Cost-benefit analysis for change
From the "why change management" tutorial series
Prosci is releasing a four-part series on "why change management" to
provide several different perspectives on how to make the case for
applying a structured approach to manage the people side of change for
organizational initiatives. This series includes:
- Correlation data on the impact of effective change management
- Cost-benefit analysis for change management
- Case study on project impact of effective change management
- Emergence of change management
This tutorial presents a cost-benefit analysis for investing in
change management. It presents five perspectives on the "benefits" of
applying change management on projects in the organization. Given the
importance of change in today's environment, these approaches to making
the case for change management can help ensure that change management is
viewed as a "must have" and not a "nice to have" on the projects you
Tutorial highlights -
- There are numerous approaches to sharing
the benefits change management brings to
- When making the cost-benefit analysis,
appeal to what your audience cares about
- Download the
Cost-benefit analysis overview
When evaluating whether or not to undertake an effort, many leaders
and decision makers conduct a cost-benefit analysis. This process
involves identifying and listing out the potential costs of the
undertaking and the expected benefits of the undertaking. When
discussing the value and importance of change management,
cost-benefit analysis can be a powerful framework. Below is a simple table showing likely costs and
five different perspectives on the benefits of applying change
management on projects and initiatives.
Change management cost-benefit analysis
applying change management
applying change management
Dedicated resource(s) on project team.
small change to a change-ready group, the project manager
may take on the responsibility. For a large change to a
change-resistant group, this might be a team of people
with supporting subteams. In either case, there needs to
be someone dedicated to the people side of change working on the project.
Procurement of methodology and tools
use by change management resource(s)
Purchase of source
materials for use by managers and supervisors in their
Training time and costs for everyone
involved - managers and supervisors as coaches of
change, senior leaders as sponsors of change, change
management resource(s), project teams
Perspective 1: three "people side"
ROI factors - faster speed of adoption,
higher ultimate utilization and higher
proficiency; change management drives
Perspective 2: cost avoidance - poorly
managing change is costly to the project and the
organization; change management
is a cost avoidance tactic
Perspective 3: risk mitigation - individuals,
the project and the organization are all put at risk
when change is poorly managed;
change management is a tool to mitigate risks
Perspective 4: benefits realization insurance
- consider how much of the value of the project
ultimately depends on people doing their jobs
differently; change management
provides benefits realization insurance
Perspective 5: probability of meeting objectives
- data shows that projects with effective change
management in place are more likely to meet objectives,
stay on schedule and stay on budget;
change management increases the
probability of meeting objectives
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Below are more in-depth discussions of the five
benefit perspectives presented in the cost-benefit chart above. These are not
necessarily sequenced in
the order that you would use them. Rather, know your audience
and select the benefit perspectives that will be the most effective. Focus on the
concerns of your audience and connect change management to their success
by picking the right mix from the benefit perspectives presented below.
Benefit perspective 1 - three "people side" ROI factors
Prosci's ROI of change management model describes the three "people
side" factors which contribute to, or limit, the value a change delivers
to the organization. The foundation of the three factors is that
time a change requires individuals to do their jobs differently, it is how
effectively those individuals make the change that determines the
business value the project delivers for the organization. The three ROI
- Speed of adoption - How fast do people adopt the new
processes or behaviors?
- Ultimate utilization - How many impacted employees made the
change (and how many did not)?
- Proficiency - How effective were employees at following the
new processes or behaviors?
These three factors are universal - whenever a change requires
employees to change how they do their jobs there are elements of
fast, how many and
how effectively. Unfortunately, many project teams do
not consider, or make implicit assumptions about, the people side of
their change. A team supporting a large IT implementation that gives
users new interfaces might implicitly and erroneously assume that all users (100%
ultimate utilization) will begin expertly using the system (extremely
high proficiency) the day that the system goes live (instantaneous speed
of adoption). When the three people side factors are added to the
business case and ROI calculations, the importance of change management
is highlighted. The three factors can even be used to conduct
sensitivity analysis to generate actual numeric values for the impact
the people side factors have on ROI (for instance, if speed of adoption
was over six weeks instead of three and 15% of users did not adopt the
system, then the ROI for the project would actually be X instead of Y).
