Friday 27 January 2017

How much are you spending on knowledge?

It's quite easy to work out how much your organisation spends on Knowledge.  Here's how.

I often say that if your management knew the value of your organisation's knowledge, then knowledge management would be an easy sell - a "no-brainer" as they say in the UK.

Although estimating the full potentail value of that knowledge is difficult, it is easy to work out how much the organisation spends on it at the moment. Look at it this way:

  • As people become more experienced (through gaining tacit knowledge) they command a higher salary. They arent getting any smarter, they are just getting more knowledgable, and so more valuable. As Larry Prusak said "When I was at my last job, at the age of 50 they paid me 10 times more than a 30-year old with the same qualifications. What was the residual difference? Knowledge and experience".
  • The value of that person's knowledge is therefore their current salary, minus the salary of an equally smart (but totally inexperienced) new starter. 
  • So take the total salary bill for your organisation, estimate the cost of replacing them with graduates, and the difference is the value of Knowledge (Larry Prusak shortcuts this, and estimates the value of knowledge as 60% of your non-capital spend).
So take an organisation of 10,000 people with an average salary of £50,000. You can replace these people with new graduates and school leavers working for (lets say) £15,000. So this organisation is currently spending £350,000 per year on knowledge. 

If an organisation is spending a third of a million pounds a year on something (in this case, knowledge), would it not be a good ideal to make sure that this investment was well managed?

1 comment:

Unknown said...

Very good idea, simple but smart!

Blog Archive