University of Gondar

Faculity of Business and Economics

Master of Business Administration (MBA)

Research Proposal
On

The Causes, Extent and Management of Employee

Turnover in the case Office of the Auditor
General, Amahara Region

By
Abraham Zewdie

Submitted to- Tariku Jebena (Mrs)

September, 2011
Gondar, Ethiopia
 CHAPTER ONE
INTRODUCTION

1.1Background of the Study

Labour turnover is an important and pervasive feature of the labour market. It affects both
workers and the firms. Workers experience disruption, the need to learn new job-specific skills and find
different career prospects. Firms suffer the loss of job-specific skills, disruption in production and incur
the costs of hiring and training new workers (Martin, 2003). Consequently, employee turnover in
organizations has received substantial attention from both academics and managers.

Much of this attention has been focused on understanding its causes. Implicit in this approach is
the assumption that turnover is driven by certain identifiable characteristics of workers, tasks,
firms, and markets, and that, by developing policies to address these characteristics, managers
might reduce the occurrence of turnover in their respective organizations.

Employee turnover can involve substantial costs, only some of which may be readily apparent to
the organization. Most obviously, the organization probably has major recruitment, selection,
and training costs associated with hiring replacement employees. When a company replaces a
worker, the company incurs direct and indirect expenses. These expenses include the cost of
advertising, headhunting fees, human resource costs, loss of productivity, new hire training, and
customer retention -- all of which can add up to anywhere from 30 to 200 percent of a single
employee's annual wages or salary, depending on the industry and the job role being filled
(Clark-Rayner and Harcourt ,2000).

Most companies find that employee turnover is reduced when they address issues that affect
overall company morale viz., by offering employees benefits such as reasonable flexibility with
work and family balance, performance reviews, and performance based incentives, along with
traditional benefits such as paid holidays or sick days. The extent a company will go to in order
to retain employees depends not only on employee replacement costs, but also on
overall company performance. If a company is not getting the performance it is paying for,
replacement cost is a small price to pay in the long run.

This paper, therefore, will try to assess the causes, extents and management of employee
turnover in particular reference with the office of the Auditor General of the Amhara National
Regional State (ANRS) and will search different ways that reduces employee turnover in the
office.

1.2 Statement of the Problem

Employees are one of the resources that organizations need to manage effectively to survive.
Employees are not "owned" by organization like any other asset and as such labour turnover is a
reality for organizations. At the country level, the situation is aggravated by the rate of brain
drain (Werbel et al, 1989).

Several studies suggest that turnover decreases operating performance. Much of this negative
effect stems from the direct costs of turnover, such as those involved with severance and the
recruitment and training of new employees (Staw, 1980).

In addition, turnover has been associated with several indirect costs. First, firms may experience
operational disruption (Staw 1980, Mobley 1982) following the departure of key employees.
This could be due to either the loss of the firm-specific human capital that resides in departing
employees or the loss of the social capital embedded in workers’ relationships to each other and
the organization. A second source of indirect costs is the demoralization of employees who
remain with a firm (Staw 1980, Steers and Mowday 1984, Mobley 1982). This demoralization
may be due to the loss of a respected colleague or the fact that turnover may require additional
work to be absorbed by remaining employees whose capacity is already stretched (Mowday,
1984).

As noted by several observers, however, the consequences of turnover have received

significantly less attention from researchers. Thus, high employee turnover has become a
problem for government institutions. Well experienced and qualified professionals leave position
they held in government offices. Office of Auditor General of the ANRS is one of the victims of
this high labour turnover. Currently the office is facing a frequent turnover of staff, and as such
the high turnover is costing the office in terms of productivity, money and time.

1.3 Objectives of the Study

1.3.1 General Objective

The principal objective of this study will be assessing the causes, extents and management of
employee turnover in particular reference with the office of the Auditor General of the ANRS
and showing the ways that reduces employee turnover in the office.

1.3.2 Specific Objectives

In light of the aforementioned general objectives, the study will focus on the following specific
objectives.
 To investigate what are the causes for the employee turnover in the study area.
 To examine how much the extent and its consequences of the employee turnover in the
office.
 To study how to reduce turnover and increase employee retention in the Office.
 To generate possible solutions or strategies that could reduce employee turnover in the
office.

