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:

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.

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.

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.

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.

Prosci Change Management Certification