The logic is sound: projects and initiatives ultimately require individuals to do their jobs differently. The correlation data is clear: the likelihood of success increases with effective change management.

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 time, resources and budget in change management is not occurring.

Below is a cost-benefit analysis for investing in change management, including five perspectives on the benefits of applying change management on projects in your organization. Given the importance of change in today's environment, these approaches to making the case for change management can ensure that change management is viewed as a "must have" and not a "nice to have" on the projects you support.

Cost-Benefit Analysis Overview

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. 

The research findings on the cost of change management below are fairly straight forward. The benefits side of the equation is where the discussion can be tricky. To enhance the cost-benefit analysis, you can draw upon five, specific benefit perspectives to make your case for change management: 

  • Benefit perspective 1: three people-side ROI factors Faster speed of adoption, higher ultimate utilization, and higher proficiency. Change management drives project ROI.
  • Benefit perspective 2: cost avoidance – Poorly managing change is costly to the project and the organization. Change management is a cost avoidance tactic.
  • Benefit 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.
  • Benefit 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.
  • Benefit 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.

The Cost of Change Management

Applying change management on a project is not free. It takes time, energy and resources. According to Best Practices in Change Management research, the primary cost components of change management include:

  • Change management resource costs
  • Training costs
  • Communications costs
  • Travel costs
  • Time
  • Change management material costs

In addition to these primary cost components which were identified most frequently, there can be several secondary costs:

  • Consultant costs
  • General expenses
  • Event costs (workshops, group meetings, "lunch and learn" events, road shows, and town hall meetings)
  • Reinforcement and recognition costs

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

Benefit Perspective 1 – Three People-Side ROI Factors

Change occurs at the individual level. Prosci's ROI of change management model focuses on three people-side factors, which contribute to or limit the value a change delivers to the organization. Here are questions you can ask to assess these factors for your project:

  • 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 unique for your particular change but universal in terms of impacting project ROI. Unfortunately, many project teams make implicit assumptions about or fail to consider the people side of their change. For example, 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, you can highlight the importance of change management. 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, the ROI for the project would actually be X instead of Y.)

The three people-side ROI factors can help you:

  1. More clearly define the individual changes required by a project at its initiation
  2. 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
  3. Elevate the discussion and document assumptions early in the process related to the people side of change

Benefit Perspective 2 – Cost Avoidance

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 up if we ignore change management up front, the organization also fails to derive the value it needs from the project in the first place. Change management is an effective cost avoidance technique we can apply on our projects.

Costs to the ORGANIZATION if change is poorly managed:

  • 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 and fatigue
  • Change saturation

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

Costs if the change is NOT IMPLEMENTED:

  • 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 results.

When change management is applied effectively, these costs can be avoided or minimized. Some of the costs are difficult to quantify, such as declines in morale, but some costs are concrete and easily quantified.

Benefit Perspective 3 – Risk Mitigation

Another perspective, similar to the cost avoidance perspective, is to outline the potential risks to the project and the organization associated with the people side of change. Risk management on projects is a well-developed discipline.

If your organization already conducts extensive risk assessments on projects, work to position "people-side risk" as one of the risks 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, applying a structured approach to change management is the right risk mitigation technique.

Benefit Perspective 4 – Benefits Realization Insurance

For the most important and most strategic changes in the organization, much of the expected value 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, superficially the portion that depends on employee adoption and usage.

Here, the context for showing the value of change management is tied to the overall value the project is working to achieve. The project objectives outlined in the project charter, business case or project plan are a good starting point. For each objective, ask yourself, "Is meeting this objective dependent 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, "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).

Benefit Perspective 5 – Probability of Meeting Objectives

The final benefit perspective, probability of meeting objectives, is tied to the growing body of data which shows that more effective change management results in a higher likelihood of delivering intended results. Projects with effective change management are five to six times more successful than projects that did not address the people side of change effectively.

The graph below correlates change management effectiveness with meeting or exceeding objectives. Data from over 2,700 change practitioners showed that projects with excellent change management were six times more likely to meet objectives than those with poor change management. Even those using good change management were five times more likely to meet objectives.

Projects that meet or exceed objectives when change management is applied

The Power of Cost-Benefit Analysis

When discussing the value and importance of change management, a cost-benefit analysis can be a powerful framework. These benefits 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 above.

Based on your audience, your organization and your culture, you can select the most compelling benefit perspectives and work to make them as specific to your change as possible. The right benefits in your cost-benefit analysis can “tip the scale” towards investing in change management.

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