1.4 Scope of the Study

 Geographically, the study will be very much focused on ANRS Office of the auditor
General and address voluntary turnover only. Therefore, the study is bounded with particular
emphasis on the causes, extent and management of Employee turnover on the office. While
conceptually, the paper focuses on the issues directly dealing with the causes and extent and
also how to reduce turnover and increase employee retention in the Office.

1.5 Significance of the study

The ultimate goal of this study will be to assess the causes, extent and management of employee
turnover in the office of the Auditor General in Amhara region. The study will expect to assist
the office in adopting their human resource management policies and guidelines that are
favorable to the satisfaction of the employee in particular and the regional office in general.
Moreover, the study will provide the necessary information for planners and policy makers to
understand the prevailing situations and take appropriate measures to solve operational and
policy problems that hindered the development of the sector. It will further play vital role in
filling the knowledge gap on the sub sector’s, particularly in Ethiopia where the relevant
literatures on employee turnover is very limited. In addition, the paper will serve as a reference
material for further research in the region and elsewhere the country.

1.6Problem and Limitation of the Study

The major limitation of the study will be the difficulty in finding the ex-employees of the office which
forced the study to depend on a few number of ex-employees. The sample size being small, it will not be
a true representative sample. There are also little studies that have been conducted in Ethiopia on the topic
of labour turnover particularly in government institutions.
Chapter two

2. REVIEW OF RELATED LITERATURE

2.1 Definition

Employees’ turnover is a much studied phenomenon Shaw et al. (1998).But there is no standard
reason why people leave organization. Employee turnover is the rotation of workers around the
labour market; between firms, jobs and occupations; and between the states of employment and
unemployment
Abassi et al.,(2000). The term “turnover” is defined by Price (1977) as: the ratio of the number of
organizational members who have left during the period being considered divided by the average
number of people in that organization during the period.

2.2 What is Employee Turnover?

Employee turnover is a ratio comparison of the number of employees a company must replace in
a given time period to the average number of total employees. A huge concern to most
companies, employee turnover is a costly expense especially in lower paying job roles, for which
the employee turnover rate is highest. Many factors play a role in the employee turnover rate of
any company, and these can stem from both the employer and the employees. Wages, company
benefits, employee attendance, and job performance are all factors that play a significant role in
employee turnover.
Companies take a deep interest in their employee turnover rate because it is a costly part of doing
business. When a company must replace a worker, the company incurs direct and indirect
expenses. These expenses include the cost of advertising, headhunting fees, human resource
costs, loss of productivity, new hire training, and customer retention -- all of which can add up to
anywhere from 30 to 200 percent of a single employee's annual wages or salary, depending on
the industry and the job role being filled(Beam,2011)

2.3 Strategies to minimize employee turnover

Strategies on how to minimize employee turnover, confronted with problems of employee

turnover, management has several policy options viz. changing (or improving existing) policies
towards recruitment, selection, induction, training, job design and wage payment. Policy choice,
however, must be appropriate to the precise diagnosis of the problem. Equally, employee
turnover attributable to wage rates which produce earnings that are not competitive with other
firms in the local labour market is unlikely to decrease were the policy adjustment merely to
enhance the organization’s provision of on-the job training opportunities. Given that there is
increase indirect and indirect costs of labour turnover, therefore, management are frequently
exhorted to identify the reasons why people leave organization’s so that appropriate action is
taken by the management. The organization’s capacity to engage, retain, and optimize the value
of its employees hinges on how well jobs are designed, how employees' time is used, and the
commitment and support that is shown to employees by the management would motivate
employees to stay in organization’s..Knowledge accessibility, the extent of the organization’s
“collaborativeness” and its capacity for making knowledge and ideas widely available to
employees, would make employees to stay in the organization (Ongori, 2007).

2.4 Voluntarily vs. involuntary turnover

There are some factors that are, in part, beyond the control of management, such as
the death or incapacity of a member of staff. Other factors have been classed as
involuntary turnover in the past such as the need to provide care for children or aged
relatives. Today such factors should not be seen as involuntary turnover as both
government regulation and company policies create the chance for such staff to
come back to work, or to continue to work on a more flexible basis Simon et al.
(2007).

