Attrition is the key indicator of the health for your outsourcing contract. Outsourced providers like to keep this in check, for their own benefit and for the health of their contract or relationship, however the tendency to camouflage the metrics and downplay the hidden cost to client is high. If this percentage is more than 20% it is an unhealthy sign, you are possibly losing out on efficiencies and cost savings. Up to 5% is considered the best while an average of around 10% is still acceptable depending on the size of your outsourcing resource pool.

Circumstances beyond the control of outsourced providers play into this. It was pretty bad before the recession began couple of years ago. When the job market is scorching hot the tendency to jump ship is very high among the technology resources. The ability to increase your pay packet is the immediate driver, other key reasons are to seek promotions from their existing roles, change skill set from legacy to newer technologies, cut the commute to work, poor reviews, morale or motivation, moving from smaller lesser known firms to bigger ones and look for opportunities to move to client site. There are few more reasons that actively encourage attrition from the resources perspective – poor management, lack of direction at team level, odd working hours, increased work load, unrealistic timelines, poor pay and benefits etc. Personal reasons like moving from one city to another to join spouses, marriage, medical and family reasons also play a smaller part.

The last few years have been a golden period when attrition got itself under some control thanks to global recession and slow down. This meant lesser positions being created which cut down recruitment. Bench strength was being cleared to make sure there were not carrying non billable resources beyond their tolerance. The existing resources even those that were talented were afraid to move out from their existing jobs fearing risk factors and playing the wait and watch game. Major IT players joining forces on this subject meant sharing information on experienced resources and discouraging recruitment of resources that had too many career moves on their resume.

Calculating the true cost of attrition is often a difficult exercise, many clients choose to ignore often and just ask the provider to bring it down via a few escalations or stern notice. Most often the IT outsourced providers respond with few measures only to go back when the memory fades.

Any calculation of true attrition cost involves looking at loss of your resource time that was spent prior and being duplicated every time a new resources joins, the knowledge transition time to bring the resources up to the same levels or anywhere close to where the former resource left, loss of time spent in training on the project or assignment, disruption to normal work, loss of valuable time when replacements are not worthy or qualified enough, impact on quality and loss of efficiencies are major factors. it is easy to factor when projects slip due to attrition based on the hourly cost and the cost benefit analysis for the project based on number of days slipped. Time spent on specific training be it technology or subject matter expertise, training via external vendor are all to be factored while calculating.

Also watch out for manufactured attrition, when there is a tendency to move people out to bring down their costs. I have been witness of atleast couple of instances where the outsourced provider discovered their margins were at stake and slowly allowed senior resources to move out and brought in fresh graduates to drop costs. At times moving from particular location to consolidate operations to reduce cost for providers also is one of the reasons for attrition from provider side.

As a best practice it is advisable to have the provider maintain a dashboard to show attrition numbers and at the client end maintain a template / report with key factors to calculate the true cost and publish every month and review at the appropriate forums at a regular cadence. It is equally important to align with the definition of attrition on both sides. The tendency to keep certain reasons mentioned above out of the purview of attrition to keep the numbers low needs to be avoided. For the client any loss of resources other than those originating from the client is an attrition – simple enough.