Question

Case Study Scenario:
You’re a consultant for GlobaTech, a relatively large technology company with $800 million a year in revenue and 1,233 employees. Recently many of their employees have left the company. Job attrition is costly for the company. The hiring, training, and integration of each new person costs money, not to mention the work lost during the search process. You are asked to help GlobaTech in identifying important areas for improvement with respect to employee retention.

1) GlobaTech believes that they should start offering end-of-year bonuses that cost a total of $780,000. The hope is that this investment will increase their yearly retention rate. Each additional employee that is retained yields the company an average of $2,400. Suppose the effectiveness of the program is a function of the economic climate in the next year. The economy can be weak or strong. GlobaTech believes that the bonuses will increase retention by 10% in a weak economy and 4% in a strong economy. They have estimated the probability of a declining economy at 25% and an expanding economy at 75%. What decision should the company make in order to maximize profits? What is the expected monetary value of this decision? Show your work.

2) GlobaTech had to lay off hundreds of employees last summer and they think that this past event is influencing employees’ judgements about their current job security. You test this theory by surveying their employees and asking them to report their perceived likelihood of being laid off this year. The average response is 40%. GlobaTech reports to you that the actual likelihood of layoffs this year is 10% based on current revenues. What is the availability heuristic, and how can it explain the biased judgements of the employees?

Answer 1

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