2.5 Costs of Turnover

Analyses of the costs associated with turnover yield surprisingly high estimates. The high cost of
losing key employees has long been recognized. However, it is important for organizations to
understand that general turnover rates in the workforce can also have a serious impact on an
organization's profitability, and even survival. There are a number of costs incurred as a result of
employee turnover. These costs are derived from a number of different sources, a few of which
are listed below (Hom & Gaertner, 2000).

1. Recruitment of replacements, including administrative expenses, advertising, screening

and interviewing, and services associated with selection, such as security checks,
processing of references, and, possibly, psychological testing.
2. Administrative hiring costs.
3. Lost productivity associated with the interim period before a replacement can be placed
on the job.
4. Lost productivity due to the time required for a new worker to get up to speed on the job.
5. Lost productivity associated with the time that coworkers must spend away from their
work to help a new worker.
 6. Costs of training, including supervisory and coworker time spent in formal training, as
well as the time that the worker in training must spend off the job.
7. Costs associated with the period prior to voluntary termination when workers tend to be
less productive.
8. In some cases costs associated with the communication of proprietary trade secrets,
procedures, and skills to competitive organizations.
9. Public relations costs associated with having a large number of voluntary or involuntary
terminations in the community spreading gossip about the organization.
10. Increased unemployment insurance costs.

Moreover, a recent Business Week study estimated that the replacement costs alone are over
$10,000 for about half of all jobs and approximately $30,000 for all jobs. These estimates
highlight the considerable costs that can be associated with turnover (Bernstein, 1998).

2.6 The Causes of Turnover

There are a number of factors that contribute to employee turnover. We explore some of these
factors in more detail below (Maertz & Campion, 1998; Meyer et al., 2001)

1. The economy - in exit interviews one of the most common reasons given for leaving is
the availability of higher paying jobs. Some minimum wage workers report leaving one
job for another that pays only 50 cents an hour more. Obviously, in a better economy the
availability of alternative jobs plays a role in turnover, but this tends to be overstated in
exit interviews.
2. The performance of the organization - an organization perceived to be in economic
difficulty will also raise the specter of impending layoffs. Workers believe that it is
rational to seek other employment.
3. The organizational culture - much has been written about organizational culture. It is
sufficient to note here that the reward system, the strength of leadership, the ability of the
organizations to elicit a sense of commitment on the part of workers, and its development
of a sense of shared goals, among other factors, will influence such indices of job
satisfaction as turnover intentions and turnover rate.
 4. The characteristics of the job - some jobs are intrinsically more attractive than others. A
job's attractiveness will be affected by many characteristics, including its repetitiveness,
challenge, danger, perceived importance, and capacity to elicit a sense of
accomplishment. A job's status is also important, as are many other factors.
5. Unrealistic expectations - Another factor is the unrealistic expectations and general
lacks of knowledge that many job applicants have about the job at the time that they
receive an offer. When these unrealistic expectations are not realized, the worker
becomes disillusioned and decides to quit.
6. Demographics - empirical studies have demonstrated that turnover is associated in
particular situations with demographic and biographical characteristics of workers. But to
use lifestyle factors (e.g. smoking) or past employment history (e.g. many job changes) as
an explicit basis for screening applicants, it is important for legality and fairness to job
applicants to verify such biodata empirically.
7. The person - In addition to the factors listed above, there are also factors specific to the
individual that can influence turnover rates. These include both personal and trait-based
factors. Personal factors include things such as changes in family situation, a desire to
learn a new skill or trade, or an unsolicited job offer. In addition to these personal factors,
there are also trait-based or personality features that are associated with turnover. These
traits are some of the same characteristics that predict job performance and
counterproductive behaviors such as loafing, absenteeism, theft, substance abuse on the
job, and sabotage of employer's equipment or production. These traits can be measured
and used in employee screening to identify individuals showing lower probability of
turnover.

It is important to note that the factors we've listed above can be classified as being within or
beyond the control of the employing organization. In order to actively participate in reducing
costs associated with turnover, organizations need to identify those factors over which they do
have some control and initiate necessary changes to reduce turnover attributable to these
"controllable" factors.

