The real, more serious worry, we argue, should be the cost of lost revenues should firms not be able to hire strongly and quickly enough to meet full client demands and also hire additionally just-in-time to offset higher attrition while keeping buffers in store. Patni, a mid-sized player, missed revenue expectations in the last two quarters, attributing the revenue miss to high attrition and consequent inability to execute.
According to a case study on Attrition cost impact analysis using Infosys data reveals a modest 80 bps of points of impact on margins in FY11 on account of unchecked attrition. For sure, the carrying cost of overhiring/keeping buffers impacts utilization and margins but is a far better cost to carry than lost revenues.
Attrition is high in the 3-7 years’ experience band (as this is the mid-level lateral band most sought out in the market today). We assume a maximum attrition of 25% in FY11 in this band. The 3-7 years’ segment constitutes about 50% of total offshore costs.
Attrition in the 0-3 years’ experience band. Even though count of employees is about 43% of total employees in this band of 0-3 years, this accounts for about 25% of total offshore wage costs.
Finally, the senior-most band (>7 years). Attrition here tends to be lowest in the senior band and is assumed to be of 10%.