Understanding the ROI of Change Management With the Three States of Change
Return on Investment (ROI) is basically the incremental improvement divided by the cost to realize that improvement:
This approach has been used to calculate many project ROIs in business cases. The ROI of change management has been a challenge to evaluate. This tutorial uses a simple three states of change model—Current, Transition, Future—to first explain project ROI and second show how the ROI of change management is found in the three states. It also sets the stage for building a better understanding, model and calculator for CMROI™ - Change Management ROI.
Basis of change - the three states
Prosci uses a simple three states of change model—Current, Transition, Future—to describe change. Whether a process optimization effort, Electronic Medical Records installation, software upgrade, acquisition, relocation or regulatory efforts—change is a movement from how things are today (the Current State) to a new way of operating (the Future State) through a change process (the Transition State).
This model permeates the change management literature and can be found in works like:
Arnold Van Gennep (1900s) - studying cultural rites of passage
Kurt Lewin (1940s) - using the language unfreezing, moving, refreezing
William Bridges (1970s) - using the language ending, neutral, new beginning
While it is true that organizations today are more in a state of "slush" than ever refreezing, and numerous changes continue in waves, each change initiative or project can be described by what we did (Current State), what we will do (Future State) and how we will make the change (Transition State).
Where does initiative or project ROI come from?
Using the three states of change, we can see where the ROI for the change itself comes from (not for change management yet). The improvement or benefits of the project come from the difference between the Future State performance and the Current State performance—the delta—along the dimensions the project aimed to improve. The examples below show how the difference between Future and Current performance creates the Project Benefits:
The ROI of the project or initiative comes from that difference in performance. This delta is based on achievement of expected results and outcomes and benefit realization. It is delivering on the reasons we embarked on the change in the first place.
Where can we find the ROI of change management in the three phases?
Change management is different—because we don't have a Future State and Current State to provide a delta. Instead, change management is applied to a particular change to improve the efficiency in moving through the Transition State and the effectiveness in the Future State. Effective change management increases the Project Benefits realized by a change; it increases the delta between the Future State and the Current State of a project.
The delta for change management then does not come from subtracting the Current State performance from the Future State performance, like the delta of a project. The ROI, or delta, for change management instead is the difference between:
Project Benefits IF we can improve adoption and usage with change management, and
Project Benefits IF we do not apply change management.
A particular project is going to occur. We can run the project with change management or without change management. The ROI of change management is the difference in Project Benefits realized if we actively drive employee adoption and usage or those if we do not.
Change management directly supports benefit realization and project ROI by increasing the Project Benefits captured through a more efficient Transition State and more effective Future State. By applying change management we can:
Improve the Transition State which creates more project benefits:
Increase the speed of employee adoption
Make sure employees have the answers they need
Ensure training occurs at the right time with the right context
Show leadership and organizational commitment to change
Reduce the number of barrier or obstacles experienced
Improve the Future State which creates more project benefits:
Increase ultimate utilization of the change by employee
Reduce the number of employees who opt out
Drive employee proficiency when they have adopted the change
Encourage sustained results for the initiative
Reinforce desired changes by employees
Essentially, we have a change that we know is going to happen. If we apply change management, we increase the project benefits the change generates by more efficiently moving through the Transition State and more effectively arriving in the Future State. The ROI of change management is the improvement in project ROI that comes from focusing on and driving employee adoption and usage. As a change management practitioner, you can begin describing the ROI of change management within the context of project ROI to build buy-in and commitment so you gain a seat at the table.
Tim Creasey is Prosci’s Chief Innovation Officer and a globally recognized leader in change management. His work forms the foundation of the largest body of knowledge in the world on managing the people side of change to deliver organizational results.