Everyone knows that, in today’s world, organizations must continually innovate to stay ahead of the competition. The degree of innovation is, of course, a function of the competitive landscape and your business environment. No matter how significant, one thing is certain – change is required. And for any change to be effective and to deliver expected results, there must be a high degree of adoption. If people don’t use a new technology or business process the way it was intended, not only will the organization fall short of their expected ROI, but they won’t achieve the improvements in operations or customer service that were the very reasons for taking on the program.
I’m writing this blog to help organizations think through the budgeting process for Change Management to help them justify what turns out to be a nominal cost compared to the impact on ROI and ultimate business performance. If you are thinking about doing any technical implementations or you are interested in learning about ways to help your OCM budget fit in with your upcoming project, I hope this blog will be of assistance to you.
Unfortunately, as program budgets are established and business cases developed, the Change Management line item is often the first to go, considered by many organizations as a “nice to have”. After all, how often have you heard an organization question the impact of adoption when developing a program’s business case? I would argue seldom, if at all. It is typically assumed that everyone will adopt to the new environment when looking at the numbers.
Justify Your Change Management Budget
Below are some typical “rules of thumb” that should help you put things into perspective when you develop and justify your Change Management budget
- Programs with little to no change management effort typically experience an adoption rate between 40 and 60%
- For those people that have NOT adopted to the new ways of working, you can expect a loss in productivity of about 75%
- So, if 40% - 60% of your workforce has not adopted to change, and this population is 75% less productive, then you can expect an overall loss in productivity of between 30% - 45%
- This overall loss in productivity has a direct impact to your ROI calculation, which means you can expect an annual drop in your ROI between 30% - 45% with no Change Management
Factor the Cost of Your Change Management Effort
Now let’s factor in the cost of your Change Management effort, which is typically 5% - 10% of your overall program budget. Let’s use some round numbers to put things into perspective. Say you have a program budget of $1,000,000 and you expect an annual 20% ROI, or $200,000/year:
- With no change management effort, your return drops 30% - 45%, which means you lose $60,000 - $90,000 per year
- To be conservative, let’s assume that full adoption is ultimately achieved in 3 years (note that many programs never achieve full adoption without proper Change Management). Thus, your annual loss in ROI lasts 3 years
- The cost of your Change Management effort is estimated at 5% - 10% of your program budget, or $50,000 - $100,000
- So, for a $50,000 - $100,000 investment in Change Management, you avoid a loss in ROI of $180,000 - $270,000 over the 3 years
Cost of a Proper Change Management Program Pays for Itself
As this example illustrates, the cost of including a proper Change Management program in your budget more than pays for itself. And this analysis only looks at the financial impact. An even bigger consideration when forgoing Change Management is the potential impact on customer service and employee morale, which could have much more of a negative impact on your business performance and overall competitiveness.
Many firms can find ways to help your project, but are they capable of helping you to maximize the impact of your change programs? My recommendation is that you ask for an actual diagnostic Assessment. One that will identify your OCM needs on the project.
Find out more about Emtec’s Change Management practice and how our focus is on business ownership and governance. Contact us!