Section Sixmanifested in problems such as excessive turnover, line
management dissatisfaction, poor quality, litigation,
underrepresentation of minorities and women, and so on,
which detract from human resource effectiveness. Utility
analysis may be used as an evaluation approach for assessing
the effectiveness of selection processes. An interesting feature
of the utility analysis approach to cost–benefit analysis is that it
can be linked with capital budgeting processes. In turn, this link
with capital budgeting may make such evaluation of much
greater interest to general managers. Like capital budgeting,
utility analysis of selection procedures deals with projected cash
flows, such as in the form of savings from increased
productivity. The results of the utility analysis of such cash
flows can be expressed as net present values.^40
Application of Utility Analysis to Selection
Neal Schmitt and Richard Klimoski have used the approach of
Frank Schmidt, M. J. Mack, and John Hunter, to provide a
relatively straightforward explanation of the application of utility
analysis. Schmitt and Klimoski’s explanation of the
determination of the utility for a new selection test has been
modified in this presentation for application to sales personnel.
In this example, a company has decided to pursue a strategy of
increasing its market share. To implement this strategy, it
needs to 15 additional sales persons this year. The company’s