I blogged this week that if only we knew what Knowledge Management was worth, then introducing it would be a no-brainer. But how do we estimate the size of the prize that KM can deliver? Here are four ways.
As I said in my earlier post; if you understand the value that Knowledge Management can bring, then you understand how much you can justify investing. The larger the scale of the KM prize, the larger the KM budget can be in order to deliver that value.
We know from our Knowledge Management survey that the average KM budget is $950k and the average delivered value is $93 million, but how can you estimate in advance what value Knowledge Management may deliver for you?
Reduction of the learning curveKnowledge management can add value through reducing or eliminating learning curves. If you have historic data on learning curves, then you can use this to estimate the value of eliminating that curve, which is how the drilling team in this week's post estimated their $100 million prize.
Typically a learning curve represents 10% to 15% of a project expenditure, and with large projects, this can be a large prize. In other cases, the value comes through learning to do things more quickly - developing new products, for example.
Learning curves apply to any repeat activity; for example setting up a branch office, hiring new staff, conducting an assessment. We generally eliminate learning curves through effective lesson-learning.
Exchange of effective practiceAn alternative value-adding mechanism is the transfer of effective practices across multiple sites.
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 estimate the size of the prize, 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.