Applications: Utility Concerns in Choosing an Assessment Method

Randy May works for a small airline based on Nantucket Island, Massachusetts. He recently won two million in the New England Lottery and decided to invest his winnings, ultimately, in a chain of ice cream shops in the Cape Cod area to gain potential future earnings. Figuring he had enough money to open up ice cream shops in both islands of Nantucket and Martha’s Vineyard, as well as two shops in Falmouth and Buzzards Bay, he signed a contract with a local builder and began construction of the shops. After beginning the process of construction, he was faced with the next task of hiring employees to staff the four ice cream shops. Throughout his calculations, he estimated he would need a total of 50 employees to staff the four shops, but he did not have any knowledge in how to select the right 50 individuals to hire. Randy asked for the advice of both his friend Mary, a business owner of a lunch counter at the airport and of Ray Higgins, a previous professor who taught Randy HR management while getting his business degree. They both suggested interviews and a work sample test that would include hands on demonstration of scooping ice cream and serving it. In his estimations, Randy figured it would cost around $100 to interview an applicant and $150 per applicant to perform the work sample test. Professor Higgins informed Randy that the validity of the interview is r = .30 and the validity of the work sample is r = .50. If the selection ratio is .50, then the average score on the selection measure of those applicants selected is z = .80 (Heneman, Judge, Kammeyer-Mueller, 2012, pg. 572). For the applicants selected for the job, Randy will pay them $6 per hour, which would come to a total salary of $12,000.
How much money would Randy save using each selection method?

First, one must understand the