The economic impact of  proposed change initiatives should be analyzed both from the bottom-up and from the top-down to obtain a comprehensive assessment of expected benefits.

Definitions

A business architecture is a combination of  business processes, human performance, technology, and physical assets, when aligned with the organization's strategic intent, produces a predefined business outcome or deliverable.

Perhaps the best way to describe a Balanced Scorecard, is to compare it to the instrument panel pilots rely upon to fly the planes.  All have the same basic components, but each airplane and company have their own unique design.

Balanced Scorecards all contain four categories:

Customers

Internal Operations

Innovation

Finance

You might be thinking, "So why do we need a business case for our proposed change initiatives?"  "What if the economic impact of the change initiatives is not accurately determined?"  Well, if there is no business case, the organization might spend money on change initiatives that cost more than the benefits they produce.  If that were the case, perhaps its better not to undertake the changes at all. 

What is more often the case and why a business case is needed, however, is companies underestimate the economic value of effective change management and/or fail to properly prioritize potential change initiatives.  We often hear about change initiatives that take twice as long to implement and achieve half of what was expected.  When you investigate the reasons why this happened, the reasons are often related to change management budgets that were too small for the job.  So the business case can help companies avoid change initiatives that don't make economic sense, understand the value of fast and effective change, and establish realistic budgets of change management activities.

Change can come from anywhere, but the kind of large-scale organizational changes with which we deal, are produced from one of two sources.  Either the change involves the implementation of a revised business strategy, or alternatively, it could stem from revisions to a new business architecture. Over the past several years, a little more than half of our work has been the result of clients implementing enterprise information systems and/or reengineered business processes - thus creating new business architectures.  

In developing the Business Case that's stemming from a change in business architecture, we first estimate the improvement in performance directly resulting from the planned changes in business architecture.  To translate these performance improvements into financial results, we like to use a Balance Scorecard.  Because a Balanced Scorecard is designed to embrace the key dimensions of overall  organizational performance, it helps us to assess the economic impact of change comprehensively.

These estimates are of the direct impact of the planned changes in business architecture only.  In most cases, however, changes in business architecture enable changes to the organization's business strategy or produce other indirect economic improvements.  It's these indirect improvements that are underestimated or overlooked entirely.  In other words, proposed changes will directly impact economic outcomes and, in many cases, enable the organization to introduce new or modified strategies that can improve performance outcomes.  The business case for change must add the economic impact of these new strategies to the direct economic impact of the changes. 

A new information system, for example might produce direct cost savings of $5 million, but in addition would enable the company to revise their customer service capability that could increase sales 10%.  In the business case, however, we analyze the economic impact of proposed changes from the bottom-up (proposed changes impact business architecture, which impact the Balanced Scorecard, which can be used to summarize direct economic impact) and the top-down (proposed changes enable new strategies, which impact the Balanced Scorecard, which can be used to summarize indirect economic impact).

With an estimate of the economic benefits of proposed change initiatives, the cost of making these changes must next be estimated.  Particular care must be taken to analyze these costs based on different assumptions regarding the time needed to implement proposed changes and different degrees of human performance assumptions.  These same assumptions and time and human performance should be used to test the economic benefits as well.  Projections based on these scenarios can be extremely valuable to convince senior executives to provide an appropriate change management budget to ensure fast and effective implementation of the change initiatives.  Remember - time is money and people often resist change by applying little discretionary effort.

A Business Case document should be developed to compare the improved business results expected, with the cost of the change journey to confirm whether or not the journey is worth the investment required.  The Business Case should also describe the economic impact of various degrees of implementation speed and effectiveness.  This information will be necessary to justify a realistic change management budget.  In our experience, 10% to 15% of the total cost of change initiatives should be budgeted for training, communications, and the various other aspects of change management.

Key #1

Developing a Business Case for Change