The value in KM comes from reducing the Frequency and Cost of Lost Knowledge. Here's how.

One the  enduring challenges in Knowledge Management is defining effective metrics to measure its value. A promising metric which may fill the gap is the Frequency of Lost Knowledge (FOLK) and it's partner the Cost of Lost Knowledge (COLK). 

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In safety management, they talk about "lost time incidents" (LTI), where through the failure of the safety management system, somebody sustains an injury which causes them to lose time at work, either through treatment or through convalescence. A core safety metric is the LTIFR, or Lost Time Incident Frequency Rate.

In knowledge management, we could talk about "lost knowledge incidents" (LKIs). This is where critical knowledge is or was once available to the organisation, but failed to reach the person who needed to act upon it, with negative consequences. These consequences may be seen as a mstake, a failure, an added cost, or a missed opportunity.

 Unfortunately a lost knowledge incident is far less visible than a lost time incident. An LTI is visible because a person is not available for work, while a LKI is only visible when a mistake is repeated or a capability lost. Probably the majority of LKIs go undetected, although it is possible to identify knowledge loss "Near misses".

You can begin to measure Frequency of Lost Knowledge (FOLK) through surveys or through careful analysis of the lessons management system. A company I was working with recently ran a survey where one of the questions asked was "do you know of any examples where projects made mistakes or failed because lessons were ignored or missed". 75% of staff answered yes. In a more recent survey, this had fallen to 26% - still too high, but a massive improvement.

FOLK is one parameter, the other is the cost of the lost knowledge (COLK). In some cases this can be huge.  Here is a very good example, where the loss of knowledge about making nuclear weapons cost £69 million to replace.   If you can look at a selection of lost knowledge episodes and calculate the cost of these to give an average cost, then multiply this average cost by the estimated Lost Knowledge Incident Frequency Rate, then you end up with a total estimated COLK.

Again you can use surveys, or analyse the lessons management system, to arrive at this estimate. In one survey, we supplemented the question "do you know of any examples where projects made mistakes or failed because lessons were ignored or missed" with two more questions - "what was impacted by this mistake/failure? (cost, time, safety, reputation)", and "please estimate the size of the impact".

Another organisation looked at the cost of rework in manufacturing, and attributed the rework to a number of factors, one of which was knowledge. This enabled them to estimate both FOLK and COLK.

Knowledge management will reduce the incidence and cost of Lost Knowledge. Please note the Cost of Lost Knowledge is a finite number, and the value KM delivers will approach, but not exceed, this number. The more you spend on KM, the closer to get to eliminating There will be an optimal spend on KM by calculating the required ROI vs the COLK.

What causes a Lost Knowledge incident?

• It can happen when somebody had knowledge, but doesn't want to pass it on or record it. This is a cultural failure.
• It can happen when somebody had knowledge, but had no mechanism to pass it on or record it. This is a failure of the KM framework (and by Knowledge Management framework, I mean the combination of people, process, technology and governance).
• It can happen when somebody had knowledge and had passed it on, but that knowledge can no longer be found. This is also a failure of the framework.
• It can happen when somebody needs knowledge, and has the mechanism to find it, but doesn't know that they ought to look or ask. This I would suggest is also a failure of the framework, because there should be processes for knowledge seeking built into activity.
• It can happen when somebody needs knowledge, and has the mechanism to find it, but they don't want to look for it or don't want to consider it. This is a cultural failure, often known as "not invented here".

What if somebody needs knowledge, has the mechanism to find it, looks for it, finds it, considers it, and then decides after mature consideration that it's not applicable for their situation? I would say that this is not a failure of the knowledge management system, and there must be many many cases when this is the right thing to do. The key here is the mature consideration - if you just ignore the lesson because you naively think "this time our project is different" (the most dangerous words in project management) then this is not mature consideration, its another cultural failure. 

Tracking LKIs and estimating FOLK and COLK will not be an easy task.  The survey approach described above is one way to do it ( a top-down analysis), while an analysis of project failures, cross-referenced to the lessons management system is another, bottom up, approach (the approach taken by the organisation analysing rework costs).

Both ways may give you a useful order of magnitude estimate for FOLK and COLK, which should both decrease over time as your KM system develops.