Employee misunderstanding is costing UK and US businesses $37 billion every year, which works out at an average of $624 per employee, according to a new white paper.

‘$37 billion: Counting the cost of employee misunderstanding’, a white paper commissioned by employee assessment specialist Cogniso, highlights the impact of employees who do not fully understand their roles and responsibilities, which covers a misunderstanding or misinterpretation of company policies, business processes, and job function.

The findings revealed that 32% of the total cost of misunderstanding was due to unplanned downtime resulting in loss of business, 17% reported poor procurement practice, whilst settlements for industrial tribunals accounted for 16%.

“An organisation’s greatest asset is its employees – but if any one of them misunderstands or misinterprets their role, this significant asset can be very easily eroded, with repercussions in the boardroom from a loss of business or impaired brand image and reputation,” said Mary Clarke, CEO of Cognisco.

Other key aspects of the report showed that the banking industry has the highest cost of misunderstanding, with 81% of banks reporting exposure to damaged brand image and reputation in the last year, whilst 89% of pharmaceutical companies revealed they had been at risk of reduced productivity in the last 12 months.

All 400 companies surveyed reported that employee misunderstanding had placed their company at risk of injuries to employees or the public, with 99% citing risk from loss of sales and reduced customer satisfaction in the last year.

Lisa Rowan, program director HR and talent management services at IDC, said that this is the first time the cost of employee misunderstanding has been calculated. “Large enterprises are potentially losing millions of dollars each year to ‘employee misunderstanding’ yet very few organisations are taking action or are even aware a problem exists. The potential impact and repercussions from this misunderstanding should be addressed by all organisations and at the highest level – the CEO.”

The white paper recommends introducing an automated employee assessment solution that examines individual employees’ strengths and weaknesses, their abilities, needs and confidence in carrying out job functions. However, it also reveals that currently only 6% of organisations have such a solution in place.