Conflict costs and their plausibilisation in uncertain decision-making situations

25 Basics of mediation (16)

In co-operation with business mediator Dominik Wahlig, Leipzig.

(You can listen to Dominik and Sascha regularly on Detektor.fm, the internet radio station from Leipzig)

Today, companies and managers in particular often have to deal with unclear and highly volatile decision-making situations. They must Define complex problem situations and despite the Realisation that they do not know everything relevant (can), make groundbreaking decisions.

We are not even talking about the things that are unknown - and not even known ("unknown unknowns").

It is therefore all the more astonishing that even things that could be clarified remain unknown. We are talking about conflict costs, the price that conflicts entail and that must always be paid when they occur.

The costs of conflicts that arise in and for companies and organisations should not be underestimated. Several studies have been conducted on this topic in recent years, but it cannot be said that knowledge of the problem is based on a solid foundation.

to download the following materials: 

Study by the European University Viadrina on the development of KM programmes in German companies (2013)

However, hardly any company recognises conflict costs directly and "completely" in the balance sheet or has its own budget to avoid operating out of necessity or on an ad hoc basis.

The problem begins as soon as the conflict costs are to be quantified. Which costs should be added together? Is the Total price of conflicts quantifiable at all? In any case, conflict costs are likely to be incurred when an invoice arrives that has arisen from conflict management measures: the lawyer's invoice is likely to be included, as are the personnel costs of the legal department. While the first invoice can still be clearly attributed to a conflict, the personnel and material costs for an entire department can no longer simply be divided up. But what about recruitment costs that have to be incurred because a (conflict-)frustrated colleague has resigned? And what about those who resign internally, the "lukewarm frustrated"? They have regularly reached the limits of constructive conflict management for themselves or the organisation, have given up and have devoted their innovative energies to digging up the allotment garden at home, if at all.

PART 1 - Overview of conflict costs

Conflict costs can be captured quite well from three perspectives.

• OBVIOUS COSTSConflicts cause costs that are immediately recognisable and immediately understandable. These can be costs for the various measures: The costs for the lawyer already mentioned are just as obvious as those for the mediator or the costs for the court. Of course, this also includes costs that can accumulate for the preparation for conflict resolution, whether this is conflict coaching or negotiation training in the run-up to resolution discussions.

And there are costs that are not so obvious. They can be „atmosphärische Kosten“ call them. They arise, for example, from long-term frustration, the miserable work performance of which is not only causal but also expensive. One might think that miserable work performance does not arise from every frustration. Admittedly, frustration can sometimes even spur people on and lead to high performance. But this is not the rule, and certainly not if the frustrations persist, e.g. due to destructive management work, and thus reduce employee motivation in the long term.

This category also includes costs arising from a poor organisational image. Nobody wants to work in organisations that manage their conflicts badly. The high potentials stay away, the much-invoked „war for talents“ is lost. A conflict-prone organisation will have to pay this price. Conflicts influence the Negative image building and measures of the employer branding are directly torpedoed. Even if there is no visible bill, conflicts cost a lot of money.

One A different perspective on conflict costs reveals the question of the quantifiability of costs.

• QUANTIFIABLE COSTSSome costs can be specifically identified in verifiable payments, others cannot be quantified. It is easy to determine the price of external services that were used for conflict management. Other costs cannot be quantified: How much does it cost a company to have a large proportion of its employees working to rule, which, as we all know, is a disservice? It is almost impossible to determine to the cent. Estimates must help here. The costs resulting from employees having to deal with the recruitment of new colleagues, placing adverts, conducting interviews, etc. are a different matter. This is an enormous effort that can be quantified in terms of (working) time and therefore money. Concrete figures are available if you wanted to use them.

In addition, conflict management costs are incurred, which are most obvious when one asks about the allocation of total costs. Such costs are regularly incurred in organisations without being able to assign them to a conflict. Ultimately, however, they only exist because conflicts are a reality of life and organisation. This can include costs for sick leave, insurance and, in some cases, personnel and material costs for legal and HR departments. In some start-up companies, there are now also what are known as "conflict costs". Feel Good Manager. According to their self-image, they become particularly active when the mood is at rock bottom, which is likely to be the case regularly in conflicts.

One Third perspective on conflict costs in companies would raise the question of the allocability of costs to certain conflicts:

• ALLOCABLE COSTSNot all costs can be clearly allocated to existing conflicts. For example, maintaining the legal department cannot be attributed to a single conflict, but it costs a lot of money. Costs for sick leave or other cancellation costs can also be caused by a series of conflict situations or different sources of conflict. Or the costs for necessary conflict coaching, conflict management training, etc. - these costs are also not caused by a single conflict. How do you deal with the question of shares?

These three perspectives on conflict costs can help us to ask the right questions. What are the direct and indirect effects of conflicts in our organisation? How far-reaching is the impact of our organisation's conflicts on our products, our employees, our suppliers and our general condition? What about our image with customers, potential employees and our competitors?

If you still want to put these costs into a table based on estimates, a rough grid could look like this. The main purpose of this overview is not to lose sight of the fact that conflicts are not just annoying or sad, disruptive and hinder work, but have a direct and massive impact on your own business.

In short: 

• It is not enough to pagatory, the costs to be paid directly with money to summarise the total costs of conflicts.

• The price to be paid for conflicts concerns the total loss of value of the company.

• Such a more valuable Cost concept also includes the (only approximately determinable) costs of employee turnover, sick leave, lost innovation, lost orders, lost profits, lost reputation and damage to the company's reputation and image as a whole.

