Monday, 2 March 2009

The Value of Knowledge Management (4)

In an earlier post, I talked about how knowledge management can add value through reducing or eliminating learning curves. An alternative value-addin mechanism is the transfer of Imagine you are working in a business with multiple operating or manufacturing sites. Operations cost, and manufacturing cost, will vary from site to site, Knowledge Management gives you the opportunity to reduce these costs, by sharing learnings and good practice from low cost sites, to improve the performance of high cost sites. In order to be make to make a business case for your knowledge management intervention, you need

  • A good set of benchmark data on current operational costs, broken down as far as possible into the different factors
  • An estimate of how effective KM could be in normalising those costs
  • A desire across the business to improve. The high cost sites need to want to improve. The low cost sites need to want to help them.
As an example, in the 90s we worked with the refineries in BP to help reduce the costs of Planned Shutdowns. Historical data showed that if all refineries could reach the level of top quartile, there was a prize of £30m available. The business estimated that enhanced KM (i.e. an improvement on the existing level of knowledge sharing) could deliver $5m of this, while no knowledge sharing could lose $10m. This return more than justified an investment of $230,000 in a community of practice, an online knowledge base, and a series of Retrospects and Peer Assists.

Another one of our clients looked at one of their major cost elements, water usage, and benchmarked this around their global sites. They set a target of top quartile, and assumed that KM, at the very least, would move each site 10% of the way towards this top quartile target. Even this modest estimate of improvement was worth $7m annually to the organisation, which would more than cover the costs of the Community of Practice required to facilitate the exchange of knowledge.

The value of cost reduction through knowledge sharing between sites can be enormous. BP operations estimated the potential prize to be gained through sharing operational knowledge to be worth $2 billion.

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