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JONA
Volume 35, Number 3, pp 138-145
C 2005, Lippincott Williams & Wilkins, Inc.

The New Hire/Preceptor Experience

Cost-Benefit Analysis of One Retention Strategy
Deirdre M. Baggot, MBA, RN
Barbara Hensinger, BSN, RN
Juanita Parry, MS, RN

Michael S. Valdes, MBA

Selale Zaim, BSE

Retention of nurses is central to the strategic planning process of any healthcare organization. The authors discuss a strategy to leverage the relationship
between new nurses and their preceptors in an attempt to positively effect nurse retention. The authors present the costs and benefits of this retention
strategy.

Supply Deficit

In Asset Protection: Maintaining and Retaining

Your Workforce,1 we outlined a strategy used by
the University of Michigan Health System (UMHS)
to positively effect nurse retention and enhance the
organizations ability to prepare newly hired nurses
for assimilation into the UMHS nursing community. This approach, Preceptor Action Days (PAD),
included the elements of education, coaching, and
skill development and was offered to more than 400
registered nurse (RN) preceptors. Nurse preceptors,
commonly considered A players, warranted focused retention efforts.1 Acknowledgment of their
valued contribution, support for career growth, and
opportunity to network and build relationships were
all important considerations in this plan. In the
midst of an aggressive hiring campaign, UMHS anticipated that improving preceptor-teaching skills
would broadly impact the organization. This strategy for retention of experienced nurses demonstrated concurrent growth in new hire satisfaction
and yielded a favorable cost-benefit ratio.
Authors affiliation: Business Operations Analyst (Ms
Baggot); Nurse Retention Consultant (Ms Hensinger); Manager
Nurse Retention (Ms Parry); Director of Finance for Patient Care
Services (Mr Valdes); Project Coordinator (Ms Zaim), University
of Michigan Health System, Ann Arbor, Mich.
Corresponding author: Ms Baggot, University of Michigan
Health System, 1500 E Medical Center Dr, Medical Professional
Building, D4212, Ann Arbor, MI 48109 (dbaggot@umich.edu).

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The National Association of Healthcare Recruiters

and Health Care Advisory Board reports that 14%
of nursing positions nationwide are vacant,2 with
the deficit projected to grow to 20% by 2010.3 At
the core of the RN shortage is an aging work force
and a rising demand for healthcare services. One
third of working RNs are older than 50 years of
age4 with a median age of 43.3 years.5 Fifty percent
of the current employed RNs will retire in the next
15 years.6 Direct replacement of these nurses will be
a formidable challenge.
Between 2002 and 2020, the projected growth
of the US population is 18%.1 By 2020, 7 million
Americans will be aged 85 and older.7 They, along
with 78 million baby boomers,4 are expected to
substantially impact healthcare demand. Decrease
in length of stay and the resulting increase in inpatient acuity also effect staffing needs; patientsaving technology has not always translated into
time-saving for nurses. The Department of Health
and Human Services predicts that between 2002 and
2020, demand for nurses will grow by 40%, supply
by 6%.1 Response to this imbalance will determine
future access to care.

Assets at Risk
Meeting staffing needs is in part influenced by the
ability to retain nurses. Between 1992 and 2000,
the Health Resource and Service Administrations
research found a 36% increase in RNs leaving the
profession.9 The concurrent challenges of increased
demand for nurses, declining nursing school capacity, and growing dissatisfaction of nurses combine to

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create a troubling future for the nations healthcare

delivery system.4
Retention of new nurses is especially challenging. Reported median turnover for nurses in their
first year of employment can range from 35%10 to
61%.11

Not Just the Bottom Line

While this article focuses on the financial impact of
a focused retention strategy, no discussion of nurse
retention is complete without a review of the impact
on patient safety. According to the Joint Commission
on the Accreditation of Healthcare Organizations
(JCAHO), inadequate orientation and training of
nurses is a factor in 58% of serious errors.2 Additionally, staffing levels have been a factor in 24%
of 1609 sentinel events over the past 5 years.5
New York Times writer Laurie Tarkan suggests that,
Pressure on hospitals to attract and retain nurses
will continue to grow, largely because of mounting
evidence tying inadequate staffing to rate of medical errors and deaths.12 In short, demographic and
technological trends offer little hope as contributors
to a nursing shortage solution.

