The Hidden Costs of Workplace Conflict

As Dr. Dan Dana of the Dana Mediation Institute points out, workplace conflict follows a predictable, retaliatory path when two or more task interdependent employees find fault with the other and utilize perceptions and behaviors that end up causing a business problem. Dana estimates that 65% of all employee performance problems are due to bad relationships, not bad employees. Ask yourself as a manager who has a conflict with a fellow employee…do you regularly speak more or less to that person during the business day? If less, what effect does that have on business productivity?

Rather than treat the cost of conflict as a strategic line-item entry on the annual budget, most organizations are simply unprepared to acknowledge, let alone quantify, the real costs of workplace conflict.

Fact is, most executives simply ignore conflict as they do not have the tools and/or mechanisms to deal with it. But once such costs are calculated and brought to management’s attention, it can be an eye-opening, if not startling experience. Surveys by The Center for Creative Leadership and Eckerd College in St. Petersburg, Florida indicate that managers spend between 20 and 40 percent of their time dealing with conflict. As we shall see, the cost of such conflict in both human terms and organizational profitability can be dramatic.

As Dana explains, various indirect factors go into calculating the real (hidden) costs of workplace conflict. In addition to wasted time and opportunity costs, employees impacted by conflict have lowered job performance, motivation and productivity. Conflict can lead to absenteeism, vandalism, degraded decisional quality and often, a loss of investment in a skilled employee that suffers from the “I don’t care anymore” attitude. Often, conflict can lead to false whistleblowing allegations, lawsuits and of course, employees leaving the organization for other opportunities.

In addition, the direct costs of conflict are generally observable, measurable and accrue over time. Let’s take the following example of the cost of losing a single mid-level employee due to conflict within a hypothetical organization, applying the Dana Cost Calculator from figures generated by HR Magazine in February 2003: 1) employee’s annual salary: $80,000; 2) multiply by 1.4 (140%) as the investment you have in the employee: $112,000; 3) multiply by 1.5 (150%) as the cost of replacing the employee: $168,000; 4) multiply by .6 (60%) average role of conflict in voluntary terminations: $100,800. Now, multiply times the number of voluntary terminations in your organization annually. Say you have a 10% turnover rate in a company of 100 employees that’s 10 employees. 10 X $100,800 = $1,008,000.

The Hidden Costs of Workplace Conflict

by Steve McGuire