change management roi

Determining the ROI of Change Management

By: Pete Hadley

If you work at the enterprise level, there’s a good chance you’ve undergone some transformation initiative. And if you’ve navigated the murky waters of change management, chances are you’ve seen the difficulty that goes into defining the specifics around how the organization has improved from start to finish of that initiative. 

showcasing the roi of change management

One element of change management doesn’t get enough attention — ROI. When organizations invest millions of dollars in making significant changes, they expect to get something in return. That part seems reasonable. The challenge is few organizations do the legwork to track what that return means in terms of dollars and cents, productivity increases, satisfaction levels, or whatever other metric aligns with the initiative. 

Suppose your leadership team has asked you to navigate an upcoming initiative’s ROI. In that case, chances are you may feel overwhelmed by the task of trying to quantify seemingly qualitative areas. While it’s reasonable that a CEO spending 1% to 5% of annual revenue on a large Enterprise Resource Planning (ERP) project should expect ROI, it’s less clear how to showcase that ROI. That’s where we come in. 

You’re not the first to wrestle with these questions and concerns about change management. To help you better understand the benefits you should expect for the money you’re spending, we have developed a straightforward yet rarely followed process to showcase how your organization’s money comes back to fuel growth and longevity. 

Why is Finding the ROI of Change Management So Hard?

Change management is hard to substantiate. That’s because, unlike other qualitative fields, our job is to ensure that everything runs smoothly and with fewer hiccups. For many initiatives, teams document the costs associated with ensuring the smooth rollout of a new project. While that’s important to track, what’s even more important is that this process isn’t just a cost on a balance sheet. It’s also a process that’s connected to peripheral ROI. 

Sometimes that ROI is clear. For example, if the change occurs among the sales team, we can mark the difference before the change occurred and after in terms of revenue growth. Elements like the following are relatively easy to quantify and showcase to stakeholders:

  • More money
  • Less costs
  • Better compliance
  • Process efficiencies (call response times, production throughput, security improvements)

These areas are frequently tracked and, when visualized, can clearly showcase the momentum following the change moving in the right direction. However, few people link these changes back to the change itself to pinpoint the reason for the change and the exact element that catalyzed the improvement. That’s where the change management team needs to do some legwork upfront. 

If you’re leading a change management project or team, here are three steps to simplify the process while simultaneously solidifying the ROI you deliver. 

Step 1: Determine the Ultimate Goal

Before a project begins, looking at the budget request form or business case to determine the anticipated benefits for the money spent is important. This step is rarely done on these projects because teams move into motion to go live as quickly as possible once the funding has been approved. Still, it’s essential to pause and define the expected outcomes. 

Here are a few questions we often ask our clients in this stage of the project to get a clearer understanding of the ultimate change goals:

  • What do you currently have in place?
  • What are the issues that prompted this change?
  • What, specifically, is broken, and why does it need to change? 
  • What’s driving the change right now?
  • What is the cost of not making this change? 

The culmination of answers to these questions helps to clarify the ultimate goal. It’s not enough to know that something wasn’t working as efficiently as possible, and now the team is ready to improve it. What’s more impactful is determining the cost of not doing anything at all. What’s the difference between action and inaction? 

Once that ultimate goal has been clarified, you can put it into writing, publish it, and promote it to the team. In doing so, you keep everyone swimming in the same direction.

Step 2: Define the Metrics Up Front

With the ultimate goal clarified, it’s time to attach quantifiable metrics to that end state. 

Sometimes, these metrics get murky when combining data from several departments. For example, consider the metrics you’d want to monitor if you were updating your processes to become more compliant. You know that compliance fines are $X/year. To see the ROI of the change management portion of your project, specifically, you’d need to understand how the production quality must also increase after the new processes or systems get implemented. 

Knowing the metrics you want to monitor at the start of a project allows you to monitor the change unfolding. Defining those metrics gives you the chance to have a baseline to judge from at the outset. Then, throughout the project, you can have incremental check-ins to monitor what happens each quarter after the new systems are in place. Those incremental check-ins focus on the project’s benefits aligned with the ultimate goal you established in step one. They reinforce the change management process, keeping the tangible benefits front and center. 

Change management usually accounts for approximately 15% of the project costs. Communicating the specific metrics defines the ROI of the change. 

For example, here are a few metrics you might use when changing how you train your team on compliance issues: 

  • What’s the error rate following a training enhancement initiative? 
  • How much has a team increased production rates following the training? 
  • How many audits has the company undergone? 

By capturing those metrics and having them be part of that demonstrated ROI, your team can confidently share how the change contributed $7 million in savings and avoided $5 million in FDA fines because of a more efficient operation. 

Step 3: Clarify the Business Value and Objectives

Change management is all about implementing long-term adjustments. Quick wins are nice, but the project’s longevity delivers real gains for the organization. It’s crucial to continually measure benefits, even if you don’t have exact data now.

Let’s look at the same example — training teams on staying compliant. Getting immediate data and feedback on how the new training impacts the top or bottom line might be difficult. Instead, you might need to gather data around the following:

  • Was the training effective?
  • Was the instructor good?
  • Was the training fun and engaging?
  • Was the training error-free?

While this information is good to gather, it should only be the beginning of the feedback. Once we get this feedback rolling, we need to reinforce the business values and objectives from step one to track and know how long we’ll need to achieve the desired outcome. 

This part of the process is more challenging than it appears on the surface. That’s because people change, consultants leave, and teams don’t want to focus on the rigor of continually gathering the data to determine the project’s ROI. At the same time, if they don’t go through these necessary steps, they lose the perceived value of the change management project. When it’s time to go through the process again with another initiative, the team is left to recreate the wheel, losing the ability to go back and determine what worked, what didn’t, and where the process could be improved. 

This is why change management experts work hard to help you deliver the project successfully the first time and to showcase and document the ROI so that it can be replicated for future initiatives.

It’s by following these three steps that we will help you showcase the business value your teams are delivering to the key stakeholders, helping you show up more confidently and with better results time and again.