2.7 Effects of Employee Turnover

Employee turnover is expensive from the view of the organization. Voluntary quits which
represents an exodus of human capital investment from organizations and the subsequent
replacement process entails manifold costs to the organizations. These replacement costs include
for example, search of the external labour market for a possible substitute, selection between
competing substitutes, induction of the chosen substitute, and formal and informal training of the
substitute until he or she attains performance levels equivalent to the individual who quit.
Addition to these replacement costs, output would be affected to some extend or output would be
maintained at the cost of overtime payment (John, 2000).

The reason so much attention has been paid to the issue of turnover is because turnover has some
significant effects on organizations. Many researchers argue that high turnover rates might have
negative effects on the profitability of organizations if not managed properly (Hogan, 1992).
Nearly twenty years ago the direct and indirect cost of a single line employee quitting was
between $ 1400 and $4000 (Hogan, 1992). Turnover has many hidden or invisible costs and
these invisible costs are result of incoming employees, co-workers closely associated with
incoming employees, co-workers closely associated with departing employees and position being
filled while vacant. And all these affect the profitability of the organization. On the other hand
turnover affects on customer service and satisfaction (Kemal et al., 2002).

Catherine (2002) argue that turnover include other costs, such as lost productivity, lost sales, and
management’s time, estimate the turnover costs of an hourly employee to be $3,000 to $10,000
each. This clearly demonstrates that turnover affects the profitability of the organization and if
it’s not managed properly it would have the negative effect on the profit.

Research estimates indicate that hiring and training a replacement worker for a lost employee
costs approximately 50 percent of the worker’s annual salary (Johnson et al., 2000) – but the
costs do not stop there. Each time an employee leaves the firm, we presume that productivity
drops due to the learning curve involved in understanding the job and the organization.
Furthermore, the loss of intellectual capital adds to this cost, since not only do organizations lose
the human capital and relational capital of the departing employee, but also competitors are
potentially gaining these assets (Meaghan et al., 2002).
Therefore, if employee turnover is not managed properly it would affect the organization
adversely in terms of personnel costs and in the long run it would affect its liquidity position.
However, voluntary turnover incurs significant cost, both in terms of direct costs (replacement,
recruitment and selection, temporary staff, management time), and also (and perhaps more
significantly) in terms of indirect costs (morale, pressure on remaining staff, costs of learning,
product/service quality, organizational memory) and the loss of social capital (Dess et al., 2001).

2.8 Reducing Employee Turnover

Fitz-enz (1997) stated that the average company loses approximately $1 million with every 10
managerial and professional employees who leave the organization. The combined direct and
indirect costs associated with one employee ranges from a minimum of one year’s pay and
benefits to a maximum of two years’ pay and benefits. Thus, there is significant economic
impact when an organization loses any of its critical employees, especially given the knowledge
that is lost with the employee’s departure.

Differentiating avoidable and unavoidable turnover (from the organization’s point of view) can
help organizations to understand voluntary turnover more fully. Avoidable reasons include
employees leaving to find better pay or working conditions elsewhere, problems with
management or leaving for better career opportunities. Unavoidable reasons - which are beyond
the organization’s control - include, for example, an employee having to move because of
relocation by a spouse or leaving to fulfill family or caring responsibilities.

If an organization can identify that much of its voluntary turnover is unavoidable it may profit
better from initiatives that seek to manage turnover after the event rather than expend resources
on implementing preventative measures. On the other hand, if the bulk of turnover is avoidable
this offers the potential for targeted intervention. However, if managers assume the turnover
problem to be largely unavoidable, they may fail to recognize turnover as a symptom of
underlying problems within the organization.
It is clear that the general features of any potential human resource program contribute to
good retention. Most of these are directly related to creating a satisfactory work environment
for employees and thus, in turn, to good retention. These features or ‘motivators’ include:
(Lochhead and Stephens, 2004)
A stimulating work environment that makes effective use of people’s skills and
knowledge, allow them a degree of autonomy on the job, provides an avenue for them
to contribute ideas, and allow them to see how their own contribution influence the
company’s well-being.
Opportunities for learning and skills development and consequent advancements in
job responsibilities.
Effective communications, including channels for open, two-way communication,
employee participation in decisions that affect them, an understanding of what is
happening in the organization and an understanding of the employer’s main business
concerns.
Good compensation and adequate, flexible benefit plans.
Recognition on the part of the employer that employees need to strike a good balance
between their lives at work and outside of work.
CHAPTERTHREE
Research Design/ Methodology

