New Employee Ramp Up Costs – How to Improve the Experience
Ramping up at a new company can be frustrating for a new employee. It's also a large cost for companies. Learn how to reduce that expensive tax.
Every company deals with the cost of ramping up new hires.
New hires spend months of time as a drain on company resources. They complete work slower than existing hires, they require training from current employees, and tend to make frequent mistakes. Even worse, too often new hires drain these resources, and then quit (or are fired) because they fail to become effective quickly enough.
Much of this cost is our fault. New employees don't know who knows the right answers to their questions. Our work systems are designed to support business workflows, not ease of use. There are often a variety of industry tools and homegrown systems to be learned.
Particularly with high turnover and attrition, there's a considerable opportunity for companies if they can reduce the effective ramp time for new employees.
Ramp up time calculations
First, we need to establish a baseline of employee ramp up time.
A ramp up is the difference between your potential effectiveness, and your actual effectiveness.
Picture two employees with equivalent skills. They're both similarly intelligent, similar backgrounds, similar curiosity, similar social skills.
Employee A has been at a company 5 years. They know the internal systems like the back of their hand.
Employee B has been at the company one day.
Employee A can deliver 100% of their potential effectiveness. They're capable of delivering their full abilities into their work product.
Employee B can deliver close to 0% of their potential effectiveness. Even if they have equivalent potential as Employee A, they have large gaps in their ability to deliver value. A simple example is not knowing how the deployment process works for getting code into production. A complex example is not understanding which co-workers should be involved in getting permission for making a complex functionality change.
Now we need to determine the time it takes to get from 0% effectiveness to 100% effectiveness.
I'm sure it's not a straight line of effectiveness. You gain a lot of knowledge in the first few weeks. Yet, the time it takes to reach peak effectiveness can vary widely.
Scenario 1. Imagine an employee moves from Company A to Company B. Company B has the same tools and setup as Company A. The technology is similar, with different names.
I could believe a three-month ramp time before the employee is contributing at close to 100% effectiveness. As the employee looks around, systems will seem familiar. They will learn quickly. They won't need to unlearn much. It still takes a breadth of experience with various processes before they're comfortable enough to complete their work at full speed.
Scenario 2. Now imagine Company C to Company D. A wholly different tech stack, with unfamiliar coding languages, and a unique build system. To complicate matters, it's a different industry.
I could easily believe a year's ramp time before the employee is contributing at close to 100% effectiveness.
I think that the move from Company C to Company D is closer to reality for most people. Companies rarely imitate each other internally. You can contribute a net positive in a few months, you are somewhat effective 6 months in, but I believe you're still ramping up for a year.
When I've had this discussion at Amazon, I've heard people argue that they've seen employees ramp up in a few months. In my experience, that's generally a poor estimation of someone's potential. If you zoom forward six months with the same employee, they've become significantly more effective. That's not general skill development in a short period of time, it's growth in the ability for the employee to deliver as they complete their ramp up.
Now that we've established the ramp time, we need to talk about the cost. If you look at the graph above, that's the white space above those lines.
Ramp up costs
What is a ramp up cost? It's the gap between what you're paying for (potential) and what you're getting (reality). It also should include the cost of other employees helping the new employee.
For a new employee, perhaps they don't know the coding language the company prefers. Perhaps they don't know whom to talk to for permission to do something. This specific type of cost slowly disappears as a person works at a company, until project-specific challenges dominate how they spend their time, not on learning missing knowledge.
Employees frequently dismiss ramp up costs as an inevitable cost of doing business. They call it a one-time cost, imagining the cost as a single small cost for an employee.
Look at the median (not average) tenure of an employee. From looking around the internet at available statistics (and considering anecdotal evidence), I'm going to use the number of 2.5 years for software engineers. That is conservative, as many references for 2 or shorter years of median tenure can be found.
What is the ramp up cost? Let's use my graph as a straw man argument for how much a ramp up cost can be.
For an employee at Company B, the space above the line is approximately 1.2 months.
For Company B, that space is approximately 2.7 months.
You could figure out the cash cost by figuring out the total compensation of an employee over those months.
Yet, it feels worse at scale.
If you assume the median employee tenure is 2.5 years, your costs should be compared to tenure, rather than a flat cost.
At Company B, your continual cost is 4% of your employee budget.
At Company D, your continual cost is 9% of your employee budget.
This is conservative. The actual number is likely higher.
It assumes your median employee sticks around for 2.5 years. If you have high turnover or hiring rates, you could see significantly higher costs.
It doesn't include the cost to co-workers of new hires, who answer questions and explain things.
It doesn't include the increased error rates of new hires (more likely to make mistakes), or their work which sometimes needs to be fixed by existing hires.
It doesn't include the increased attrition for new hires who struggle to ramp up. If it's challenging for a new hire to become effective at a company, it is more likely that you'll have to hire their replacement soon.
I believe the above data suggests a continual cost to companies of well over 10% of their employee budget, strictly for getting new hires ramped up.
Inevitable cost of doing business?
While ramping up is a large part of your employee budget, is it unavoidable? Is it impossible to mitigate?
The default way of ramping up is the sink or swim method. You drop a new hire on a team, and give them some (easy) work.
They figure their way through systems by reading internal wikis, asking questions of co-workers sitting near them, and muddle their way through things. Some people ramp up well, and are effective relatively soon. Some people hate the experience, or struggle to figure things out effectively. Those employees are more likely to churn out of the company.
This approach is particularly an issue with remote work, as ad-hoc collaboration and learning can be harder. With reduced interactions, new employees are more likely to struggle with their ramp up.
There are two major areas for improvement where your company / organization / team can make it easier for new hires to ramp up.
You can make it easier for new-hires to get information from their co-workers, and you can reduce the amount of ramp up necessary to be effective.