There are many approaches to demonstrating the value of Knowledge Management. One of the simplest, if you are a project-based organisation and if have the data, is to look at the Learning Curves of the organisation, as shown in the image below taken from our website (see full size image)
A learning curve represents the improved performance of a team or an organisation over a series of repeat activities or projects, due to the accumulation of knowledge. Simply put - the more times you do the activity, the more you learn, and the better you get. The only thing you have at the bottom of the curve that you did not have at the top, is Knowledge. Therefore the area between best performance and the learning curve (the yellow area in the picture above) is money spent through lack of knowledge.
If this was unnecessary lack of knowledge, then this money was wasted, and represents the value that Knowledge Management can create. This value will be greatest when the activity cost is high, and the number of iterations is large.
Knowledge Management will create value in three ways -
By enabling "Learning During" (through, for example, After Action Reviews) the team can steepen their learning curve, and so cut the yellow area. For example, a team we worked with, doing a task repeated seven times, managed to capture all the learning from the first iteration, cutting the time taken from 190 hours to 70 hours. Over the full cycle, this liberated about $1m worth of otherwise lost production.
By enabling "Learning Before" (through, for example, Peer Assists, or access to previous experience) the team can start the learning curve lower down. In an ideal situation, if all the learning already exists in other teams, then they can eliminate the learning curve entirely. For example, the Schiehallion well team in BP in the 90s managed to eliminate their learning curve by doing all the learning in advance, thus saving in the region of $83 million.
By enabling Learning After" (through for example Retrospects) the team can ensure that the knowledge is retained for future use, and can therefore eliminate the risk of the "Unlearning curve"; which is where a gap in activity is followed by a decrease in performance.
So if you work in an organisation with repeat, high cost activity, look at your historical performance data and look at shape of your learning curves. Typically a learning curve represents 10% to 15% of program costs, and these costs represent the target value for knowledge management activities. And that can be a LOT of money.