Cost of Doing Business

Mitigating the financial impact of the current and
projected RN shortages is crucial to any hospitals
financial health. Nursing costs are frequently the
single biggest budgetary item for hospitals and are
greatly influenced by the institutions ability to recruit and retain nurses. The use of overtime, agency
staff, unanticipated increases to base wages, and artificial limits on capacity all have negative impacts
on the health system bottom line. Efforts to recruit and retain, merely through economic means
(sign-on bonuses, base wage increases, etc) help
to propel market adjustments across the board,
creating significant threat to a hospitals financial
performance.
In December 2003, national nurse turnover was
estimated to be 14.6%.2 Challenged to fill these
openings, healthcare organizations struggle with
how to reliably plan for replacement costs. Variations in region-specific factors such as severity of
shortage influence both days to fill and premium
labor costs. Additionally, authors are not consistent
in the determinants used to compute turnover costs.
As a result, published figures report a wide range
in expense attributed to RN turnover with some estimates as high as $145,000 per RN.13 While organizational differences make comparisons of these
figures dubious across institutions, the high cost of

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nurse turnover would be borne out using any set of

recognized cost factors.
In fiscal year 2004, UMHS calculated RN
turnover costs to be $44,000 per nurse. This includes
$15,000 in direct costs (hiring and orientation based
on an 8-week orientation) and $29,000 for coverage
expense (fill rate, labor costs including any premium
labor used to cover a vacant position).
Over the course of fiscal year 2003 (July 2002June 2003) approximately 25% of the 500 newly
hired RNs left UMHS within 1 year. At UMHS this
equates to an annual turnover cost of $5,500,000.
While better than national averages, lowering this
rate represents a significant opportunity to influence
not only the overall RN turnover rate, but also the
overall cost of care.

Leveraging Investment Dollars

A solution to the disparity between nurse supply and
demand must include maintenance of a stable, experienced work force and thoughtful consideration
given to the integration of new hires in a supportive
manner. PAD strategy offers a targeted approach to
a group of employees (preceptors) who have already
been identified as key stakeholders. It extends significant leverage across a group (new hires) widely recognized as being at high risk for turnover. This singular approached offers the potential to positively
affect satisfaction and retention in both of these
groups.
Review of business and healthcare literature
identify key themes associated with retention of
workers. These include measures to enhance respect
and recognition and to improve professional development, while supporting communication and collaboration. Additionally, new hire satisfaction requires a clinical orientation process that develops
an individuals competencies while easing the transition to the clinical unit through socialization and
support from nursing leadership. To accomplish
these goals, preceptors were given formal continuing
education to build strong teaching skills and to assure awareness of new knowledge and techniques.
For preceptors, it is critical that they are aware of
the unique opportunity they have to connect with a
new person in ways that ease the new hire transition
and keep patients safe during the learning process is
critical.

Where the Rubber Meets the Road

Noted organizational strategists Robert Kaplan and
David Norton recommend focusing human capital
development on individuals holding jobs that have

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the greatest impact on an organizations strategy.14

Their work reaffirms Axlerods 2002 mandate to
identify A players and do everything possible to
develop and retain them.15 PADs recognize and reward a group of highly valued RNsnurse preceptors. This group of expert clinicians is actively involved in patient care and additionally provides the
clinical orientation for our new hires. UMHS wanted
to acknowledge their vital contribution to the success of our healthcare system and demonstrate appreciation of their efforts, as well as further develop
their skills as preceptors. The resulting plan augmented the UMHS preceptor orientation class with
continuing education on adult learning thus far offered at 3 PADs. The content of this series focused
on the expressed learning needs of a cross-section of
the UMHS nursing community. The series offered a
mixture of program content and formats using

the tenets of the lively ZingTrain method of

training trainers,
the concept of teaching on the fly,
role playing led by a professional theater
troupe, and
the expertise of an educator who incorporates
innovative tools to creatively teach.
The PADs fostered camaraderie and cooperation, linking participants to a group with special and
growing teaching expertise. Interaction sparked collaboration, downing the silos of specialization and
identifying ways to share best practices. Each of the
3 PADs received favorable evaluations. These nurse
preceptors report better understood the importance
of their role and valued the investment and commitment to their professional development. Retention
keys met with this program include:

acknowledgement and appreciation of the

preceptor role and their essential value to the
work force,
supplementing professional development
through targeted, represent programming
with associated continuing education credit,
networking opportunities, which strengthen
communication and collaboration,
support for the autonomy integral to the preceptor role, and
rewards represented by the paid time for
personal education at a comfortable off-site
venue.

