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3 min read

Background Screening ROI for 2020 Planning

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Business leaders are always eager to measure return on investment (ROI) for every aspect of their business. From marketing spend to office supplies, they want to know that every cost is producing a positive return. Proving ROI can be challenging for HR professionals who deal with the business of people. But it turns out, one of the most cost-effective processes in your entire organization might be your background screening program. 

With organizations focusing on a 2020 vision, strategies for the new year have a keen focus on what works and what doesn’t. You can help keep your HR programs like background screening in the vision for future business objectives by demonstrating its value. 

Like many risk reduction and safety initiatives, the payoff of background screening is intangible in some ways, but costly and devastating if not addressed. With the potential to save your organizations millions, background checks produce strong ROI in several ways. To help you demonstrate value during year-end planning, here’s a look at the costs and potential savings surrounding background checks, as well as some resources and tips for calculating the ROI of your background check program.

Hard and soft costs

The first step in determining ROI is always to quantify your costs. To do that, you’ll need to look at both the hard and soft costs associated with your background screening program.

Your hard costs are what you pay directly for your background checks. All you need to do is look at your monthly invoice from your screening provider.

Your soft costs are often baked into your process or the way your team handles background check orders. These include the time to follow up on each candidate’s report, pull and track reports, monitor billing, and screening metrics, and more. While these may be more difficult to establish, they also allow the most significant opportunity for saving costs, especially when it comes to implementing smart workflow tools.

Opportunities for cost savings

Workflow cost savings, while important, are only one of the ways you might reduce overarching costs with background checks. The main areas where you can expect your background screening package to pay off include:

  • Preventing fraudulent activity
  • Mitigating risk
  • Reducing bad hires
  • Workflow efficiencies

Let’s dive deeper into each of these areas to see precisely how background checks can produce reliable results for your organization.

Preventing fraud

Background checks could potentially be one line of defense in stopping would-be thieves and other bad actors from harming your company, financially or otherwise. Fraud prevention is a crucial part of that defense.

Occupational fraud includes corruption, asset misappropriation, and fraudulent statements. According to a 2018 Association of Certified Fraud Examiners (ACFE) report, companies that experienced occupational fraud had a median loss of $130K. By identifying issues that could point to a potential history of fraudulent activity, background checks could help you avoid these costs.

Avoiding negligent hiring lawsuits

At their core, background checks may help mitigate risk for your organization. That includes the potential of helping prevent catastrophic events like workplace violence, and inappropriate employee actions or behavior related to their work. Should something happen, failing to conduct thorough pre-employment background checks could lead to costly negligent hiring lawsuits. A review of a sample of negligent hiring cases over the past 10 years revealed that the median cost of negligent hiring lawsuits is $1.2 million in settlements or judgments.  When you compare that large number associated with a potential negligent hiring lawsuit to the hard cost investment of a background screening program there’s the possibility of a great deal of savings.

Reducing bad hires

Many companies use academic and employment verifications to check the qualifications, often a key indicator that they place the right people for their team. Along with employment reference checks, some organizations use professional verifications as a central tool for avoiding bad hires and the costs associated with them.

Those costs include salary, days the position is left vacant and unproductive, hours it takes to review resumes, interview candidates, fees to advertise the job listing, costs to screen and train, and more.

According to the U.S. Department of Labor, the cumulative cost of a bad hire can be as much as 30% of that position’s salary. Using background checks as one of your assessment tools to identify steady, reliable, and qualified candidates can help put a cap on some of those setbacks.

Workflow savings

The way you manage background checks matters. Your entire HR department incurs productivity costs (the hourly rate of employees multiplied by the time it takes to complete tasks) throughout the hiring process. But you might reduce these costs by optimizing your screening processes.

For example, using integrated systems can cut down on redundant data entry. Applicant tracking systems can decrease the time it takes to complete the background check order, thanks to less unnecessary data collection.

Likewise, other workflow tools like report scoring can reduce the time it takes to review background screening results.

As you think about how to achieve a strong ROI for your background checks, consider how your background screening processes are impacting costs for your department and what tools might be available to cut down on manual tasks.

Calculating background screening ROI

The exact dollar value of your background screening program will vary based on your company size, hiring practices, and various costs.

It’s clear that background checks can produce an incredible ROI that brings real value to your organization. Don’t walk into the new year without clearly defining the value of your HR programs and what they bring to the 2020 vision. To help you determine your potential background screening ROI, and present the value of your program to stakeholders, download Verified Credentials’ worksheet.

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