Change Is Good: J Is for Justification

Slalom Consulting Roger Kastner

A Consultant Manager with Slalom Consulting, Roger works with clients and other consultants in the delivery of Organizational Effectiveness and Project Leadership services and helps practitioners achieve greater success than previously possible.

Recently, a coworker asked me, “How do you explain the value of change management to senior leadership? You know, explain why change management is important?” As if it were a game of Name that Tune I responded, “I can justify change management in three letters: R-O-I.”

The response was similar to when I talk to a Labrador Retriever: the head cocks to one side, the ears perk up, and the eyes light up with anticipation.

So I provided a little more explanation. “Project management is all about setting, managing, and delivering on expectations of scope, schedule, and budget, and all that work constitutes the investment, or ‘I,’ in the Return on Investment calculation. The return, however, is based on the adoption of the solution created by the project. Therefore, change management is all about optimizing the ‘R’ in the ROI calculation.”

The Labrador expression turned into one of comprehension, and my colleague responded with, “Got it. That’s perfect, thanks!” She then created a PowerPoint slide with just the three letters “R-O-I” as the basis for her upcoming formal request for funding a change management effort.

Just like any investment an organization makes, the justification for the change should be rooted in quantifiable, measurable benefits to the organization.

Sure, most of us can appreciate the principles of fairness, engagement, and respect, and these are all key tactical attributes I advocate for leading change. That said, I have not met a CEO or CFO that measures fairness, and I’ve never heard of a stock price based on employee engagement.

Again, while all those principles are extremely important for leading change, they are not the reason to initiate change. As a coworker once told me, “It’s called ‘show business,’ not ‘show friends.’”

It’s just that simple.

Warm and Fuzzy Doesn’t Pay the Bills

At a recent change management industry event, I met a gentleman who specializes in corporate social responsibility initiatives, and he had double-duty coaching leaders how to justify expenditures in both change and social responsibility initiatives. His secret sauce? To root the case in strict, measurable financial terms.

Yes, social responsibility and change management sounds warm and fuzzy to some, and neither are common categories on a business scorecard or financial report. And until they are, as coaches of change we need to speak in the language that any responsible business owner speaks: what the impact is to the bottom line.

Projects are investments, funded with the intention of delivering a return that is multiples of the investment, usually based on that simple ROI calculation. The additional effort focused on change management does increase the amount of investment, however, as the research supports the attainment of the return has a higher probability, and at a faster rate of return, improving ROI and the Payback Period.

According to Prosci’s 2012 Benchmark Survey of Change Management, 95% of projects that funded and performed excellent change management functions were successful at attaining their objectives, compared to the 17% of those projects that performed change management poorly. In other words, funding and performing change management increases the likelihood of success six times.

A six-times increase in likelihood of achieving success by investing in change management done well sounds like a smart insurance plan, especially when projects typically have a poor success rate in achieving all objectives (according to a 2009 Standish Group study, less than 68% of projects achieve all objectives). That investment in change will likely have additional benefits (e.g., increasing manager effectiveness, better staff morale and engagement, etc.) that will also impact productivity, retention, and other factors that impact the bottom line.

Tied to the Bottom Line

In most organizations when requesting project funding, the benefits of the investment are framed in financial terms, such as Payback Period and ROI. So when advocating for funding of a change effort, presenting quantifiable and measureable financial benefits for the dollars invested in change should be commonplace. Unfortunately, it’s not.

When one is asking for funding, sponsorship, or action from senior leadership, the What’s in it for Me statement (WIIFM) needs to be clearly articulated. And to be clear, the WIIFM needs to be from the perspective of the receiver, not the sender. While motivations will differ from organization to organization, the WIIFM statement that all senior leaders will align with is the financial return the effort will produce, the impact to the bottom line, the “you spend X in investment; you will see five times the return.”

 

The WIIFM for the investment in the change initiatives might seem like an insurance policy to “protect” the return, but the research tells a different story. Again, the Prosci research illustrates that attainment of the return only occurs a third of the time when there is no focus on change, and occurs four out of five time with a focus on change, which may mean that the change investment is more than insurance: it is the reason for the attainment of the return.

