Human Resource (HR) Management Application of the EOQ Model

A large IT consulting firm is planning on hiring several new IT consulting teams over the next few years, as their demand consultants has been consistently growing at an average rate of 5 consultants per month. Every new hire starts at an average salary of $63750 per year, but consultants are not assigned to projects until they complete a comprehensive training orientation, so their salary can be viewed as a holding cost for the firm as they are not able to bill consultants' time out until they have been properly trained. New-hire training orientations are conducted in groups for a fixed cost of $8500 per group, if the group size doesn't exceed 10 consultants (in that case the groups would be broken into two smaller groups so the costs would double). As a result, hiring is done in groups periodically throughout the year to minimize training costs for new hires and maintain a steady workload for the HR team. Training in groups also helps with team building and acclimating new hires to the organization's consulting culture, assuring that they are able to maintain the world-renowned standards of service on which this firm has built their reputation.

This HR Management problem illustrates a non-traditional application of the Economic Order Quantity (EOQ) model, which can be used to determine the optimal hiring strategy for this IT consulting firm. First, we can use the standard EOQ equation (shown below) to find the optimal number of consultants to hire at a any given time, which would be the "optimal hiring group size". This model would balance the cost of training with the costs of holding untrained consultants that can't be billed out to projects. =h2RK

Once we have found the EOQ (aka the "optimal hiring group size"), we can then use it to determine the number of orientations to run per year, which is analogous to the "number of orders per year" in traditional inventory management applications, as was show on page 1 of Notes 3.2. Please use this information to address the question on the proceeding page.

List of Question to Address in Your Solution

You must show your work and calculations using the "Insert" >> "Equation" Function in Word for credit

1. In this application of the EOQ model, R is number of "units" demanded per year. For this application, what should R be? Please provide both the numerical value and define the "units".

2. What is the annual "holding" cost (h) for new consultants in this model?

3. What is the fixed "ordering" cost (K) for new consultants in this model? Provide a brief explanation as to what the "ordering" costs means in this application, as clearly, we aren't "ordering" new hires.

4. Determine the EOQ for this model, which is the "optimal hiring group size" for new consultants. Please show the complete calculation.

5. Based on the "optimal hiring group size" found via the EOQ model in question 4, how many orientations do they expect to conduct periodically throughout the year?

6. Based on the "optimal hiring group size" found via the EOQ model in question 4, what is the annual cost of orientations?

7. Based on the "optimal hiring group size" found via the EOQ model in question 4, what is the annual cost of holding untrained consultants?

8. One of the EOQ model results is that the annual holding costs and ordering costs will be approximately equal. Is this true for this application as well? If not, which is expected to cost more per year holding or ordering?