Section Sixcurrent selection procedures are based solely on interviews that
have a validity coefficient of .15, while the new test will
produce a validity coefficient of .30. Validity coefficients
indicating the accuracy of selection procedures range in value
from .0 to 1.0, with values of 1.0 indicating perfect prediction.^41
Because the new test holds out the prospect of making
better selection decisions (i.e., selecting a higher percentage of
applicants who turn out to be better salespersons), an estimate
of the dollar value of better performance is needed to
determine the benefit of the new procedure. The company
knows the contribution margin for each salesperson, which is
sales minus all variable costs including costs of goods sold and
his or her compensation. Based on these data, the company
determined that the value of better performance is $20,000.
Given the $20,000 value of better performance, utility
analysis then involves comparison of the associated costs with
the benefits. In order to make comparisons, the company has
deter-mined that its current interviewing costs are $100 per
applicant and that the new test, which requires special scoring,
will cost $250 per applicant. It also knows that salespersons
stay with the company for an average of three years. If the
company chooses the top 10 percent of all applicants, the
formula provided by Schmitt and Klimoski indicates that the
utility of the new test would be approximately $215,000. The