There are currently several attempts to calculate or estimate the costs of conflicts in organisations. There are various proposals for this in science and practice, which are not always easy to handle. The results are also likely to depend on the specific users. Helpful Tools are also available online in addition.

The following idea of a Possibility of plausibilisation of conflicts works with experience from the Area of risk analysis. This approach is ideal for making transparent and effective decisions in conflict situations.

PART 2 - Cost plausibility checks as a decision-making aid in complex conflict situations

Management-orientated risk analysis is based on conceivable scenarios. In the process Classic risk management methods resorted to.

The following question is decisive here:

"How much would it cost us to leave the conflict unresolved?".

Using this analytical trick, the Now calculate conflict costs in several steps.

1. First of all 2-4 scenarios to develop scenarios that clearly illustrate how the situation could develop without countermeasures (e.g. mediation). This should not be based on wild fantasising, but on your own management experience. The following questions could be helpful: How could those affected continue to behave? Where is this likely to lead? How have similar conflicts developed in the past? After all, our conflicts in organisations are also subject to their own patterns and typical stages of development.
2. The respective scenarios are then analysed with a Probability of occurrence evaluated. In the end, the total probability of occurrence is 100 per cent.
3. This is followed by another logical step in depth. The specific conflict cost drivers are listed for each scenario and provided with a plausible assessment of the costs per driver in euros. To determine the Conflict cost drivers the points of reference in the overview above can be used to avoid losing sight of any driver.
4. The individual cost items of the scenarios are then multiplied by the probabilities of occurrence. A Weighting of the individual costs.
5. Finally, the costs weighted in this way per scenario are added. This figure represents the cost of the current conflict if no countermeasures are taken.

Sample calculation:

This calculation and forecasting process will be illustrated in a practical, albeit fictitious, example. Let us make the following assumptions:

– The employee's annual salary is € 50,000 / the labour costs are slightly higher, i.e. € 64,000. The labour costs are made up of the salary and the specific costs incurred by this employee (office supplies, vehicle fleet, etc.). The labour costs are therefore set at 128% of the annual salary.

– The annual salary and labour costs of the superior manager are € 60,000 and € 76,800 respectively.

Now to the individual scenarios. Scenario I, a Escalation scenario of the hot kindwhere the employee ultimately leaves the company is estimated to have a probability of occurrence of 20%.

With Scenario II is a Escalation scenario of the cold kindwhich is estimated to be far more likely to occur (75%), but in which the conflict develops in a completely different way. The people involved avoid each other, suffer silently but effectively, they become ill, perhaps even depressed, but in any case their performance decreases.

Scenario III aims for paradise. The conflict disappears without a trace, the participants resolve themselves and their situation and nobody can say how this happened. Perhaps hardly anyone has learnt anything from the conflict, but all is well again for the time being. Probability of occurrence low, but still an incredible 5 %. There are no further costs. One is allowed to dream.

These costs can now be compared with the costs of mediation, for example, in order to decide whether a corresponding measure is worthwhile.

Mediation costs

(If you want to know everything about the costs of mediation, then take a look at the 4th article in the basic series).

The cost of mediation also depends on numerous factors. There is no scale of fees for mediators, which means that the respective parties charge according to hourly or daily rates. This is usually also the case for lawyer mediators.

As the market for mediators is confusing, it is worth obtaining several offers and, if necessary, several non-binding offers. Order clarification meetings with the mediator. In these initial meetings, it can be established relatively quickly whether the mediator is the right one for the case. Nevertheless, such an approach costs time and money. It should not be assumed that every initial meeting is free of charge. Rather the opposite.

The Hourly rates of mediators are somewhere between a counselling life artist and a star lawyer. The services of experienced business mediators usually cost between €180 and €350. Of course, the fees depend on the industry and size of the client. Mediation will be more expensive in the pharmaceutical industry than in retail, and it will also be more expensive for a global corporation than for a small craftsman's business. This has to do not only with the mediators' time and effort, but also with what it is or must be worth to the customer/client to bring the conflict to a successful conclusion. Here too, the price is based on the value of the service. Non-profit organisations can therefore (still) expect discounts. In general, however, the amount of the mediator's fee is freely negotiable.

Of course, it should be noted whether only one mediator or several are commissioned. This drives up the costs, but the effort is worthwhile and should be made dependent on the comparison with the conflict costs in the scenarios. Rule of thumb: Cost-intensive conflicts in volatile, uncertain and ambivalent business situations, which are based on a complex network of relationships, generally make mediator costs a waste of time. Pay attention to this!

If you buy cheap, you buy three times.

And another tip that is important at this point: Mediation is not a physical product. The following does not apply here: buy cheap, buy twice. If the first mediation fails, there is usually no second chance. If anything, it applies: If you buy cheap, you buy three times.

Of course, the expected number of sessions, i.e. the duration of the mediation, is also important for the mediation costs. The sessions often take the form of several half-day or one-day sessions. For a mediation with 2-3 conflict parties, for which a mediator has been commissioned and which is located in a complex conflict in the context of a company in the pharmaceutical industry, you can expect a processing time of 4 half-day sessions of € 1,000 each, i.e. a total of € 4,000.

If the company is heavily dependent on its image or is undergoing an intensive recruitment process, it is estimated that amounts can be deducted from these costs to the extent that such measures can be categorised as "advertising and marketing measures" or as investments in the company. employer branding would like to accept.

You can work with that, can't you?