How to Budget for Change Management
Written by Al Lee-Bourke
When it comes to money, change management isn’t cheap. You're looking at around 10% of project costs in large programs. And if you're dealing with projects worth over ten million dollars, you're looking at change management expenses in the millions. But listen, it's not all about the money. Customizing that budget to fit your organization's specific needs is key. So, make sure to assess the resources and budget you need for change management success and distribute accordingly. You’ve got to negotiate and figure out a budget based on what's realistic and doable for your organization.
This blog is a chapter excerpt from the book, "What They Don't Teach You at Change Management School:
From Theory to Practice and Everything in Between," by Al Lee-Bourke.
The original chapter is entitled, "How much does it cost?" It is republished here with permission.
As I gear up for a change management process, folks always ask me about the cost of implementing the change and getting a certain level of adoption. The cost of change management can vary a lot depending on the size and complexity of the change being implemented, as well as the resources and budget available to the organization.
To help answer these questions, I turn to research conducted by Prosci. They've published a document called Best Practices in Change Management, which has some great statistical info on the cost of change. At this writing, the current edition is the 11th, and I recommend checking out pages 124 to 136 for a treasure trove of statistics on this topic. These figures give me some helpful guidance as I try to estimate the resources I'll need to successfully implement the change.
Prosci’s Best Practices in Change Management – 12th Edition interactive report
has arrived in Research Hub, and it's revolutionizing the way practitioners apply change management research!
Change Management spend as a proportion of the overall budget
As of this writing, if you've got a project budget over ten million dollars, organizations spend around 2.5 million dollars on change management. And don't forget, this includes about 4.61 full-time people dedicated to making sure the change goes off without a hitch. This cash usually comes from the project budget; the most common percentage given to Adoption and Change Management is 10%. Just remember that when you're planning your expenses.
What is the budget spent on?
According to Prosci, the big money in a change management initiative usually goes towards resources. That means paying practitioners, training, communication, and other expenses. By understanding how change management initiatives are usually funded, organizations can use this information as a starting point for building and funding their own change management initiatives.
This information can give you a sense of how change management is typically budgeted for in big programs. But it's crucial to customize this stuff to your organization's specific needs and consider what's doable and realistic. This information can be a jumping-off point for negotiating and figuring out a budget for change management in your organization. Bottom line: you’ve got to assess the resources and budget needed for success and distribute accordingly.
What should I include in the budget?
If you want to successfully implement a change initiative, you're going to need to budget for all the resources and costs involved. That means you should be prepared to pay out for compensation, training, communications, support for your people, project management, consulting, technology, travel, vendor services, and even some contingency funds for any unexpected costs that might pop up.
How do I structure the budget?
It's like asking how long is a piece of string, but I can try to lay out some general guidelines that might give you a clue. I like to think about change programs in three parts – it’s what Prosci's three-phase approach is all about: Prepare for Change, Manage Change, and Sustain Outcomes. Or, if you prefer, Phase 1: Baseline Planning, Phase 2: Delivery Sprints, and Phase 3: Transition Sprints. Either way, it basically comes down to this: Phase 1: Analyze stuff, Phase 2: Do stuff, and Phase 3: Keep doing stuff.
Now, you can align your budget with these three phases. For example, in Phase 1, you're analyzing all sorts of things, trying to figure out the size and scope of the program. At the end of this phase, you might produce some kind of document summarizing your findings and outlining what's next—sometimes, this document is called a Project Approach Document (PAD). To budget for this project, you can figure out how much time and cash it'll take to whip up a PAD (if you're using one). The PAD will give us an idea of how much money we'll need to spend in Phases 2 and 3, and we can use it to hit up the powers that be for some money.
However, this approach only covers Phase 1, and it might not work if you need to budget for the whole project upfront. It also has the disadvantage that after Phase 1, the project team might say, thanks for that, we'll use what we've got, and we don't need the rest—I've seen that happen before.
So, my recommendation is to budget for all three phases upfront. Use the Prosci insights and cost items I mentioned earlier and get someone who's done this kind of work a lot to help out. Experience goes a long way.