So is that how we can articulate the WIIFM for the investment in change? “Approving the change investment will increase the likelihood of achieving our objectives by 600%.” Well, that’s a good start, but maybe there is more to it than that.

Calculating the Benefits of Change

False dichotomies exist in business—ignore them at your peril. Take the last WIIFM statement for funding as an example. Most senior leaders I know would ask for more details, such as, “What if we gave you 50% of what you are asking for in a change investment? Does that mean we will be 120% more likely to succeed?” Ugh, right? Can you see someone in your organization making the same argument? You probably can, so you should probably arm your business case with a little more analysis to quantify the benefits of the investment.

According to Robert Cialdini, author of Influence: The Psychology of Persuasion, one should provide several effective suggestions when presenting a proposal, and I personally rely on two of them heavily. The first is to never offer less than three options to your decision maker. If you only offer one option, the decision maker can think of 2-3 more immediately, and therefore your analysis seems incomplete. Presenting only two options is too black and white, and your decision maker will know the world is full of color, so this also calls into question the depth of your analysis. Providing 3-4 options is the sweet spot, as more than four makes it seem like the recommendation criteria is not narrow enough and you need to do more analysis.

The second suggestion I like to use is to list 2-3 sub-optimal options first and state the reasons why you wouldn’t advise these choices. Then follow those with your recommendation and state all the reasons why it is the superior option. In doing so, you demonstrate the analysis you’ve performed and you’ve connected the dots for the decision maker.

So what does this look like in a proposal? How about this as an example:

According to studies, projects that include funding for change management are 240% more likely to achieve their objectives (i.e., attain their expected Return on Investment).

Option Impact Recommendation
Do not fund change effort
  • High risk of low adoption
  • High likelihood of no ROI and Payback Period
  • Lowered leadership reputation and morale

No

Fund 50% of change effort
  • High risk of low adoption
  • Significantly reduced ROI, longer Payback Period
  • Lowered leadership reputation and employee morale

No

Fund change effort later if experience low adoption
  • Increase cost and amount of change effort due to employee skepticism
  • Longer Payback Period
  • Lowered leadership reputation and employee morale

No

Fund change effort 100%
  • Increased likelihood of expected ROI & Payback Period
  • Improved employee satisfaction and increase leadership reputation

Yes

Of course, you should also do some scenario planning to help prepare your presentation. Some potential scenarios to contemplate are:

  • What’s the impact to ROI if the project achieves a 35% adoption rate at launch with a 70% adoption rate at 12 months?
  • What’s the impact to the Payback Period if the change is not adopted for the first six months?
  • What’s the cost of retraining workers if compliance is at 50% after the first three months?

If this begins to feel like the calculations project managers do within the practice of risk management, that is exactly the same level of discipline that I’m advocating for when calculating the impact of funding change efforts with regards to the attainment of project benefits. In risk management, each identified project risk can be determined to have an impact to cost and schedule and a probability of occurring. According to Prosci, no focus on change reduces the likelihood of success to 35%, and the impact is the failure to achieve the ROI on the project. In risk management terminology, we’d call this a flaming red high risk (wink) and would actively attempt to resolve the risk. This is the same logic I’d suggest using when proposing an investment in the change effort.

It’s just that simple.

Wrap It Up

Change management speaks to me because, in my experience, I’ve found that the discipline is just as relevant to project success as well-performed project management can be.

To that end, I’ve worked on projects that have executed the discipline of project management extremely well (delivered on scope, on budget, and on time) and because we were building the wrong product for the audience, no one used our product and the ROI was zero.

And conversely, I’ve jumped in to help rescue a project where a failing project manager had poorly set expectations for scope, schedule, and budget, only to find the team did a fantastic job of engaging end users throughout the project. So when we delivered, late and over budget, our customers were still ready and hungry for our solution. Because the investment was higher than expected, our ROI was slightly less than originally proposed but significantly greater (yes, the return was still multiples of the investment).

