Defining the Business Problem: What’s This Conflict Costing?

Recognizing the Return-on-Investment from Conflict Management Programs!

Introduction

Workplace conflict is not just an inconvenience; it's a pressing business problem with an immediate impact on financial, operational, and human factors. Recent studies reveal that unresolved conflicts cost organizations billions in lost productivity, employee turnover, absenteeism, and legal expenses, and on an annual basis!

Sources: Peaceful Leaders Academy ; Visit the University of the Year 2024 .

But this isn’t anything new. As early as 1998, the Department of Labor estimated, based on an analysis of exit interviews, that 60% of employee departures were actually related to unresolved conflict at their workplace, oftentimes with their direct supervisor. This has since been corroborated by Gallup in several of their annual Workplace Reviews. Seeing their organizations unresponsive to managing conflict leads to feelings of despair, feeling undervalued for their health | well-being | productivity, and certainly a lack of concern about the adverse impact and distraction that mismanaged conflict represents.

Grasping the implications of conflict-related costs and the long-term benefits of investing in a conflict management program are vital steps for any organization striving to cultivate and/or foster a healthy and productive work environment (and one where employees want to stay). Taking steps in this direction also significantly impacts an organization’s Workers’ Compensation cost factors by reducing conflict-induced stress that leads to unsafe and unhealthy work environments.

The Financial Impact of Workplace Conflict

Workplace conflicts come in various forms, each with its own financial implications. Peer-to-peer conflicts, worker/manager conflicts, and employee-to-customer conflicts all contribute to the overall financial burden on a company. For instance, conflicts between employees often lead to decreased productivity, low morale, and increased absenteeism and/or turnover. The cost of recruiting and training new employees to replace those who leave due to unresolved conflicts escalate quickly and exponentially. Not to mention the toll it takes on your reputation!

Sources: Peaceful Leaders Academy ; Dardo Consulting .

In the United Kingdom, the cost of workplace conflict is estimated at nearly ￡30 billion annually, with a significant portion attributed to resignations, dismissals, and sickness absences. Similarly, in the US, the cost of conflicts in the workplace is estimated at $359 billion annually, highlighting the global nature of this issue.

I often hear Leaders ask, “Where is the line item in our organizational budget that accounts for this cost? Managing conflict doesn’t even show up in the essential functions of our leaders at any level!” And we wonder why our profit margins are not greater – the silent erosion of conflict is at work behind the scenes!

The Hidden Costs of Conflict

Beyond the direct financial impact (e.g. retention, replacement, onboarding efforts that reflect 150% of the employee’s salary), the cost of workplace conflicts are buried in hidden costs that we don’t often measure but represent real and tangible outcomes. Some of the hidden costs that are often not measured include:

1. Decreased Productivity: Time spent managing, or direct involvement in, conflicts is time spent on something other than the essential functions of one’s job that leads to productive work. Employees distracted by conflicts are just that..distracted. And when distracted, the work environment becomes unsafe – physically and psychologically. When unfocused, inefficiencies and missed deadlines are typical outcomes, leading to project delays and increased costs.
2. Low Morale: Ongoing, mismanaged, or ignored conflicts are simply exhausting. Higher rates of absenteeism emerge and represent the only way employees know how to escape the unchecked conflict and toxic atmospheric river that flows. If not absent, “presenteeism” captures the employee(s) physically present but not mentally engaged, doing just enough to get through the day and remain in paid employment with little investment in the quality and quantity of their work output. Did you know that a formula is readily available to cost out both of these factors, multiplied by the estimated number of employees impacted?
3. Legal and Healthcare Costs: Unchecked, mismanaged, and escalating conflicts often result in claims filed requiring investigation and legal actions to defend. Healthcare costs also rise as a result of stress-related illnesses that require medical attention and treatment.

Sources: Peaceful Leaders Academy ; Visit the University of the Year 2024 ; Dardo Consulting .

The Long-term Benefits of Conflict Resolution Programs

Investing in conflict resolution programs offers several long-term benefits that offset the costs associated with workplace conflicts:

1. Improved Employee Retention: Effective conflict management (and resolution) helps retain valuable employees by opening up channels of communication, fostering psychological safety so employees feel supported in addressing their concerns, and visibly demonstrating to employees that the organization cares about creating a supportive work environment where everyone thrives, not just survives. Source: Peaceful Leaders Academy .
2. Enhanced Productivity: Early management of conflicts quickly and effectively allows employees to maintain focus on their work, improving overall quality and productivity. Conflict management training programs equip employees and managers with the skills necessary to address and manage conflicts constructively, shifting from confrontations to conversations, restoring/repairing relationships, and minimizing disruptions. Sources: Peaceful Leaders Academy ; Dardo Consulting .
3. Improved Workplace Culture: Taking a proactive approach to conflict management (and resolution) fosters positivity, enthusiasm, and encouragement when employees feel supported when they see their leaders serve as effective role models in managing difficult conversations and gathering input from different perspectives while using conflict as a tool for creative outcomes, rather than damaged relationships. A proactive approach to conflict situations fosters a sense of empowerment where employees feel heard and valued, leading to increased job satisfaction and a more cohesive and connected team dynamic .
4. Reduced Legal and Healthcare Costs: Addressing conflicts early prevents escalation into formal complaints and legal disputes while reducing stress-related health issues. This serves as reassurance to organizations about the return on investment available when investing in conflict management programs. Did you know there are formulas to demonstrate the ROI available when implementing organizationally-based conflict management programs, rather than leaving it ad hoc to the skill level, or lack thereof, among leaders at any level?
5. Higher Employee Engagement: Conflict management programs demonstrate a commitment to employee well-being while also attending to organizational growth and professional development for your employees to grow within your organization. This also enhances employee inclusion and connection, loyalty and commitment, and individual and organizational morale, all of which are critical for maintaining a motivated and high-performing workforce.

Workplace conflict is an unavoidable reality. Yet, conflict, in and of itself, is not the culprit – it all rests in how conflict is managed. As we’ve shown here, the costs of conflict are manageable and can be minimized through strategic investments in conflict management programs.

The long-term benefits of such investments far outweigh the costs, making conflict resolution an essential leadership skill and operational component of any successful business strategy designed for growth and longevity.

Investing in conflict resolution is not just an employee benefit but a significant cost-saving measure to be redirected back into the health and success of the organization. Effective conflict management represents an opportunity to enhance the overall health and sustainability of the organization AND its employees. As leaders, recognizing the importance of these programs, actively supporting early intervention strategies, and demonstrating active steps to implement them effectively definitely transform conflicts from costly disruptions into catalysts for growth and improvement.

For more insights and strategies on managing workplace conflict, connect with us at Relationships-at-Work or follow me on LinkedIn for regular updates and professional advice on conflict resolution and organizational development.

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Watch this video to learn more!

When People Don’t Get Along: Defining the Business Problem

Dr. Debra Dupree, the MINDSET Doc, transforms challenging confrontations into learning conversations, taking the ‘sting’ out of conflict. She saw her own family-owned business embroiled in differences, leading to dashed dreams, damaged relationships, and broken hearts. She turned these early experiences into a lifeline for smart people who fear conflict by bringing in the brain science behind blow-ups and emotional reactions.

People need to work, but life doesn't always feel 'psychologically safe'. Dr. D works with leaders and organizations to build climates of courage and curiosity to set the tone for meaningful and positive workplace engagement. Dr. Debra is a Dispute Resolution Specialist, Conflict | Leadership Coach, and International Trainer | Keynote Speaker. She hosts the podcast ‘Decoding the Conflict Mindset’ to bring thought leaders to people just like you.