The three "people side" ROI factors can help you to:
- More clearly define the individual changes required by a project
at its initiation.
- Calculate the impact of slower speed of adoption, lower ultimate
utilization and lower proficiency - and position change management as a
tool for delivering business results in concrete terms.
- Elevate the discussion and document assumptions early on in the
process related to the people side of change
The worksheet below helps you to think about a change you are
supporting and identify the thee "people side" ROI factors.
"people side" ROI factors worksheet
|Name of project:
|One group that is being impacted
by the change:
|Identify the specific changes in
or processes required
of this group.
|Speed of adoption:
What does "adopting the
change" mean for this group?
How would you measure if someone had "adopted" the change
in their day-to-day work?
Define utilization for this group.
How would you measure how
in the group have adopted the
What would adopting the change proficiently
How would proficiency be demonstrated?
How would you measure it?
* Download a PDF with all of the
Benefit perspective 2 - cost avoidance
When changes are poorly managed - there are real and tangible costs
to the organization. When change management is applied effectively,
these costs can be avoided or minimized. Some of the costs are difficult
to quantify - such as morale declines - but some of the costs are very
concrete and easily quantified. One way to characterize the benefits of
change management is as a cost avoidance mechanism.
|Costs to the organization if
change is poorly managed
(those that can be more easily quantified are italicized):
- Productivity plunges (deep and sustained)
- Impact on customers
- Impact on suppliers
- Loss of valued employees
- Morale declines
- Decline in quality of work
- Resistance (both active and passive)
- History of failed change
- Stress, confusion, fatigue
- Change saturation
Costs to the organization if the change is not
- These costs are tied directly to what the change was
aiming to do.
- These costs could include: expenses not reduced,
efficiencies not gained, revenue not increased, market
share not gained, waste not eliminated, regulations not
met resulting in fines/penalties, etc.
- Additionally, the organization loses the investment
made in the project when the project does not deliver
|Costs to the project if change
is poorly managed:
- Project delays
- Missed milestones
- Project put on hold
- Resources not made available to project team
- Budget overruns
- Obstacles appear unexpectedly
- Rework required on project design
- Project fails to deliver on objectives
- Project is fully abandoned
- Loss of work by project team
The worksheet below gives you the opportunity to define - in
as specific terms as possible - the costs you can avoid on your
projects by applying change management.
Identify costs to the
organization of poorly
(where possible, estimate a dollar value)
Identify costs to the
project of poorly
(where possible, estimate a dollar value)
Identify potential costs to the
organization if the project is not
(where possible, estimate a dollar value)
Benefit perspective 3 - risk mitigation
Another perspective, similar to the cost avoidance perspective, is to
outline the potentials risks to the project and the organization
associated with the people side of change. Risk management on projects
is a well-developed discipline. The Project Management Institute even
has a PMI Risk Management Professional®
credential complete with an application, audit and examination process.
If your organization already conducts extensive risk assessments on
projects, work to position "people-side risk"
as one of the risks that
is considered along with other risks like financial risks, technology
risks, schedule risks and dependency risks. If a project is being
planned and has a high "people-side risk" component, then applying a
structured approach to change management is the right risk mitigation
The worksheet below helps you identify the people side risks
and potential consequences for the project and the organization.
Risk mitigation worksheet
|Outline the three biggest
this particular change:
|Outline the three biggest |
risks facing the
the people side of
change is ignored:
|Outline the three biggest
risks to the organization
if the change fails:
* PMI Risk Management Professional (PMI-RMP) is a registered
trademark of Project Management Institute, Inc.
