What is the cost of conflict in your organization? I found an interesting
analytical tool presented by Daniel Dana, Ph.D. at his website
. I’ve added my own ideas too. Use this analysis to understand specifically
how conflict affects your bottom line.
Here’s an example:
The conflict: At Acme Biotech, two managers have fundamentally different
views of how people should be managed. One manager, Joe, is autocratic
and likes to use power. The other Adrian, has a more cooperative mode. They
work in the same division and must share employees. Turnover in their division
is 65%. They recently were involved in a divisional decision to upgrade
a laboratory for $150,000. It took ten weeks to make the decision and meetings
were acrimonious. As a result, two employees left in disgust. Joe and Adrian
are both highly qualified, important managers to the organization so senior
management finally restructured the division to keep them away from each
other. After the lab was installed, several incidents occurred between Joe’s
and Adrian’s subordinates resulting in some damaged equipment. Investigations
revealed apparent inadvertence and carelessness.
The analysis is subjective. You are not looking for precision, however.
Rather, your interest is in potential savings if conflict can be transformed
into positive peace.
Wasted time. Conflict wastes the time of anyone who is involved in
it. Surveys of managers shows that they spend between 30% and 45% of their
time dealing with conflict. We can roughly quantify the time wasted in
the conflict between Joe and Adrian by taking their salary and benefits
(let’s say $75,000 each) and multiplying by 30%. Let’s also say they’ve
been in conflict for 10 weeks (20% of the year). This is a subjective estimate,
but works for this analysis.
$150,000 x 30% x 20% = $10,000
Reduced decision quality. Conflict causes people to distort information
to their best advantage. In addition, Joe and Adrian were locked in a
power struggle that further contaminated the objective information needed
for clear decision making. How might this have affected the laboratory upgrade
decision? Again, we are estimating based on subjective evaluation, but let’s
assume poor decision making led to a decision that was 20% more costly than
it otherwise might have been.
$150,000 x 20% = $30,000
Loss of skilled employees. Generally, about 50 percent of all voluntary
departures are due to conflict, while 90 percent of all involuntary departures
are due to conflict. The cost of replacing an employee includes recruiting
costs, application and interviewing, and training. Let’s say that this
is 33% of the annual salary of an employee. Acme lost 2 employees due to
voluntary separation and each employee was paid $45,000 per year. The cost
of the conflict in this category might be:
2 x $45,000 x 33% x 50% =$14,850
Restructuring due to conflict. Senior management decided that the
way to solve the conflict between Joe and Adrian was to restructure the operations
so they would not have to work together. This is a common solution, but
has costs. Let’s assume that the restructuring caused an efficiency loss
of 10% of the combined salaries of Joe and Adrian. If you wanted more precision,
you might take 10 percent of the salaries of all of the affected employees.
We will be conservative, however.
$150,000 x 10% = $15,000
Damage to property—sabotage or carelessness? A direct correlation
exists between conflict and lost, stolen or damaged property. Most of the
cost is hidden as "accidental" or "inadvertent," but is certainly greater
than most managers realize. Let’s assume that inventory and equipment losses
due to conflict amount to 10% of the value of the equipment. In this case,
we have a new laboratory worth $150,000 that was the center of a storm.
Later incidents caused some losses.
$150,000 x 10% = $15,000
Lowered job motivation. Conflicts of the type between Joe and Adrian
obviously affect employee motivation. For the period of this conflict, 10
weeks, 6 employees were affected. If we use their salaries as a basis for
measuring productivity and we assume a 10% erosion in motivation due to
the conflict, we obtain:
6 x $45,000 x 20% (10 weeks/52 weeks) x 10% = $5,400
Already we’re at $90,000 for this single, ten week conflict between two
managers. Even if we are 25% percent off of our estimates, we are still
over $65,000 in hidden losses. We still have not accounted for the other
losses attributable to this conflict: lost work time; and increased health
costs due to the stress of the conflict.
If your organization has more than 50 employees, you know you have conflict
that is affecting your bottom line. If you are in a smaller company, the
hidden cost of conflict could be an even greater percentage of your total
My point should be clear. Unmanaged and unresolved conflict is costly
to a company’s bottom line. This is why positive peacemaking is eminently
sensible to even the most buttoned-down CFO-it saves money.
The Way of the Peacemaker: Conflict costs money and directly affects
the bottom line. Peacemaking, on the other hand, is not only right, it’s
Douglas E. Noll, Esq. is a lawyer specializing in peacemaking and mediation
of difficult and intractable conflicts throughout California. His firm,
Douglas E. Noll and Associates is based in Central California. He may
be reached through his website
and email at firstname.lastname@example.org