3.1 Study Design

In this study, cross-sectional (with regard to the number of contacts with the study population),
retrospective (since the topic causes, extent & mgt of employee turn over is most likely deals
with past phenomena) and non experimental (since it is social science research) study design will
be used.
3.2 Setting/back ground of the office
Amhara national regional state office of the auditor general is found at bahirdar town that is
570 km far away from Addis Ababa, the capital city of Ethiopia .The office is performing the
audit work among 700 audited entities through out the region by the mandate provided by
proclamation no.98/1996 article 20&21.Asaresult the office is responsible for safeguarding
the assets and properties of the region in particular. The office has three core business
processes (audit, training &certification, and Public relation) and four supportive business
processes (Human resource development, procurement &finance, internal audit &information
communication technology.) the administrative structure of the office is as

3.3Types and sources of Data /Measurement procedures

The types of data that will be employed are both primary and secondary data. Accordingly, the
researcher will collect primary data from selected respondents such as employees who resigned
from the office, Personnel Administration Manager, and employees currently working in the
office.

The main sources of secondary data for the study will be various types of documents and reports
of the office. Moreover, secondary data will be obtained from various sources such as from,
relevant document, reports, books, web based materials, published and unpublished materials,
journals, policy documents, previous researches and others. This type of data collection
reinforced data collected from the primary data and it provided additional information
unrevealed in the primary data collection method.
3.4 Sample Design

Stratified sampling technique will be used to select samples from the existing employees of the
office where the strata will be Procurement &Finance Business process, the audit core business
process, internal audit supportive business process, Human Resource Development supportive
Business process, Public relation core business process, training &certification core business
process& information communication technology (ICT) supportive business process. From each
stratum 152 from the audit core business process, from Procurement &Finance and Human
Resource Development supportive Business processes 10 for each and for each other business
processes 4 respondents will be taken. Thus, the total sample size will be 188

3.5 Method of Data Collection

In this study, questionnaires and interview will be used as primary data collection method. Two
different questioners will be designed. The first questionnaire will be for those employees who
resigned from the office to elicit information with regard to what made them resign. The second
questionnaire will be for those employees who are currently working in the office to obtain their
opinion about their employment and intention of leaving the office.

3.6Method of Data Analysis

The collected information from both primary and secondary sources will be analyzed and
presented using quantitative and qualitative approaches. Descriptive statistics like, percentages,
ratios, figures, tables, charts and the like are the major data presentation tools, and the collected
data will be processed using MS- Excel software.

3.7 Structure of the report

This paper will have six chapters. The first chapter will deals with background information,
statement of the problem, objective of the study, significance of the study, scope and limitation
of the study. The second chapter will discuss concepts and theories related to the area of study.
The third chapter will deals with background information about ANRS office of the Auditor
General .The fourth chapter will discuss data presentation, analysis and interpretation .The fifth
chapter will deals with results/ findings and discussion. The last chapter will makes summary,
conclusions and recommendations.

3.8Work schedule and financial budget

3.8.1Time Budget
It is expected that, starting from reviewing important literatures until the final stage of reporting
the paper, five months will be required. The detail is presented below.

S. N. Activity Time in Month

October November December January February
1. literature review

2. Data collection
3. Data processing
4. Data analyzing
5. Interpreting the
results and Report
writings

6. Editing and
Binding the report

3.8.2Cost Budget

To undertake this study a total of birr 3093.75 will be needed. The detail is shown below.

S.N. Material/activity Quantity Unit price Total price

1. Stationary
Paper 4 Pack 75.00 300.00
Pen 2 10 Number 2.75 27.50
Fixer 3 Number 15.00 45.00
Writing pad 2 Number 20.00 40.00
RW CD 10 Number 20.00 200.00
Total 312.50
 2. Supportive Services
Secretarial Services 100 Pages 4.00 400.00
Internet sevices 100 Hours 18.00 1800.00
Photocopy 1000 Pages 0.30 300
Total 2500.00
Total sum 2812.5
Contingency (10% 281.25
Grand Total 3093.75

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