motivated employees leave to find a healthier work environment.
Jack Altman, CEO of Lattice, reports the average cost of losing an employee is as much as twice the employee’s annual salary. These costs include hiring, onboarding, training, ramp time for peak productivity, and disengagement from other employees because of the loss. He developed and shared a spreadsheet with formulas to calculate the cost of turnover on an individual level for each employee lost.
HR experts worry about increasing turnover rates in the American economy. Dana Wilkie at SHRM shared survey data that one in three American employees hope to change jobs in the next six months. Along with factors like pay, career goals and work-life balance, conflict plays a significant role in driving employees to leave their positions:
42 percent of employees said they would leave their job if they had to play office politics (includes favoritism, nepotism or backstabbing).
25 percent said they would leave if they couldn’t get along with their supervisors and 14 percent of employees have actually left their jobs because of this reason.
28 percent of employees said they would rather have a better boss than a $5,000 raise.
Employee turnover is a part of management, but conflict resolution can save some employees from running out the door because they can’t stand the workplace.
Higher Risk of Lawsuits
Along with turnover costs, employers might face lawsuits if employees feel like the company isn’t taking the appropriate action to resolve conflict and treat their employees well.
“The reason people sue is often not rooted in money as much as the person does not feel they are being treated fairly,” Kelly VanBuskirk, lawyer and workplace dispute solutionist, says. “The employee may come to the conclusion they have no choice but to look outside the workplace for a solution.”
VanBuskirk says that if more employers focused on resolving conflicts clearly and fairly then they could reduce their risks for costly and unnecessary lawsuits.
In the worst case scenario, employee conflict will escalate to workplace violence and even death. According to the National Safety Council, two million American workers are victims of workplace violence each year. These violent attacks (both fatal and non-fatal) fall into four categories: criminal intent, customer/client, worker-on-worker and personal relationship.
Workplace violence is found across all industries, from government and education organizations to retail and hospitality. As the NSC says: “Almost every place is somebody's workplace.”
Disengaged employees might waste company time by playing on their phones or taking an unnecessary sick day, but an employee that feels their conflicts aren’t addressed or that they have been treated unfairly can lash out in ways that cause physical harm to others.
Types of Workplace Conflict
One of the main reasons that workplace conflict escalates or is left unchecked is because employers don’t know how to identify it. Conflict specialist Angelina Farrell at interMEDIATE explores the five main types of workplace conflict. They include:
Two leadership styles clashing within the office.
Work style differences.
Cultural-based conflict based on employee beliefs or backgrounds.
Personality clashes between co-workers or peers.
Interdependency-based conflict where one employee has to rely on another to complete their work.
Employees might experience one or several types of conflict around the same problem. Differences in work-style could lead to personality clashes or culture issues if they’re left unaddressed.
“The worst thing you can do is let these conflicts continue to fester,” Vikki Thomas writes at AccuAgency. “That time is wasted time.” Something that starts small could balloon into a major just because management hoped it would blow over.
Not All Conflict Is Obvious
Your organization likely suffers from productivity loss due to conflict — even if that conflict isn’t overt. Small issues can cause employees to disengage or quit when managers aren’t proactive.
Joseph Grenny, co-author of Crucial Conversations, says conflicts tend to simmer under the surface, when they’re not addressed by management. “One of the primary reasons people leave a company is because of some frustration that is chronic,” he writes.
Grenny found that 95 percent of people struggle with approaching colleagues and managers about their frustrations, preferring to keep the problem to themselves instead of making a fuss. And even in cases when managers address the situation, team members might not feel comfortable about speaking out or may try to downplay the situation.
“Many people hate confrontation and instead of going to someone directly and speaking plainly about a problem, they talk about the issue to others or behind backs,” Rob Wormley, co-founder of the computer software company Upgrade, writes.
“When faced with the opportunity to speak plainly to the person in question, they often put on a false face of everything being fine. This is especially so if they are dealing with upper management and fear job reprisals.”
Conflict shouldn’t be underestimated or pushed under the rug, even if it seems small from management’s perspective.
Employers Need Conflict Resolution Strategies In Place
Not all conflicts will result in employee turnover or a lawsuit, but they can create a slow burn of lost productivity and engagement problems when left unchecked. This is why it’s so shocking to some experts that companies don’t have strong conflict resolution strategies.
“[Conflict] seems to be something no one wants to think about, but then it happens and no one is really sure what to do,” Helen Collins, workplace resolution and productivity specialist, writes. “The importance of pre-emptive measures and processes to deal with conflict in the workplace seems to escape us.”
Even the best run companies and close-knit teams will experience conflict. Organizations that are prepared for conflict can reduce turnover and prevent other types of fallout through resolution, while those that aren’t will continue to lose money and manage a disengaged workforce.