Monday, 4 August 2014

Why do you need to know the value of Knowledge Management?

Why is it important to understand the business value of Knowledge Management? The answer is a simple one - if you understand the value, you understand how much you can justify investing. 

Introducing Knowledge Management requires investment. It requires new processes, new technologies, new roles, new governance, and (in particular) investment in an organisation-wide change program. No budget holder will accept that investment if they don't think there will be value gained in return.

 An illustration of this comes from the Drilling function of an oil company, where a drilling team were planning a campaign on a new field. They studied historical data from learning curves on nearby fields, and worked out that if they could eliminate the learning curve on their new campaign through knowledge management and through access to prior knowledge, this would be worth $100 million in savings.

 They put together an excellent and comprehensive program of learning activities, and employed three full-time learning engineers with Knowledge Management roles (similar to the Army L2I role) to capture and re-use lessons from operations. Almost inevitably, they immediately began to face cost challenge.

How could they justify these extra staff, they were asked, when the whole program was facing cost pressure? As the team leader reported "We were criticized for team size. "Why do you need so many people"? It would have been very easy for our manager to say "you are going to have to conform to the rest of the world out there (and reduce team size) " but he didn't, and because he didn't, he forced us to think about what our needs were, and he allowed us to tailor and fit the organization to meet those needs"

The team leader was able to justify the investment in knowledge management roles and processes, because he understood the scale of the prize.

He understood the value of learning and knowledge management. He knew that an investment of 3 extra people was justified if it would deliver a prize of $100 million.

Knowing the Size of the Prize

Knowledge management programs often struggle to get support and funding because management don't realise the value of KM. If organisations realised how much value KM can deliver, then KM would be a no-brainer.

 So our advice to clients usually is to form a reliable and justified estimate, as early as you can in your Knowledge Management activity, of the scale of the prize. The prize will come through better decisions, improved process, accelerated or eliminated learning curves, and continually improved performance.  Please note that the scale of the prize from "finding better knowledge and making better decisions" is orders of magnitude greater than the scale of the prize from "finding documents faster", as discussed here.

Most of the time, the potential value which can be delivered from Knowledge Management is startlingly large.

Then once you and your management understand the scale of that prize, you know how much you can invest to deliver it, and you personally will be better placed to meet challenges to that investment. You will be able to respond, as the drilling team leader did, "We need these three KM roles, because they are busy delivering a $100 million prize".


Karthik said...

Well said, Nick. Most of the time, I am asked what is the benefit for the team that is spending days and nights in support customer? Project teams sometimes work on even weekends. So the question is having KM initiatives or KM role needs justification. Like you mentioned about $100 Million saving, how do you think one can arrive at this number from a Software Development, Maintenance or Testing perspective?

Nick Milton said...

If you had perfect knowledge, how much can you increase the speed or quality of your software development? And what would that be worth for you? Could you eliminate all overruns - all rework? In software terms, the value is likely to come from eliminating the cost of non-quality I suspect (see here

Blog Archive