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Hidden Costs of Change Management (and how to avoid them)

Financial institutions spend up to 30% of their operating budget on change management. So, surprises and hidden costs can hurt some already large budgets. Here’s where we’ve seen hidden costs crop up and how to avoid them.

Financial Institutions Struggle with Hidden Costs of Change Management

With the constant evolution of the banking industry, change (and the pace of it) has increased dramatically.  Whether it be new leadership, a process change or a system integration, change happens, quickly. Today’s change initiatives have the added combination of speed plus the complexity of the change required.  Many institutions have formal change management programs in place but still struggle with unexpected costs that arise during the process.

What can you do to drive successful change and reduce risk? First, understand the driver of the hidden costs. Then, take advantage of the experience we share here. This is based on how we’ve helped clients when their change programs have gone awry.

Factors that Drive Hidden Costs in Change Management Projects

When planning for a change, we often think of the cost as the monetary expense for aspects such as new platforms, resourcing, and contractor use.  However, by the time a change has been implemented, the team often realizes unintended costs resulting in a direct or indirect impact on the bottom line. These cost drivers range from timeline delays to productivity to turnover.

Examples of Where Hidden Costs Originate

  • Delays extending the project timeline. Over 70% of companies experience project delays. The many potential causes of delays include resource availability and technological issues, which often result in a project exceeding the allotted budget.
  • Project rework. This will happen when the urge to start acting results in insufficient planning and leads to redoing project tasks.
RELATED CONTENTSee this blog’s section on “Preparation” for questions to ask prior to taking action
  • Loss of resources. Turnover at banks is at its second highest in five years. But this number can increase further during periods of change, especially when employees don’t feel aligned with the change. If you need to replace staff, the cost to recruit new employees can run around $4,700 per hire according to SHRM.
  • Reduced productivity. There are multiple reasons a change may result in lower productivity, including reduced employee morale or unintended downstream impacts.

PRACTICAL PERSPECTIVE

I had a client who was doing a system implementation and decided to impress executives by going for a “big bang” rollout instead of the planned phased approach.  When an issue arose during the rollout, project staff wanted to pause the process and fix the issue.  However, to keep up appearances, the project sponsor insisted on a workaround and they’d fix the original issue later.  This workaround was very cumbersome, time-consuming, and difficult to control for the end user, reducing overall productivity.  – Bridgeforce Senior Program Manager

  • Loss of investment. There are instances where an organization pours time and effort into a project and then abandon it. This results in the loss of both hard and soft investments.

PRACTICAL PERSPECTIVE

I was working on a small piece of a larger change initiative.  I noticed from the start that the focus was entirely on the go-live date and everything was being retrofitted to meet that timeline.  Unfortunately, risks weren’t identified early. So, problems appeared that should have led to a reevaluation of the timeline. But meeting that deadline remained the number one focus.  Therefore “fixes” were put in place that degraded the value of the change.  After many months of hard work, it became clear to senior leaders that the change output was no longer going to be worth any additional investment, and they decided to pull the plug on the whole thing.  – Bridgeforce Senior Program Manager

  • Decreased support for future initiatives. When a change doesn’t go smoothly and goes over budget, it makes leaders less likely to back proposed future changes.

PRACTICAL PERSPECTIVE

I worked for a large bank and was assisting in a system implementation.  Our rollout did not go smoothly, but our project sponsor did not want to admit failure. So, the sponsor started making unilateral decisions.  This led to an even worse outcome that got a lot of attention in the organization. Ultimately, leaders lost confidence in the system and the project team and weren’t quick to invest again.  It took a long time to recover this confidence. – Bridgeforce Senior Program Manager

 

4 Ways to Reduce Your Risk

We’ve seen the following actions decrease risk and reduce hidden costs.

Upfront Planning – Before beginning any steps towards the change, you must make sure your change is going to add value, not remove it.  While this sounds obvious, it requires a thorough assessment and a thoughtful planning process.  Even for changes that may appear small and low impact, take a close look at the steps to implement the change and then consider how the change may have far reaching and unintended consequences.  Engage a third party (internal or external) to help plan. This will ensure that you don’t overlook steps considered BAU to the team driving the change and creating the plan.

RELATED CONTENTTake these thoughtful steps to launch a successful change initiative

Understanding Risks – Engage stakeholders from all relevant business areas to brainstorm potential risks that may impact the change process or outcome.  Document each risk, identify what can be done to prevent it, and what to do if the risk is realized. This allows for close monitoring and quick action during the change management process.  Examples that often lead to hidden costs include technological issues, resistance from staff, a project team not delivering, resource availability and negative customer experience.

Collaborative People Management – As mentioned above, personnel-related risks can have a large impact during change management.  Involve those who are directly participating in the project as well as those who will be impacted by its execution.  Regularly provide proactive, transparent communication that makes employees feel more engaged and part of the change.  Solicit feedback before, during and after change and make sure to thoughtfully review the responses.

Risk Assessments – Throughout the change management process, assess the current state against your defined risks and evaluate for emerging risk.  Engage with all project staff in this effort and ensure they have a defined and understood path for risk identification and escalation.  Too often we’ve heard of client team members who don’t feel empowered to speak up and identify potential risks. Subsequently, larger, costly issues appear down the line.

 

Is Your Change Management Framework Robust Enough to Prevent Hidden Costs?

A strong change management framework with robust planning and a clear focus on risk identification and management will help reduce the likelihood of your change incurring additional costs.  Bridgeforce has experience setting up change management frameworks and managing change on any project size.  We would be happy to talk with you about how your organization can drive more meaningful change by managing potential risk.

[Editor’s note: this article was written by Sara Deuschle, former Senior Program Manager at Bridgeforce]

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