4 Questions to Answer When Factoring Change Management into Return On Investment (ROI)
EXPLORING THE VALUE OF CHANGE MANAGEMENT & ROI: PART 1
Leaders regularly find themselves in the position of Sponsor for significant changes happening in their organizations. It is the Sponsor’s job to provide the project team with the leadership, support and resources they need to successfully manage all aspects of each change. Sponsors need to resource both the ‘hard costs’ — like purchase of new equipment, software or real estate — and the ‘soft costs’ that are more difficult to capture, track and report – like managing the anxiety, fear and frustration of the people who are impacted by change. The cost of these resources, whether as dollars, staff and/or time, must all be factored into the choice to make the change or not. From a Return On Investment (ROI) standpoint, the decision to change might actually be better off when based on both data and a more intuitive feel. Regardless, it is our perspective at LaMarsh Global that calculation of projected ROI is a bit of both art and science.
The hard and soft data points required to do a solid and trusted ROI calculations include multiple factors. Some are easily captured and others are impossible to accurately predict, collect or document. In our many years of helping organizations manage change, we always position the ROI discussion to focus on the results the organization is trying to achieve and the factors that will enable it to achieve intended and expected results. We express this refocus with a very simple formula — R = Qs x A.
R = Qs x A
Results = Quality of Solution x Acceptance of the Solution
We typically find that many business case ROI calculations focus on only two portions of the above equation — Results (R) and Quality of the Solution (Qs) — by describing the opportunity, alternatives considered, proposed solution, total cost of ownership and projected benefits — which are most likely expressed in limited financial terms. Yes, there is generally provision for much-needed internal or external project management resources, but only sometimes an assessment of risk is included that hints at the fact that people and processes will also need to change. Overall, this integral piece of successful change management is rarely mentioned nor calculated into the costs of the Quality Solution (Qs). This incomplete justification of the investment in the change completely ignores this Acceptance (A) variable. So what about the A in the equation?
Yes, there is generally provision for much-needed internal or external project management resources, but only sometimes an assessment of risk is included that hints at the fact that people and processes will also need to change.
We rarely see any mention of the need for Acceptance of the Solution by the people impacted in an ROI strategy or calculation. In our LaMarsh Global practice, we have come to the realization that the ROI in most business cases is based upon an assumed acceptance rate of 100%, with no recognition of the complete costs to get the organization there. In many instances, there is no plan to help the people make the change. Without a plan, the focus often becomes picking the best solution and getting the implementation completed on time and on budget, rather than ensuring that the people are ready for the change or have accepted it. This approach under-estimates the total costs and over-estimates the overall ROI.
Of course, we don’t want to minimize the importance of managing a project schedule to completion. This is extremely important, highly complex and challenging work. It is an essential element of successful project implementation and change management. However, we often find that to do it well, it is so time consuming for the person managing the project that little time is left to give the people side of the change the attention it deserves and requires. Yet it is the people who are impacted who must breathe life into the Quality Solution (Qs) if it is to be implemented successfully and the intended Results (R) that are sold to executive leadership are to be achieved.
The Qs chosen is certainly a critical element in getting the results you need. However, even if you put the very best solution in place; if you have poor or mediocre acceptance because good change management was not employed, you won’t realize the results promised to the executive team bankrolling the change. Conversely, if you use good change management and acceptance is high, even for a solution that is not the very best, your results will still be greatly improved. This second potential outcome should force us to closely evaluate the Qs and answer the following four questions:
- What are the minimum Results (R) we need to achieve to be successful?
- What will it take to implement the best Quality Solution (Qs)?
- What support do we need to provide to those who are impacted so that they achieve Acceptance (A)?
- What level of Acceptance (A) is required for this change to be successful?
A McKinsey study of 40 large-scale change projects found ROI to be 143% when supported by an “excellent” change management program compared to just 35% with “poor” or no change management program support. In the end, it’s important to bring in change management at the start of the next implementation and to factor change management into the ROI discussion from the very beginning. These questions are a good start.