You’ve heard of mediation. You might even be aware that in the UK, the Government has recently placed mediation at the heart of its strategy of reducing the cost of conflict and improving workplace relations. And perhaps you are intuitively drawn to the idea of empowering people in conflict to determine their own resolution with the support of an expert mediator, instead of having a resolution imposed by a third party arbitrator or investigation panel. But in these times of budget cuts and redundancies, how can you justify the cost of introducing mediation in your organization?
The truth is that the cost savings of mediation can be reasonably estimated, and the results provide convincing evidence that mediation is a worthwhile investment. Consensio works with its clients to carry out such assessments, before and after the introduction of mediation. To illustrate how this can be done, we have constructed an anonymized case study, based on aggregated findings from the work we have done with some of our clients.
A formulaic approach to cost analysis
The case study concerns an organisation that we shall call ABC Company. One year after setting up a mediation scheme, ABC decided to carry out a study to estimate the financial impact of introducing mediation. Its methodology was as follows:
During the first 12 months of the scheme, 19 cases had been mediated, all but one of which were resolved with no need for further management action. To calculate the net financial impact, ABC estimated what it might have spent handling these cases if mediation were unavailable, and compared this with the actual cost of mediating the 19 cases. The formula used was:
Cost of formal processes for 19 cases MINUS cost of mediation for 19 cases EQUALS net financial impact of introducing mediation.
Cost of formal processes
ABC assumed that the 19 cases that were mediated would, in the absence of mediation, have gone straight to grievance/disciplinary. It assessed what those 19 formal processes might have cost, using assumptions based on historical data and CIPD research. It calculated the average number of days of management time and witness time involved per case, and multiplied this by the typical salary levels of these people.
Next, ABC assumed that of these 19 cases, two would have gone to Employment Tribunal (ET). It then estimated the cost of these two ETs, taking into account management and witness time, plus the legal costs of going to tribunal. Finally, it factored in the cost of sickness leave associated with these cases. These figures were again drawn from historical data and CIPD research.
This can be summarized in the formula below:
Cost of formal processes = cost of grievance/disciplinaries + cost of employment tribunals + cost of sickness leave
Cost of mediations
ABC had chosen to train a team of 12 internal mediators in order to build up in-house capacity and to lay the foundations for culture change. The cost of the 19 mediations was calculated by estimating the number of days of mediator and co-ordinator time per case at the average salary level of these people.
The formula used is as follows:
Cost of mediations = cost of mediator and co-ordinator time
Net financial impact of introducing mediation
The outcome of the calculations was that ABC had achieved cost savings equal to 14 times the cost of carrying out the mediations itself. Above and beyond this figure ABC felt that it had realized unquantifiable benefits in human terms (e.g. by avoiding the stress and suffering associated with prolonged formal processes), and in terms of organizational learning (e.g. through the gradual shift towards a culture of greater openness and responsibility in the face of conflict).
Finding the true cost of conflict
This case study is suggestive of the benefits any organization might achieve through introducing mediation. It also illustrates one possible methodology for carrying out such analysis. Clearly, the approach to such an analysis will need to be carefully tailored to each organization. This particular case relates to an organization that had already introduced mediation. When conducting the analysis prior to introducing mediation, further assumptions would need to be made about the likely take-up rate of mediation, which can vary significantly.
For all such analysis, the calculations must be carried out with sensitivity and common sense. And, like any cost-benefit analysis, assumptions will need to be made, based on extrapolations from historical data and research. But even if the final figure is open to debate, the process of delving into the true cost of conflict typically paints a vivid picture of mediation’s cost-saving potential. Add to this the intangible costs of ill-managed conflict, such as the reduced productivity of the parties and their wider team, effects on parties’ health and damage to company reputation, and the evidence starts to look conclusive.
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