For the target audience, the second scenario above did feel more warm and fuzzy than it did for the audience in the first scenario, but that is not what shows up on the balance sheet. What does show up on the balance sheet is that the second project delivered on its ROI, and the first project was a write-off expense.

While leadership reputation, employee satisfaction, and organizational change readiness are not measurements on the balance sheet, they are clearly benefits that were achieved on the second project that directly impacted the success of future projects for that company.

Warm and fuzzy might be important to some of us, but the justification for a business change should be rooted in quantifiable, measurable benefits to the organization. Remember: “it’s show business, not show friends.”

It’s just that simple.

 

About Roger Kastner
As a member of the Organizational Effectiveness practice at Slalom Consulting, I'm excited to share my perspectives and experiences with Change and Project Management to help clients and practitioners achieve their goals and objectives.

7 Responses to Change Is Good: J Is for Justification

  1. jmarkmeadows says:

    Roger, I really enjoyed this piece. Bringing more rigor and justification to change management is certainly necessary and too infrequent. You presented the case in a clear and compelling way that I hope to utilize.

    • Roger Kastner says:

      Mark – glad you like the article. Demystifying “change” is a key tenets of this series and I’m glad you found this to be of help.

  2. Pingback: Manage Change in 3 Easy Steps « Benefit Point

  3. Hi Roger:
    What are some commonly used metrics, or maybe metrics that you’ve used, to present the benefits of change management in financial terms? I think that’s one thing I see clients struggle with the most: how do I financially quantify low adoption?

    • Roger Kastner says:

      Hi Suzanne – great question. I’ve seen the impact of low adoption quantified as “if Year 1 ROI is expected to be $10M, yet adoption is only at 30% in Year 1, then the Year 1 ROI will only be $3M, with impacts to Payback and subsequent years’ ROI,” however, I don’t think the math is as simple as that, and Pareto would not agree either (i.e., potential for 80% of value from 20% of customers”).

      Malcolm Gladwell’s book “Tipping Point” would suggest that achieving 30-35% adoption would start the domino’s to fall as far as gaining a critical mass, thus, a 30% adoption could be the tipping point of full adoption.

      To some extent, it depends on how (if?) you segment your target audience. If you are looking for 100% adoption from your influencers and only get 30%, then I’d presume your ROI is likely to be a big fat 0% (I think at the influencer level, this gets pretty binary). If adoption rates from total audience is 30%, butinclusive of the 30% is 90% of your influencers, then I think Malcolm Gladwell and Pareto are on your side and the impact to ROI will be minimized.

      What are your thoughts?

      Thanks,
      Roger

  4. Lisa says:

    Hi Roger –

    Are there some commonly used “R” metrics used for implementing a change to an organization (Org structure, roles, communication, etc.) ? Less quantifyable than a product or project, but an investment that impacts the warm fuzzies (morale, trust, etc.) as well as the efficiency significantly.

    • Roger Kastner says:

      Hi Lisa,

      Thanks for your question. If I’m understanding your question correctly, I’d challenge the premise of the question which suggests that the objectives for a change initiative would be based on achieving a warm and fuzzy result, and more to the point, no change initiative should be started without stated objectives that can be quantified in cold, hard economic terms.

      Wow, don’t I sound like an Ebenezer Scrooge? The fact is that employee morale, trust in management, etc., all impact retention, productivity, and customer satisfaction, to name a few “cold, hard economic terms.” Companies will undertake changes to boost morale, empowerment, and trust not because those things make for happier employees, but because happier employees don’t quit (cost of higher a new employee), they work harder (cost of production goes down), and they make customers happier (client sat goes up, repeat purchases, increases revenue).

      So investments in 401K plans, improvements to office space, funding team-building exercises, giving everyone free iPads, while these have warm and fuzzy impacts, there should also be a corresponding impact to the bottom line. Moreover, initiatives to re-organize team structures or developing new roles should be tied to decreasing the cost of production or increase the amount of revenue generated by better serving customers’ needs.

      I hope that I understood and answered your question. If not, please respond and I’ll be happy to take another shot at it. Thanks again for reading and posting your question.

      Roger

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