Reference no: EM131681140

Utility Concerns in Choosing an Assessment Method

Randy May is a 32-year-old airplane mechanic for a small airline based in Nantucket Island, Massachusetts. Recently, Randy won $2 million in the New England lottery. Because Randy is relatively young, he decided to invest his winnings in a business to create a future stream of earnings. After weighing many investment decisions, Randy opted to open up a chain of ice cream shops in the Cape Cod area. (As it turns out, Cape Cod and the nearby islands are short of ice cream shops.) Based on his own budgeting, Randy figured he had enough cash to open shops on each of the two islands (Nantucket and Martha’s Vineyard) and two shops in small towns on the Cape (Falmouth and Buzzards Bay). Randy contracted with a local builder and the construction/renovation of the four shops is well under way.

The task that is occupying Randy’s attention now is how to staff the shops. Two weeks ago, he placed advertisements in three area newspapers. So far, he has received 100 applications. Randy has done some informal HR planning and figures he needs to hire 50 employees to staff the four shops. Being a novice at this, Randy is unsure how to select the 50 people he needs to hire. Randy consulted his friend Mary, who owns the lunch counter at the airport. Mary advised Randy that she used the interview to get “the most knowledgeable people possible” and recommended it to Randy because her people had “generally worked out well.” While Randy greatly respected Mary’s advice, on reflection several questions came to mind. Does Mary’s use of the interview mean that it meets Randy’s requirements? How could Randy determine whether his chosen method of selecting employees was effective or ineffective?

Confused, Randy also sought the advice of Professor Ray Higgins, from whom Randy took an HR management course while getting his business degree. After learning of the situation and offering his consulting services, Professor Higgins suggested that Randy choose one of two selection methods (after paying Professor Higgins’s consulting fees, he cannot afford to use both methods). The two methods Professor Higgins recommended are the interview (as Mary recommended) and also a work sample test that entails scooping ice cream and serving it to the customer. Randy estimates that it would cost $100 to interview an applicant and $150 per applicant to administer the work sample. Professor Higgins told Randy that the validity of the interview is r = .30 while the validity of the work sample is r = .50. Professor Higgins also informed Randy that if the selection ratio is .50, the average score on the selection measure of those applicants selected is z = .80 (.80 standard deviations above the mean). Randy plans to offer employees a wage of $6.00 per hour. (Over the course of a year, this would amount to a $12,000 salary.)

Based on the information presented above, Randy would really appreciate it if you could help him answer the following questions:

1. How much money would Randy save using each selection method?

2. If Randy can use only one method, which should he use?

3. If the number of applicants increases to 200 (more applications are coming in every day), how would your answers to questions 1 and 2 change?

4. What limitations are inherent in the estimates you have made?

Please cite references and be very thorough and lengthy.