The expense associated with investment in PADs

includes costs attributable to nurse salary and those
associated with educational sessions. Salary costs
were calculated at an average of $198/day/nurse
using $24.75/hour, which is our average RN

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salary without benefits. We included site expense

room fees, audio/visual, linens, food, signageand
speaker associated outlaystravel, meals, hotel, and
honorariumto determine meeting costs. Total expenditure for all 3 PADs was $114,000, or slightly
more that $38,000 per session, with the largest portion of that coming in the form of wages paid for
this educational time. For institutions with higher
vacancy rates, this cost may be greater because the
coverage for staff attending a session might be at
premium labor rates.

Opportunity to Assess Impact of Investment

The initial PAD evaluations were exceptionally
positive.1 Two years after implementation of this educational series, we compared cost of turnover to expense of PADs. To test for sustainable effect, we assessed nurse-perceived value and trends in turnover
in 2 groupspreceptors and new hires. We monitored retention of 526 nurses hired between June
2002 and July 2003. The impact of strengthening
preceptor teaching skills on newly hired nurses was
based on this population. These new employees were
surveyed to identify RN satisfaction with nurse orientation. We also tracked retention of 445 nurse preceptors who had participated in PADs. For purposes
of assessing the impact on the preceptor group, we
used all of the attendees, regardless of number of
sessions attended.
A survey sampled these participants 6 months
or more after PAD attendance, asking if learned
skills had been incorporated into practice patterns.
In addition, we asked if cross-unit networking persisted, and if the initial renewed commitment to
role voiced at the conclusion of action days continued. Finally, we asked about their willingness to
recommend the PAD programs to other preceptors.
This survey would probe nurse-perceived impact of
investment in their growth. By comparing turnover
rates and associated costs to the investment in
nurse career development, we sought to clarify
impact of PADs on the overall cost of nursing
service.

Gains in Vacancy and Turnover Rates

The PADs coincided with a concerted effort to return
nursing work load to appropriate levels and stabilize staffing at UMHS. The multifaceted approach
drove the RN vacancy rate down to 4.7% as of
December 2003, an astonishing decrease of 68%
over a 2-year period (Figure 1). This compares favorably to September 2003 national vacancy rate
of 14.6% reported by the National Association of

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Figure 1. UMHS inpatient nursing services RN vacancy rate. National rate is from National Association of Healthcare
Recruiters and Health Care Advisory Board, April 2004. All rates for national numbers are for End of Year Data (EY).

Healthcare Recruiters and Health Care Advisory

Board in April 2004.2 While the national vacancy
rate decreased over the years, UMHS vacancy rate
decreased with a greater margin. Figure 2 shows

UMHS RN retention has also improved, with an

annual all-nurse turnover rate of 9.4% for the 12
months ended April 2004, a decrease of more than
27% over a 3 year period.16 When monitoring

Figure 2. UMHS inpatient nursing services RN turnover rate. National rate is from National Association of Healthcare
Recruiters and Health Care Advisory Board, April 2004.

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turnover in our 2 sample populations, we found that

as of April 2004, 99% of the PAD attendees continued employment at UMHS, representing an annual
turnover rate of less than 0.5%.
The exceptionally low turnover rate of this highimpact segment of the nursing work force supports
the PAD concept. While it is impossible to ascribe
all of this to the PAD investment, it is worth noting that an accelerated rate of hiring would actually
contribute to a higher work load level for preceptors during this same time period. Despite this, retention of high-impact, high-performance employees
was achieved and satisfaction by new hires with their
orientation increased.

