After considering the 5 benefit perspectives of OCM discussed in Part I and II of this blog series, the next step is to assign a value to the benefits that are quantifiable and add these to a cost-benefit equation. We need to consider two pieces of data to start ROI analysis:
- What are the expected benefits of the project?
- What if no employees adopted or used the new changes?
Not only is this data valuable, but you will also find value in engaging with project and senior leaders to collect these numbers. With these two endpoints, you can analyze and measure the impact of change management. However, for the first data set of ‘expected benefits,’ you will need to identify which benefits are dependent on employee adoption and usage of the solution and which ones are independent of employee adoption and usage.
Benefits Independent of Employee Adoption and Usage
In order to quantify the expected project benefits, we need to break them apart into what is independent or dependent on adoption and usage. For example, suppose we want to replace a particular piece of software with lower license fees. Those benefits are achieved regardless of adoption and usage. This would fall into the first category, ‘Independent of adoption and usage’.
Benefits Dependent on Employee Adoption and Usage
The other category of expected project benefits includes those that would be ‘dependent on adoption and usage’. Suppose a new software program not only has lower license fees (the independent benefits) but could produce more accurate and timely data if it is used skillfully by employees. This, in turn, is expected to reduce errors and improve performance. These benefits resulted from employees adopting and using the new system effectively.
It is important to keep in mind that each change has its own amount of dependency on adoption and usage, for example, technology upgrades versus process changes. Factors like the ones below can impact the adoption/usage-dependent portion of a project:
- Few employees impacted vs. many employees impacted
- Few aspects of work impacted vs. many aspects of work impacted
- Single location vs. many locations
- Small departure from current state vs. large departure from current state
- Incremental change vs. disruptive change
- Something familiar vs. something vastly different
Typically, most transformations involve operational business process improvements in conjunction with technological optimizations, like an Esri Utility Network (UN) implementation. However, in the example below we are separating them into two different projects. Here are two examples that illustrate the people-side benefit contribution or the project ‘benefits that are dependent on adoption and usage’.
So, both Project A and Project B have the same expected project benefits ($1 million). However, we intuitively know that the benefits associated with a hardware upgrade and those from a process optimization are different. To quantify the people-side benefit contribution, we ask a simple question: What would the expected benefits be if adoption and usage were 0? If no employees change the way they do their job when this project goes live, how much value would be realized?
With this example, we can assign the values shown in the table below when adoption and usage are 0. Then, we calculate the amount of project benefits tied to adoption and usage by subtracting the expected benefits when adoption and usage are 0 from the expected project benefits.
The last step is to divide the people-side benefit contribution by the expected project benefits which gives us the People-side Benefit Coefficient. The People-Side Benefit Coefficient helps us understand the degree to which user adoption and usage impacts the value generated from a properly developed technical solution.
The last step is to divide the people-side benefit contribution by the expected project benefits which gives us the People-side Benefit Coefficient. The People-Side Benefit Coefficient helps us understand the degree to which user adoption and usage impacts the value generated from a properly developed technical solution.
Keeping in mind the examples above, change management will have a smaller impact (and a lower ROI) on Project A (the hardware upgrade) than on Project B (the process optimization), as more of Project B’s results depend on employee adoption and usage due to the nature of the change.
Keeping in mind the examples above, change management will have a smaller impact (and a lower ROI) on Project A (the hardware upgrade) than on Project B (the process optimization), as more of Project B’s results depend on employee adoption and usage due to the nature of the change.
Primary Direct Costs:
- Staff time
- Training
- Communications
- Travel
- Materials
Secondary Direct Costs:
- Consultant costs
- Event costs (workshops, group meetings, “lunch and learn” events, road shows and town hall meetings)
- Reinforcement/recognition costs
- General expenses
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. Typically, organizations spend anywhere from 5-15% of the project budget on change management. So let’s say the direct costs of an OCM component for each of the projects in our example is $100,00.
When we subtract the OCM Direct Costs from the Dependent Benefits, we arrive at the ROI of investing in change management.
For Project A, since the Dependent Benefits are equal to the OCM Direct Costs, our ROI is 0 and change management would not be an effective investment in this project. However, in Project B our ROI is $650,00 so implementing an OCM program would be imperative to ensure success of the project. Typically, if the People-Side Benefit Coefficient is higher than 20%, OCM would produce a positive ROI.
It’s very important to keep in mind that there are also indirect project costs as well as indirect organizational costs that can occur if we do NOT use OCM, which is discussed in Part II of this blog series under ‘Cost Avoidance’. These are harder to quantify and are not used in the cost-benefit calculations here but should be considered nonetheless, especially if a project has a high people side benefit coefficient which would make the likelihood that the project would experience these indirect costs highly probable.
Indirect Project Costs (Cost Avoidance):
- Project delays
- Project delays which delay other projects
- Missed milestones
- Budget overruns
- Rework required on design, development, etc.
- Loss of work by project team
Indirect Organizational Costs (Cost Avoidance):
- Productivity plunges (possibly deep and sustained)
- Loss of valued employees
- Reduced quality of work
- Lost investment made in the project
- Lost opportunity to have invested in other projects
This Cost-Benefit Framework provides content for meaningful and enlightening conversations with project leaders and executives to build buy-in and commit funds for change management. OCM delivers tangible results and conversely, without organizational change management, you’re actually losing a lot of that business value. A well-crafted change management program hits more than the bottom line. It facilitates the following benefits:
- The adoption process will be smoother by avoiding confusion regarding the changes.
- It helps improve employee and team morale through stakeholder engagement.
- The program saves time and effort by avoiding rework and typical delays.
- It also increases the likelihood of success scaling, which ultimately helps us better serve our customers.
With a clear vision, and realistic view of readiness and potential obstacles, companies can deploy effective change management to increase adoption, speed and scale of their success. Success scales after implementation, which means high adoption and usage are just the beginning of capturing your full transformational opportunity.
What do you think?