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The case for change management:
Three people side ROI factors

In Prosci's 2007 and 2009 benchmarking studies, the top trend identified by study participants was a greater recognition of the need for and value of change management. While some find themselves in a situation where change management is being requested, many other practitioners are still working diligently to make a compelling case for the need for change management. For these practitioners, Prosci is releasing a five part series on the case for change management. Learn how to effectively "sell" change management to project leaders and executives in your organization by directly connecting change management to project and organizational outcomes.

This is the fourth tutorial of the series. This tutorial presents the Prosci® ROI of Change Management Model. The model shows the three people side factors that directly define or constrain a project's Return on Investment (ROI). Regardless of the project, if it impacts how people do their jobs then it will have these three people side factors: speed of adoption, ultimate utilization and proficiency. And, the true ROI that is realized is tied to how the three factors play out.

 

Why ROI is different than we expect

The Return on Investment a project delivers rarely equals exactly what was expected. Through a series of complex calculations, a project team might arrive at an expected improvement of say $350,000 (either cost savings or revenue generation). But how likely is it that a solution that changes how business is done delivers exactly $350,000? It is much more likely that the project returns $345,000 or $355,000 or $515,000 or -$110,000. The same can be said for ROI expressed as a percentage. The project team might arrive at 23%, but the likelihood is that the ROI will be 22.5% or 23.5% or 40% or 2%. Project ROI rarely equals what is expected.

One of the greatest causes of this variation is the people side of change. The greater the project results or outcomes depend on individuals doing their jobs differently, the greater a variation we can expect in the ROI. If a project has very little impact on the work processes and behaviors of individual employees, then we can be fairly certain about the expected return. But for projects that depend heavily on employees doing their jobs differently, we are much less certain about the expected return. The most important and most strategic changes in organizations tend to have a greater dependency on the people side of change. Change management is a discipline aimed at enabling and encouraging those individual changes.

 

Three people side factors

The Prosci ROI of Change Management Model is based on the premise that change ultimately happens one person at a time; that the individual is the unit of change. When a project introduces a new process impacting 15 employees, then the success of the project is tied to those 15 employees adopting the change and following the new process. Likewise, a project introducing a new technology to 150 employees is only as successful as those 150 individuals are at using the new technology. Read more about the individual as the unit of change in the second tutorial of the case for change management series.

So, if change ultimately happens at the individual level in the organization, are there factors of how those individuals make the change that define or constrain the project ROI? The Prosci ROI of Change Management Model presents three people side factors that impact the return a project or initiative delivers:

  • Speed of adoption
  • Ultimate utilization
  • Proficiency

 

Speed of adoption

Speed of adoption is how quickly employees adopt a change to how they do their jobs when it is introduced by a project or initiative. When the new processes or technologies "go live", how long does it take employees to adopt the change? In some instances, a project team might assume an instantaneous adoption by all impacted employees, but experience would suggest some sort of staggered adoption over time. In his work on the diffusion of innovation, Everett Rogers introduced the categories of innovators, early adopters, early majority, late majority and laggards when looking at how new technologies were adopted by groups. Organizational change likely follows a similar path with different employees requiring different amounts of time to internalize and ultimately adopt a change to their work. The speed of adoption for a group of employees impacted by a change - or how quickly they adopt the change - has a direct and measurable impact on the return a project delivers.

 

Ultimate utilization

Ultimate utilization is how many employees eventually adopt the change to how they do their jobs. The converse would be employees that opt-out or find work-arounds that enable them to continue doing their job as they had before the change. Were the expected benefits of the project predicated on 100% of employees adopting the change? 95%? 85%? 80%? Each employee that does not make the change chips away at the improvement the project or initiative set out to achieve. The ultimate utilization (or conversely the opt-out rate) for a group of employees has a direct and measurable impact on project ROI.

 

Proficiency

Proficiency is how effective employees are once they've adopted the change. Proficiency is tied to how the benefit of the change in process, workflow, technology, tool, system, etc. is realized. If a call center redesigns its scripts to drive handle time down from 90 seconds to 75 seconds, what was the actual reduction in handle time? Did handle time drop to 85 seconds? Or 80 seconds? Or 70 seconds? Or did it go up to 95 seconds? The proficiency of employees who adopted the change has a direct and measurable impact on the results and outcomes of a project or initiative, since it is employees doing their jobs differently that drives those results and outcomes.

