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Cost-benefit analysis for change management

 

The cost-benefit analysis for change management is not unlike other cost-benefit analyses - you are attempting to show the relationship between what it costs to manage the people side of change and the benefits of applying a structured approach to enabling and encouraging employees to adopt a change. You will only receive the buy in and investment necessary to apply change management if you can "tip the scale" by showing that the real and tangible benefits of change management outweigh the costs. This tutorial presents the cost components of change management and five benefit perspectives you can use to make the case.

 

The costs of change management

Applying change management on a project is not free. It takes time, energy and resources. According to the Prosci 2011 benchmarking study, the primary cost components of change management include:

  • Change management resource costs - Salary and compensation for change management practitioners
  • Training costs - Design, development, delivery and materials
  • Communications costs - Design, development, delivery and materials

In addition to these primary cost components which were identified most frequently, there were several secondary cost components identified by study participants including:

  • Consultant costs
  • General expenses
  • Event costs (workshops, group meetings, “lunch and learn” events, road shows and town hall meetings)
  • Change management materials
  • Reinforcement and recognition costs

 

Estimating costs for change management can be tricky. Several approaches include:

  • Allocating as a percentage of total project budget
  • Allocating as a percentage of project FTE (Full Time Equivalents)
  • Adding in the nature and complexity of the change to scale resource requirements (i.e. a small, incremental change does not require the same change management resources as a large, dramatic change)
  • Estimating work required to complete change management activities (i.e. creating a work breakdown structure of the activities in the methodology and estimating time for completion)
  • Drawing on previous experience and examples in your organization

 

To "tip the scale" toward buy-in and investment in managing the people side of change, the benefits of change management must outweigh these cost components.

 

 

The benefits of change management

When articulating the benefits of change management, it is essential to begin and end with one concept: achievement of the results and objectives of the project or initiative. There are numerous benefit perspectives for change management, but to make a compelling case that wins the hearts and minds of your audience, you must connect each of these benefits back to the intended outcomes of the project or initiative.

Change management is only valuable because it increases the successful implementation of change.

Below are five "benefit perspectives" with the associated analysis and story about how change management improves the successful implementation of projects and initiatives.

Benefit perspective The story
1. Benefits realization
insurance
Benefits realization (achievement of results and outcomes) depends on individuals embracing, adopting and utilizing a change. If individuals do not change how they do their job - e.g. use the new technologies, adhere to the new processes, exhibit the new behaviors - then the change will not occur and benefits cannot be realized. This is the reality of change. Change management is a solution to the reality of change, not an add-on.

Change management provides a structured approach to enabling and encouraging the individual transitions required by a project or initiative.

2. Likelihood of success There is a direct and distinct correlation between the effectiveness of change management and the likelihood of meeting objectives, staying on schedule and staying on budget. Prosci's research over the last three studies shows that projects with excellent change management met or exceeded objectives 95% of the time, while projects with poor change management met or exceeded objectives 15% of the time.

With more effective change management, the probability of meeting objectives on time and on budget increases significantly.

3. People side factors that
define project ROI
Any time a change impacts how employees do their jobs, there are three people side factors that define or constrain return on investment. The Prosci ROI of Change Management Model identifies these three factors as: speed of adoption (how quickly employees make the change), ultimate utilization (how many of them in total make the change) and proficiency (how effective they are when they have made the change). When the people side of change is not managed effectively, employees are slower to make the change, fewer of them make the change and they are less effective once they have made the change. Each of these factors directly impacts project ROI.

Effective change management results in faster speed of adoption, higher ultimate utilization and greater proficiency, which all drive higher ROI.

4. Two costly letters in
implementing change

When the people side of change is ignored or addressed late in a project, the result is a number of wasteful, non-value adding, costly and discouraging REs: redesign, rework, revisit, redo, reevaluate, retrain, rescope, reschedule. Project teams absorb these costs in terms of budget impacts and schedule delays. When the people side of change is addressed up front, these REs can be avoided.

Effective change management helps eliminate many unnecessary “RE” costs that can crush a project and destroy ROI.

5. Avoiding costs and
minimizing risks
Poorly managing the people side of change adds excessive costs and risks at two levels: the project level and the organizational level. The consequences for the project include: delays, budget overruns, loss of work by project team, active resistance, passive resistance, and resources not being made available. The consequences for the organization include: productivity plunges, loss of valued employees, reduced quality of work, morale declines, stress, confusion and fatigue.

Change management is an effective cost avoidance and risk mitigation tool.

 

 

What is the hold up?

The logic is sound: projects and initiatives ultimately require individuals to do their jobs differently. The correlation data is clear (from Prosci and other sources): the likelihood of success increases with effective change management. The people side ROI factors can be quantified: you can calculate the impact of speed of adoption, ultimate utilization and proficiency. Furthermore, there are countless anecdotes and examples of the costly nature of ignoring the people side of change.

However, organizations still seem to encounter some reluctance to fully invest and commit to change management. Many practitioners still face the situation where the decision to invest in change management is not occurring. We would like to hear from you. In your experience, "what is the hold up?" What reasons have you seen for the lack of investment and commitment to change management even in the face of a compelling case for the benefits? Use the form below to share your thoughts and Prosci will release a tutorial in the coming weeks to share the results.

 

 

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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

Download the certification program brochure

Upcoming sessions with availability:

  • Dec 20 - 22, 2011: San Francisco, CA area
  • Jan 24 - 26, 2012: San Francisco, CA area
  • Jan 24 - 26, 2012: Denver, CO area
  • Feb 14 - 16, 2012: Washington, DC area
  • Feb 14 - 16, 2012: San Francisco, CA area
  • Feb 28 - Mar 1, 2012: Chicago, IL area
  • Feb 28 - Mar 1, 2012: Orlando, FL area
  • March 6 - 8, 2012: Orlando, FL area
  • March 13 - 15, 2012: San Francisco, CA area
  • March 13 - 15, 2012: Houston, TX area
  • March 20 - 22, 2012: Denver, CO area
  • March 27 - 29, 2012: Washington, DC area

Visit the certification training page

Email a certification inquiry or call
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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Email a Prosci analyst or call 970-203-9332 with questions about the methodology, its application, or finding the right resources to support your change management activities.

 

 


 

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