The PayoffImproved New Hire Satisfaction

Effects of this investment on new hires are less clear.
UMHS developed targeted retention strategies for
this group in 2002 with the development of New
Hire Support Program. One element of this design
is a transition lunch, held on the last day of central
nurse orientation. A follow-up lunch is scheduled
approximately 45 days after hire.
The objectives of these encounters are to better prepare newly hired nurses for employment at
UMHS and to give them opportunity to pause and

reflect on their experience thus far. They are encouraged to think about what they still need to be successful. It also affords a valuable opportunity to glean
from them what we are doing well, what we need to
do more of, and where the gaps exist in our process
of on-boarding new staff.
New hire comments from the 45-day meetings
have shown a steady increase in the number of positive statements about the new hires perception of
their orientation experience. Some report the use of
tools and teaching techniques that were taught at our
PADs. When asked who has had the most significant
impact on their job satisfaction and success, the new
hires tell us most frequently that it is their preceptor.
Next, they mention their unit educator, and third,
they mention their nurse manager.
To further examine the effects of PADs on our
newest employees, we surveyed 141 nurses hired between March 23, 2004, and July 13, 2004, and 142
nurses hired between May 14, 2002, and July 8,
2002. These new hires make up a group likely to
have been associated with a preceptor who had attended at least one PAD. The survey results for select
questions are depicted in Figure 3.
In 2001, the Health Care Advisory Board reported a total first year turnover of 35% for
newly hired nurses.10 And, in 2004, nationally new

Figure 3. UMHS RN New Hire Orientation Survey results from 2 surveys conducted for new hires between May 14
July 8, 2002, and March 23July 13, 2004.

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graduate turnover reached 55% to 61%.11 Review

of UMHS new hire turnover showed that between
July 1, 2002, and June 30, 2003, 24% of new nurses
terminated within 1 year of their hire dateup 3.4%
over the previous year. For the nurses hired during
this period, orientation occurred after 294 of our
nurse preceptors had attended targeted education on
teaching techniques taught at a PAD. Subsequently,
our new hire survey shows that satisfaction with
preceptor continues to grow. This emphasizes the
need to implement a more aggressive plan. UMHS
will intensify focus on new hires through continued
investment in the PAD program. We expect that as a
greater number of preceptors are influenced, we will
see positive effects on new hire retention.

Identify Sustained Value

To further explore perceived value of these educational forums, in July 2004, we asked PAD preceptor participants a series of questions about these
events. When asked if they would recommend PADs
to other nurses, 96% of the 196 respondents said yes.
This number confirms the effectiveness of our planning process, which asks preceptors what they value
and what they needand then builds programming

around what they tell us. We asked. We listened. We

planned. We executed. We asked again. The preceptors proposed the programming and the retention
team looked for innovative, fresh ways to produce
it. This high approval percentage supports this interactive process.
We were especially interested in the sustainability of reported revitalization and rededication voiced
at the close of each PAD. Therefore, during this survey opportunity, we asked, To what degree have
PADs had a positive impact on your outlook regarding precepting? Figure 4 shows 98% of participants
reported some positive effect whereas 3 participants
identified no effect on their attitude, resulting in a
mean score of 3.69 on a 5-point Likert-type scale.
According to the PDA survey, only 3.5% of the
participants said they did not use PAD tools in their
practice. While frequency of use of a demonstrated
teaching tool scored a mean 3.73 on a 5-point Likerttype scale, use may have been higher if the nurses
were provided dedicated time to develop the concepts they learned at the PADs. Our next preceptor
education opportunity, a teaching tool development
workshop, will help resolve this issue and aid preceptors in creating customized tools to enhance
nurse orientation. Also, we believe more participants

Figure 4. UMHS PAD Participant Survey results, July 2004.

