Change Management

The Return on Investment in Change Management

If your company is considering a major change project, anything from a software implementation to a merger/acquisition, this blog may help you as it focuses on the benefits of Change Management and its impact on obtaining a project return on investment (ROI).

Companies are spending millions for business improvement projects whose costs will far outweigh their realised benefits and one of the reasons is their approach to change management.

  • Why are so many companies making the same mistake?
  • What could companies who do not want to fall into this trap do differently?

Being unsuccessful in change management may result in the following:

  • Lack of commitment and follow through by senior executives;
  • Defective project management skills among middle managers;
  • Lack of training of and confusion among frontline employees;
  • 35% of ROI when there was a poor OCM program or no program.

Being successful in change management may result in the following:

  • Senior and middle managers and frontline employees were all involved;
  • Everyone’s responsibilities were clear;
  • Reasons for the project were understood and accepted throughout the organisation;
  • Frontline employees are skilled to take on changes to ways of working and competency in new tools and applications;
  • 143% of ROI when an excellent OCM (Organisational Change Management) program was part of the initiative.

Measuring A Project’s Return on Investment

For a project to get approved, there has to be a business case. A business case looks at the cost of improvement project and compares that against the benefits the company will gain. If the benefits outweigh the costs, the ROI is positive and thus the project is approved.

The formula for calculating Return on Investment (ROI) is:

The Benefit Of Project is based on the project’s purpose. The purpose could range from increasing sales to reducing the cost of handling customers. One generally estimates that making certain changes to the business, installing new software, making processes more efficient etc will yield a particular project benefit that has a financial amount associated with it.

The Project Cost includes direct costs, such as hardware and software, project resources dedicated to the project, as well as indirect costs – these, for example, can include items such as the salaries for the time period people are on the improvement project, travel costs and business resource allocation costs. Salaries and business resource allocation costs are important to include because the time employees spend on the improvement project should be seen as a cost to the organisation. The longer the project takes, the longer employees will be away from their primary job whether it is sales, marketing or manufacturing. If they are working on an improvement project, they cannot spend the same amount of time they normally would in their regular job.

If a project delays due to politics, lack of planning, unforeseen issues, or other reasons, as is often the case, the overall cost of the project increases because the time to implement the project has gone beyond the original estimate. As the costs increase, any potential benefit starts to be chipped away and in some cases more money is spent on the improvement than the improvement ends up providing. An organisation that does not consider all costs is putting the organisation at a huge financial risk because the project’s scope, timeline and therefore budget increase.

Within this context of project ROI, the following provides consequences of poor versus effective change management.

Failure in Change Management

  • Lack of executive sponsorship
  • Lack of early stakeholder input
  • Poorly defined or changing specifications
  • Unrealistic expectations
  • Uncooperative business partners
  • Poor or dishonest communication
  • Lack of guidance
  • Integration woes
  • No long-term strategy
  • Dirty data
  • Lack of employee buy-in
  • No accountability

Success in Change Management

  • Effective and strong executive sponsorship
  • Buy-in from front line managers and employees
  • Exceptional teams
  • Continuous and targeted communication
  • Planned and organised approach

Here are just some of the challenges in change management which all contribute to a successful project when they are given enough focus enabling people to accept the changes that they are presented with both personally and professionally.

  • Employee resistance at all levels
  • Middle-management resistance
  • Poor executive sponsorship
  • Limited time, budget, and resources
  • Corporate inertia and politics

Generally, successful projects allocate a budget of between 7% and 15% to change management of total budget spend.

Organisational Change Management

Studies show that many different analysts and research companies have found very similar results. The purpose of OCM is to mitigate the risks of a project, including costs, scheduling, and performance. OCM does this by facilitating greater economic value faster by effectively developing, deploying, and aligning the company’s assets for a given project.  It accelerates change adoption.

As businesses face shrinking margins, global competition, and the need to deliver on loyalty-creating customer experiences, they will also face the need to change the way they do business. As companies evaluate improvement projects they should consider the financial contribution that OCM makes and the returns of investment.

09 August 2021

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