The case for change management:
Costs and risks of poorly managing change

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 fifth tutorial of the series. This tutorial presents the costs and risks of poorly managing change. When the people side of change is ignored or poorly managed, the project and the organization take on additional costs and risks. From this perspective, effective change management can be viewed as a cost avoidance technique and risk mitigation tactic. Read on to find out what types of costs and risks you can help your organization avoid by applying change management. 

Consequences of mismanaging change

Each of us has been a part of a change that was poorly managed - either as the offender or as the victim. When projects and initiatives are mismanaged from the "people side" of change perspective, results and outcomes are not achieved. We know from previous tutorials in this series that the individual changes that culminate in organizational change do not take place. We know that we have a lower likelihood of meeting objectives, finishing on time and finishing on budget. And we know that speed of adoption will be slower, ultimate utilization will be lower and proficiency will be less - all dragging down the expected returns.

There are two more perspectives to add to the discussion about the impact of not managing change effectively: costs and risks. These perspectives play out on two levels - the project or initiative level and the organizational level. While some of these costs and risks may seem "soft" - many of them are quantifiable and can have a significant impact on financial performance - both of the project and of the organization as a whole.

Project level impacts

Project level impacts are related directly to the specific project or initiative that is not utilizing change management. These projects can impact tools, technologies, processes, reporting structures and job roles. They can result from strategic planning, from internal stimuli such as performance issues, from external stimuli such as regulation or competitive threats, or from demands by customers and suppliers. The initiatives may be formalized as projects with project managers, budgets, schedules, etc. or they may be informal in nature but still impact how people do their jobs.

While these projects and initiatives can take on a number of different forms, the fact remains that ignoring or mismanaging the people side of change has real consequences for project performance. Below are some examples of the costs and risks at a project level when we do not manage the people side of change.

Costs:

• Project delays
• Missed milestones
• Budget overruns
• Rework required on design
• Loss of work by project team

Risks:

• Resistance – active and passive
• Project put on hold
• Resources not made available
• Obstacles appear unexpectedly
• Project fails to deliver results
• Project is fully abandoned

When change management is applied effectively, we can prevent or avoid costs and mitigate risks tied to how individual employees adopt and utilize a change.

Organizational level impacts

The organizational level is a step above the project level impacts. These costs and risks are felt not only by the project team, but by the organization as a whole. Many of these impacts extend well beyond the lifecycle of a given project. When valuable employees leave the organization, the costs are severe and in some cases we can never recover fully. A legacy of failed change presents a significant and ever-present backdrop that all future changes will encounter.

The organizational costs and risks of poorly managing change include:

Costs:

• Productivity plunges (deep and sustained)
• Loss of valued employees
• Reduced quality of work

Risks:

• Impact on customers
• Impact on suppliers
• Morale declines
• Legacy of failed change
• Stress, confusion, fatigue
• Change saturation

Applying change management effectively on a particular project or initiative allows you to avoid organizational costs and risks which last well beyond the life of the project.

A third dimension of costs and risks

There is one final dimension of costs and risks to consider, beyond the project and organizational impacts. When we try to introduce a change without using effective change management, we are much less likely to implement the change and fully realize the expected results and outcomes. This final dimension provides answers to the question: what if the change is not fully implemented?

If the change does not deliver the results and outcomes - in large part because we ignored the people side of change - there are additional costs and risk including:

Costs if the change is not fully implemented:

• Lost investment made in the project
• Lost opportunity to have invested in other projects

Risks if the change is not fully implemented:

• Expenses not reduced
• Efficiencies not gained
• Revenue not increased
• Market share not captured
• Waste not reduced
• Regulations not met

Positioning change management

This tutorial presented another approach for making the case for change management. Instead of focusing on the "up side" of applying change management effectively on a project or initiative, the line of thinking here related to the costs and risks of ignoring or poorly managing change. Communicating the impact of change management, or lack thereof, in terms of costs and risks can be a powerful approach if these are prevailing concepts for your organization or your audiences.

• Effective change management helps us avoid additional and excessive costs we will incur if we do not adequately manage the people side of change.

• Effective change management helps us mitigate additional and excessive risks we will take on if we do not adequately manage the people side of change.

Positioning change management as a cost avoidance technique or a risk mitigation tactic can be an effective approach to sharing the value of change management and gaining support for assigning the time, energy and resources to managing the people side of change.

Did you miss one of the first "Case for change management" tutorials?

Module 1 - The case for change management overview: results and outcomes

Module 2 - The individual is the unit of change

Module 3 - Correlating success and change management effectiveness

Module 4 - ROI of change management

Prosci Change Management Certification