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would state that they have utilized the tools if

we had used the more inclusive term teaching
strategies instead of the limiting term action day
tools. This should be considered when looking at
results.
Preceptors attending placed high value on the
networking that occurs at these PADs. A previous
survey identified this feature as most valued by 40%
of attendees. We asked if that collaboration across
units persisted. Responses indicate that 45% of the
participants have subsequently connected with at
least one person they met at a PAD. This has alerted
us to a need for more structured opportunities to
promote this valued behavior.
Survey respondents confirm that we were successful at providing value-addition for our preceptors. The overall evaluation of PADs held a mean
score of 3.91 on a 1 to 5 Likert-type scale (Figure 4).
Twenty-eight percent of participants categorized
PADs as excellent, 44% as very good, and 21% as
good. Only 2 (1%) participants rated them as poor.
Preceptors, who are the backbone of this new system, should believe in it and view it as successful.
Preceptors positive perception of action days will
increase support and enthusiasm for the upcoming
preceptor days.
Planners envisioned the evolution of a central
corps of nurse preceptors with enhanced teaching
capabilities built through participation in all offered
PADs. Managers however chose to use these unique
educational opportunities as a reward to their nurseteachers and distributed that recognition over several preceptors from each unit. The result was that
445 different preceptors attended an action day.
Seventy-three attended 2 of the PADs and 29 attended all 3. The outcome was that many nurse
preceptors benefited from the sessions but few profited from exposure to the full scope of information
presented.
Additionally, few units have in place a mechanism, such as a unit-based preceptor committee, for
sharing information at the unit level. We are now
redesigning that segment of operations to promote
the sharing of this strategic knowledge. Collaboration between units at PADs will also be extended
through this plan.

Investing for the Long Term

Understanding the pervasive impact that RN retention has on every aspect of healthcare is not new
to nurse educators and leaders. What is new, however, is the energy and commitment we have to resolving this crisis once and for all. No longer is it
enough to dismiss the nursing shortage as a phe-

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nomenon over which we have little or no control.

Investing in our human resources to create highperformance cultures is good business. It addresses a
strategic neednurse retentionand yields positive
outcomes. The UMHS survey results show that preceptors value the opportunity to grow their teaching
skills through participation in PADs.
Additionally, our nurse preceptors report that
they are interested in networking with their colleagues in an effort to share best practices and form
new associations and friendships. New hires report growing satisfaction with orientation and recognize the importance of their preceptor in their
development.

Leveraging Resources for Success

The critical shortage of nurses is real and growing. Its cause is complex, and resolution clearly requires a multifaceted approach. Strategies to improve retention of the current RN work force are
essential if stabilization of the professional nurse
base is to occur. Some nurse roles such as managers
and preceptors have greater influence on turnover.
Focusing human capital development activities on
these critical individuals can greatly leverage capital
investments.
Is investment in targeted skill development cost
effective? Calculating a solid return on investment
can be difficult when the relationship between
investment in human capital and the outcomes is
so complex. Currently costs associated with employee education are lumped with general disbursements and are immediately expensed. However, if
viewed as an initiative for long-term improvement,
outlays for employee education should be amortized
over time as are other assets.17 Robert Kaplan, the
Marvin Bower Professor of Leadership Development at Harvard Business School, asserts that No
asset has greater potential for an organization
than the collective knowledge possessed by all its
employees.14(p63)
At UMHS, PADs support retention of a core of
experienced nurses and address the identified needs
of new hires. Our investment in nurse preceptor
teaching skills has resulted in marked improvement
in new hire satisfaction with orientation. Preceptors report they value the opportunity to grow their
knowledge and skill through participation in PADs.
Survey results suggest that changes in this group
in both attitude and practice are sustained. Exceptionally low turnover rate for nurse preceptors who
participated in PADs was very satisfactory, given that
their role carries additional responsibilities without
added compensation.

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Over time, investment in preceptor development

is also expected to impact new hire retention, thereby
clearly demonstrating preceptor influence on this
equation. We plan to continue the educational opportunities for nurse preceptors. Additionally, we
will continue to carefully track new-hire turnover.
As PAD preceptor numbers grow, knowledge and
sensitivity around teaching practices is expected to
strengthen.

Building on the skills, talent, and knowledge

that employees possess serves to strengthen us at our
core. Our data support the theory that targeted investments in nurse retention strategies pay clear dividends in financial outcomes. Moreover, total benefit embodies the intangible assets of a motivated
and prepared work force supportive of UMHSs
mission to provide world-class preliminary nursing
care.

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