 

A simple example

Below is a simple example of how the three people side factors can impact the Return on Investment of a project. For this simple case, there are two employees at ACME organization impacted by a change to how they do their jobs - Andy and Becky. If they adopt the change, ACME will save $5000 per month. The cost of the project is $20,000 (paid in the first month), and the team plans on two months before Andy and Becky adopt the change.

The table below shows a $20,000 investment in Month 1 (M1) and $5,000 benefits in Month 3 to Month 12.

Baseline:

M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12

(20,000)

  5000 5000 5000 5000 5000 5000 5000 5000 5000 5000

Cost: $20,000
Expected benefit: $50,000 ($5000 * 10)
ROI: 150% = (50,000 - 20,000) / 20,000

 

Scenario 1: slower speed of adoption

Change management is not done effectively. Instead of taking two months for Andy and Becky to adopt the change, it takes them six months to adopt the change.

M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12

(20,000)

  0 0 0 0 5000 5000 5000 5000 5000 5000

Cost: $20,000
Expected benefit: $30,000 ($5000 * 6)
Loss due to poor change management: $20,000 ($5000 * 4)
ROI: 50% = (30,000 - 20,000) / 20,000

 

Scenario 2: lower ultimate utilization

Change management is not done effectively. Becky adopts the change, but Andy opts out and finds a work around, so his portion of the benefit is not realized.

M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12

(20,000)

  2500 2500 2500 2500 2500 2500 2500 2500 2500 2500

Cost: $20,000
Expected benefit: $25,000 ($2500 * 10)
Loss due to poor change management: $25,000 ($2500 * 10)
ROI: 25% = (25,000 - 20,000) / 20,000

 

Scenario 3: less proficiency

Change management is not done effectively. As a result, while Andy and Becky both adopt the change in Month 2, they only generate 70% of the expected savings in each month.

M1 M2 M3 M4 M5 M6 M7 M8 M9 M10 M11 M12

(20,000)

  3500 3500 3500 3500 3500 3500 3500 3500 3500 3500

Cost: $20,000
Expected benefit: $35,000 ($3500 * 10)
Loss due to poor change management: $15,000 ($1500 * 10)
ROI: 75% = (35,000 - 20,000) / 20,000

 

The table below captures the cost, benefit, improvement and ROI for each of the three scenarios.

  Cost
(x)
Benefit
(y)
Improvement
(y - x)
Difference from expected ROI
(y - x / x)
Baseline $20,000 $50,000 $30,000 - 150%
Scenario 1 $20,000 $30,000 $10,000 $20,000 50%
Scenario 2 $20,000 $25,000 $5,000 $25,000 25%
Scenario 3 $20,000 $35,000 $15,000 $15,000 75%

 

This simple analysis demonstrates how the three people side factors can directly impact the expected return of a project. While simple and basic, this is not that different than many projects or initiatives in organizations that rely on individual employees doing their jobs differently to drive improvement - whether it is 2 employees, 15 employees, 150 employees or 15,000 employees. In the end, how quickly, how many and how effectively they make the change dictates Return on Investment.

 

Conclusion

Try to apply the three people side factors on a project you are currently supporting using the table below. The first step to showing how the people side factors impact ROI is defining them. There is no universal metric for speed of adoption (as an example), because "to adopt the change" for your initiative means something very different than for another initiative. Likewise, "to be proficient" at following a new process is very different than "to be proficient" at using a new piece of technology. So, you need to translate speed of adoption, ultimate utilization and proficiency into specifically what they mean for your project.

  Define it for your project: How would you measure it? Baseline assumption:
 
Speed of adoption
 
     
 
Ultimate utilization
 
     
 
Proficiency
 
     

 

While there are not universal metrics, the three people side ROI factors are universal. Whenever a project or initiative impacts how employees do their jobs, then how quickly, how many and how effectively the changes are made impacts ROI.

