Measuring return on investment for KM has always been a challenge. Recently, I received an e-mail from one of our members--Kevin Gannon of U.S. Navy Carrier Team
One--asking about this topic.
One of our process masters ... found [an] article on KM ROI--very interesting. There are a couple of "estimates" such as "average cost of turnover is 1.5 times the annual salary of the job," "it takes 13.5 months for a new employees to maximize their efficiency," "ROI for a brain-drain orientation project is 10:1," etc. My question is: As we start trying to nail down ROI calculations, do you think it is fair to quote numbers like this? That question might be too subjective--a better one might be: Do these numbers seem to match your experience in this area?
What I told him was this: Over the years, APQC has had the opportunity to do deep research as well as hands-on work with organizations that have succeeded in measuring the impact of their KM efforts. These efforts were measured via targeted projects where knowledge flow and KM approaches (e.g., communities of practice, best practice replication) were embedded into the business workflow. The results have ranged from a 50 percent return on investment within the first nine months up to a 5:1 return on continuous efforts.
APQC is always looking for more effective ways to calculate ROI. If your organization has experienced an ROI from KM, we'd love to hear about the focus of your efforts and how you performed your calculations.
I had a short but provocative conversation recently with Kirby Wright about this challenge, and after speaking quite succinctly about the futility of using traditional measures and biased surveys to measure KM impact in complex environments, he suggested using Sensemaker and the various methods from Cognitive Edge / Dave Snowden's work for narrative elicitation, capture and analysis to uncover the real impact of KM work.
A very interesting idea. After all, do we not look very carefully at comments fields in traditional surveys for richer information? Do we not wish more people would fill out the comments field more? Are we careful not to act on one comment alone, but look for trends across multiple comments - and sometimes have difficulty doing that?
I had a quick look through Dave's blog and came across this comment.. "Knowledge is a voluntary act, if people trust each other they will share. If they work together and create interdependencies then they will share. If the context requires it even political rivals will share. Good management (including knowledge management) is about creating the right sort of environment and interactions. Creating a set of explicit targets is an abrogation of management responsibility not its assumption."
I asked Dave "What's a meaningful way to measure KM program/project performance and contribution?"
To which he responded "I think you build a business case for KM by focusing on fine granularity projects where KM techniques or tools can help and where the impact can be measured. Trying to justify a big programme is a mistake I think. How to do this is one of the things we teach on the accreditation programme and there are some articles on the web site on knowledge mapping which link to the idea."
So.. I take an interesting point from Dave's comment,in that measuring at a high-level, overall program / strategy level is impossible, and that the focus should be on specific, more "local" initiatives, and negotating outcomes and measures with the business owner.
Interesting topic. I recently approached the ROI for KM as the missing link to determine KM success. I had to determine a method to best illustrate the process, the source and final value. I changed ROI to Return on Knowledge. This best represents what I was trying to accomplish. This is how I did it:
1) survey the masses to determine two things:
- usage of KM in their operations
- value that they place on KM in their operations
2) Using a weighted average from the survey results, I converted the time saved to a dollar value and added that to the money saved using KM. A third component of the final dollar value was adding the savings from current KM operations within a specific time frame. From these numbers, I determined a final Return on Knowledge value for a specific time period.
Kamlesh Pande sent the following comment by e-mail and has asked me to post it to the site:
My view is that there could be two aspects to the ROI for KM:
i. Quantitative—for matured organizations
ii. Qualitative—for not-so-matured ones (Here the measures could be: Checking if our investment on new/joint or inter-departmental projects/infrastructure/facilities has indeed gone up over the past, say, two years. Also, checking if an R&D engineer can effectively address a site problem in absence of the regular service engineer.)
As for ROI for KM, what we tried was achieving savings as a result of:
a. reducing or eliminating the cost of duplication of work
b. improved capacity utilization of a resource
c. utilization of the available in-house expertise instead of hiring outside services
d. enrichment of our training content
e. noticeable multi-disciplinary orientation of engineers and other staff.
(All the above items were primarily related to a situation where the left hand doesn’t know what the right hand is doing. What was required was to ensure that the knowledge was stored, “processed,” and flowed smoothly to the right destination, and more importantly, resulted in tangible/intangible gain for the organization.
I would also like to share one thing—we realized that in developing countries, integration and (re)use of knowledge is more valuable/crucial than its creation. However, we will soon have to tackle creation/ generation of knowledge.
Best regards
Kamlesh