Change management professionals often struggle with proving the worth of their services and why they are needed.  There are certainly plenty of reasons why change management professionals are required and most experienced project managers and senior leaders would acknowledge this.  However, for the less mature organisations that may not have had effective change management experts leading initiatives, the rationale may be less clear.

When we look across different project members, it is easy to argue that without developers, the technical project cannot progress.  Without business analysts, we cannot understand and flesh out the core business steps required in the initiative.  And of course, we definitely need a project manager for a project.  But, what’s the justification for a change manager?  Many projects have other project or business representatives do the change work instead.

As an attempt to justify in a very direct way, the value of change management, many resort to ROI calculations.  This may seem like a great way to convey and show in a very direct and financial way, the value of change management.  After all, we use ROI for calculating projects, why not use the same for change management as well?

There are plenty of articles on how to best calculate change management ROI.  Here are a couple:

1. PROSCI 

Prosci has a good, clear way of calculating change management ROI within a project.  You simply evaluate to what extent people adoption is important to the project.  Then you take the overall expected project benefits and deduct the part of the expected benefits if there was no adoption.  This is termed “people side benefit contribution”. 

People Side Benefit Contribution = Expected Project Benefits – Expected Project Benefits (if adoption and usage = 0)

People Side Benefit Coefficient = People Side Benefit Contribution / Expected Project Benefits

2. Rightpoint

Rightpoint has a variation to this calculation. They have added ELV (Employee Lifetime Value) to the calculation.

(From Rightpoint.com)

“ELV helps account for important (but often overlooked) benefits of change management such as increases in employee productivity, employee retention, and faster ramp-up of new hires. Including the Investment in Change figure ensures that your calculations account for all the hard costs associated with change.”  https://www.rightpoint.com/thought/article/measuring-change-management-success-defining-and-ensuring-a-solid-roi

Using ROI may be useful when the cost of the initiative is the critical focus for the organisation.  However, it is not the only way to convey the overall value of change management.  In addition, the ROI method limits the value of change management to focus on the cost invested versus the value created.  Also, this type of calculation limits the value of change to a project by project perspective.  

So, how else do we show the direct financial value of change management?  Let’s look to research.  It turns out there are plenty of research examples.  Here are some.

1. McKinsey & Company. (2016). The people power of transformations. This study found that companies that effectively manage change during transformation initiatives are 1.8 times more likely to outperform their peers in terms of financial performance and market share gains.
2. Aon Hewitt. (2013). Engaging hearts and minds: Preparing for a changing world. This study found that companies with high levels of employee engagement during change initiatives had 2.5 times higher revenue growth compared to companies with low levels of engagement.
3. PwC. (2015). The power of change management. This study found that companies that effectively manage change are 3.5 times more likely to significantly outperform their industry peers in terms of revenue growth.
4. IBM. (2016). Making change work. This study found that companies that effectively manage change saw a 72% increase in project benefits realization, resulting in improved cost savings and increased profitability.
5. Harvard Business Review Analytic Services. (2016). The critical role of change management in digital transformation. This study found that companies that effectively manage change during digital transformations see an average increase of 12.4% in profitability, compared to an average decline of 1.4% for companies that do not.
6. Prosci. (2016). The ROI of change management. This study found that organizations that invested in change management saw an average return on investment of 4.5 times their initial investment, resulting in improved financial performance.
7. Gartner. (2021). The 2021 Gartner CIO Agenda: Seize This Opportunity for Digital Business Acceleration. This study found that organizations that invest in change management as part of their digital transformation initiatives are twice as likely to achieve their expected business outcomes and improve their overall performance.

So let’s take a comparison to see the difference in using a ROI calculation of the value of change management versus using findings from the above research findings to demonstrate the derived value.

Let’s take a typical project example.  Company A has …. 

• Annual revenue of $1 billion with 5% profitability
• The revenue growth is 1%  
• Project A costs $1Million and is targeted for $3 million in benefits.  

If the expected project benefits without adoption would be $1Million, then, the people-side contribution is …

 $2Million / $3Million = $667K.

Let’s contrast this to other calculations using research.  

Research findings	Calculation
PwC research that companies that effectively manage change are 3.5 times more likely to significantly outperform their industry peers in terms of revenue growth.  Aon Hewitt study found companies with high levels of employee engagement during change initiatives had 2.5 times higher revenue growth	If we take the average of both findings to be 3 times higher revenue growth –  This means if the revenue growth is 1%, then the additional revenue is $30 Million per year.
HBR research that companies that effectively manage change during digital transformation average increase of 12.4% in profitability.	This means $ 50 million per year.

You can see that $30-50 million in value is much higher than the $667K in initiative ROI.  From these examples, you can see that the financial value dwarf that from the ROI calculation.  On top of this, these are from research findings, which may have a stronger perceived validity and be easier to be trusted by stakeholders than the ROI calculation.

To point out, it is not an apple-to-apple comparison between the change management ROI from one initiative, to the organisational value of change management across initiatives.  However, the call out is that:

• The financial value of change management does not need to be limited to individual initiatives
• The sum may be greater than its parts.  Rather than measuring at initiative levels, research findings are looking at organisational level value
• The value of change management may be more than cost, but also other value drivers such as revenue

As change management practitioners we should not shy away from calling out and citing the value of change management.  Cost may be one value, but the true benefit of change management is both the top line as well as the bottom line.  Directly referring to the research-backed findings also helps to highlight its value size and importance.  

To do this, we should also work to deliver organisational value in managing change and not limit ourselves to one initiative.  Focus on uplifting change management capability in the forms of leadership styles, change governance, change analytics, and change champion network capability, just to name a few.

To read more about calculating the financial value of managing a change portfolio click here.

Have a problem in delivering change using data? Chat with us to find out how Change Compass might be able to help.