Think about the three factors in this way:

  • The faster the speed of adoption, the higher the project ROI
  • The higher the ultimate utilization, the higher the project ROI
  • The greater the level of proficiency, the higher the project ROI

And, consider the converse:

  • If speed of adoption is slower than expected, project ROI is lower
  • If ultimate utilization is lower than expected, project ROI is lower
  • If proficiency is less than expected, project ROI is lower

In the end, a discipline focused on enabling and encouraging employees to embrace, adopt and utilize a change to their work required by a project or initiative (i.e. change management) will directly contribute to higher return on investment through faster adoption, greater utilization and higher proficiency. By way of the three people side factors, change management directly contributes to project ROI.

 

Coming up: the costs and risks of poorly managing change

 

 

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Prosci Change Management Certification

Program highlights:
  • Apply the methodology as you learn it on a real project
  • Learn from experienced executive instructors
  • Become part of a change management community
  • Earn 2.4 CEUs, 24 PDUs and 23.5 HRCI recertification credits
  • Walk away with products and course materials worth over $1000

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Upcoming sessions with availability:

  • April 19 - 21, 2011: San Francisco, CA area - OPEN
  • April 26 - 28, 2011: Chicago, IL area - Teams only
  • April 26 - 28, 2011: Tampa, FL area - OPEN
  • May 10 - 12, 2011: Denver, CO area - OPEN
  • May 24 - 26, 2011: Washington DC area - OPEN
  • June 7 - 9, 2011: San Francisco area - OPEN
  • June 14 - 16, 2011: Denver, CO area - OPEN

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970-203-9332 to register today.

"The best training class I have had in years. Goes way beyond the strategy and framework and focuses on real world problems and the tools to solve them."
- Jennifer J., April 2009 participant

"This was the most effective and engaging course I've ever taken. I feel that I can truly use this knowledge in my personal and professional life immediately."
- Lisa S., February 2009 participant

"Awesome - truly one of the most beneficial programs I have ever attended - immediate application on the job!"
- Robin S., March 2009 participant

"This program absolutely over-delivered my expectations. I now feel more prepared and better equipped to do my job."
- Paul S., January 2009 participant

 

 

Offerings for applying Prosci's change management methodologies:

Training:

  • Change management certification ($2800)- 3-day program where you bring a project you are working on and apply all of the assessments and tools as you learn them - taught by former fortune 500 executives at locations across the US - includes over $1000 in products, including the Best Practices in Change Management benchmarking report, the Change Management Toolkit and the Change Management Pilot Pro 2010
  • Train-the-trainer ($3500) - learn how to teach Prosci change management training programs in your organization
  • Onsite training - bring Prosci to your location for 3-day certification programs, 4-6 hour executive briefings, 1-day manager programs or 1-day employee programs - call +1-970-203-9332 for more information

Methodology tools:

  • Change Management Toolkit ($389) - hardcopy 3-ring binder presenting Prosci's change management methodology, includes templates, checklists and assessments for managing the people side of change (includes USB drive)
  • Change Management Pilot Pro 2010 ($449) - online tool including Prosci's change management methodology, eLearning modules and downloadable templates, assessments, presentations and checklists
  • Change Management Guide for Managers and Supervisors ($189) - tools to help supervisors engage and coach their direct reports through change (includes 4 copies of the Employee's Survival Guide)
  • PCT Analyzer ($149/$349) - web-based tool for collecting PCT Assessment data, analyzing results, identifying risks and developing action steps

References and books:

  • Best Practices in Change Management benchmarking report ($289 / quantity discounts available) - journal-style report with lessons learned and best practices from 650 participants, presented in an easy-to-use format - reads as a checklist of what to do and what not to do
  • Change Management: the people side of change ($18.95 / quantity discounts available) - a primer for anyone involved in organizational change that addresses why manage change, individual change management and organizational change management
  • ADKAR: a model for change ($18.95 / quantity discounts available) - the definitive work on Prosci's ADKAR® Model
  • Employee's Survival Guide to Change ($14.95 / quantity discounts available) - a handbook to help employees survive and thrive during change, answers frequently asked questions and empowers employees to take charge of change

 

 

*** Prosci also offers leadership packages - groupings of products at discounts that offer you some of the most helpful and common combinations of Prosci change management resources

 

 

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