Benefit perspective 4 - benefits realization insurance
The fourth perspective is benefits realization insurance. Here, the
context for showing the value of change management is tied to an
examination of the potential benefits the project is working to achieve.
The objectives of the project - as outlined in the project charter,
business case or project plan - are a good starting point. For each
objective, ask yourself, "is meeting this objective dependant on people
doing their job differently?" For some of the questions the answer might
be "no" - such as lower maintenance contract costs for a new piece of
technology. But, many of the objectives will be tied directly to the
people side of change. For these objectives, you can ask the follow up
question of, "what percentage of these benefits result from people doing
their jobs differently?" This is the amount of benefit you can "insure"
by applying a solid change management approach - and the amount of the
benefit you are leaving uninsured by not investing in change management.
The worksheet below walks you through the process of
estimating a percentage of benefits tied to the people side of
Benefits realization insurance worksheet
|How much "people change"
will this project
|Identify several of the primary
required by the project.
List five of the objectives of this
particular change and identify if they are dependent on the
people side of change and how much of the benefit is tied to
people doing their jobs differently.
Is meeting this objective dependant on people doing their
What percentage of these benefits result from people doing
their jobs differently?
|What percentage of the overall
project benefits are tied to people
doing their jobs differently?
|How effectively have you insured
this portion of the project benefits?
Benefit perspective 5 - probability of meeting objectives
The final benefit perspective is probability of meeting objectives.
This is tied to the growing body of data which shows that more effective
change management results in a higher likelihood of delivering intended
results. A 2002 McKinsey Quarterly article titled
"Helping Employees Embrace Change"
shows a direct correlation between value delivered to the organization
and the effectiveness of change management - with projects featuring
effective change management delivering five times the value of projects
with poor change management. Likewise, Prosci's last
three benchmarking studies included correlation analysis on the
relationship between meeting objectives and effective change management.
tutorial in this series shared the 2009 benchmarking data
correlating change management effectiveness to meeting project
objectives, staying on schedule and staying on budget. Below is the
graph showing change management effectiveness correlated to meeting or
exceeding objectives. Projects with "excellent" change management in
place were six times more likely to meet objectives than those with
"poor" change management - and even those using "good" change management
were five times more likely to meet objectives.
Below is a simple table summarizing the five "benefit" perspectives.
Based on your audience, your organization and your culture - select the
most compelling benefit perspectives and work to make them as specific
to your change as possible.
Download a PDF with all of the
benefit worksheets presented above.
|Summary of five "benefit" perspectives
for change management
three "people side" ROI
|Change occurs at the individual level. The value that a
project delivers to the organization is ultimately tied to
how quickly we can get individuals to make the changes
required (speed of adoption), how many of them do their work
the new way (ultimate utilization) and how effective each
one of them is when they have adopted the change
|We incur significant and quantifiable costs when changes
are poorly managed, at both the project and the
organizational levels. In addition to the extra costs of
fixing the people-side issues that creep if we ignore change
management up front, the organization also fails to derive
the value it needed from the project in the first place.
Change management is an effective cost avoidance technique
we can apply on our projects.
|Ignoring the people side of change results in numerous
risks to the project and to the organization. We leave
ourselves exposed to these people risk if we do not use a
structured approach for managing the people side of change.
When applied effectively, change management can help to
mitigate or eliminate many of the numerous risks associated
with the people side of change.
|For the most important and most strategic changes in the
organization, much of the value that is expected is tied to
how people do their jobs. Applying a structured change
management approach is like taking out an insurance policy
against the goals and objectives of the project.
probability of meeting
|There is a growing body of data showing that the more
effectively the people side of change is managed, the more
likely the project is to meet objectives. Prosci's
benchmarking data and the McKinsey Quarterly article
"Helping employees embrace change" show that projects with
effective change management were five to six times more
successful than projects that did not address the people
side of change effectively.
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Change Management: the people side of change ($18.95 /
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Employee's Survival Guide to Change ($14.95 / quantity discounts
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