Estimating the "Cost of not Knowing" as a proxy for the value of KM.

When estimating the potential value of Knowledge Management, perhaps we can start by looking at the cost of not knowing.

It’s not always easy to put a value on knowledge, or on knowledge management.

However it is easier to put a cost to the lack of knowledge, through asking the question

“How much would you have saved, if you had known what you know now, in advance”?

The answer to this question represents the “cost of no knowledge”

We recently asked this question of a project manager, at the end of his project, once he had identified the problem areas with the benefit of hindsight. His reply was as follows;

  • Savings of $30 m by avoiding sanction delays –  “The 8 months hiatus may have cost $30 million, that is just off the top of my head, no science” 
  • Savings of $.5m in better involvement of the operations staff  “The documentation issue may have cost the project about $0.5 million”. 
  • $.5m in commissioning + $2-3m lost revenue  – “The cost to the project would be an extension of the PM team, say $0.5 million, plus 4/6 weeks lost revenue, equivalent to $0.5 million/week.”. 

The total cost of no knowledge was therefore $33 to 34 million  – about 5% of the project costs.

It would be wrong to suggest that Knowledge management could eliminate the “cost of no knowledge”, but it can certainly reduce it. If the figures above are representative, even if KM reduces this cost by 20% (thus reducing overall project costs by 1%), that is still a huge amount of money.

Talk to your project managers about the cost of not knowing – that could give you a good proxy figure for the value of KM.

View Original Source (nickmilton.com) Here.

Cost of lost knowledge could be $47 million per year

Large businesses can lose $47 million each year due to poor KM, claims a recent report

That is the claim of the Panopto Workplace Knowledge and Productivity Report, a recent report based on a survey of 1000 US workers

Here are some highlights from the report

  • US business loses $47 million in productivity each year as a direct result of inefficient knowledge sharing. This is the median result – large businesses can lose much more, and the website provides a calcaulator to calculate your own risk;
  • U.S. knowledge workers waste 5.3 hours every week either waiting for vital information from their colleagues or working to recreate existing institutional knowledge. 
  • 42 percent of institutional knowledge is acquired specifically for the employee’s current role and is not shared by any of their coworkers. 
  • When that employee leaves their job or is otherwise unavailable, their coworkers are unable to do 42 percent of that job.  
  • 60 percent of respondents found it difficult, very difficult, or nearly impossible to obtain information vital to their job from their colleagues. 
  • Delays due to unshared knowledge have a major impact on project schedules. 66 percent of all such delays will last up to one week, and 12 percent will last a month or more. 
  •  81 percent of employees report feeling frustrated when they can’t get the information they need to do their job. 
  • 85 percent of employees agree that preserving and sharing unique knowledge in the workplace is critical to increasing productivity. 
  •  81 percent of employees state that knowledge gained from hands-on experience is the hardest to replace once it’s lost. 
  •  In companies with higher turnover rates, employees were 65 percent more likely to state that that it could be “very difficult” or “nearly impossible” to “get the information needed to do my job well.” 
  •  While the average new hire receives 2.5 months of formal training, it can take up to 6 months for an employee to actually ramp up in a new role. 
  • These employees often struggle for up to 3.5 months learning the details of their job on their own, seeking out information, and inadvertently replicating work.
All of the value figures here represent efficiency losses through poor KM.
There is another set of value figures, which represent the cost of poor decisions made by people with obsolete or inaccurate knowledge; the cost of rework and the cost of mistakes that arise from those bad decisions (what we call the cost of lost knowledge). This second value figure is far harder to estimate, but is potentially much larger than the inefficiency figures mentioned above.
However when you are creating your investment case for KM, the numbers in this Panopto report may give you some useful benchmarks. 

View Original Source (nickmilton.com) Here.

How knowledge and performance are linked

There is a very close link between knowledge and performance, which is at the heart of any KM framework.

Knowledge results in performance. The more knowledge we have, the better we can perform. The more we learn from performance, the more knowledge we have. This puts us in a reinforcement cycle – a continuous improvement loop – continuously improving knowledge, continuously improving performance.

We are all well aware of this link as it applies to us as individuals. The more we learn about something, the better we get, whether this is learning to speak Mandarin, or learning to ride a bicycle. The knowledge builds up in our heads and in our legs and fingertips, and forms an asset we can draw on.

It’s much harder to make this link for a team, or for an organization. How do we make sure the organization learns from performance and from experience? How do we collect or store that knowledge for future access, especially when the learning takes place in many teams, many sites or many countries? How do we access the store of knowledge when it is needed, given that much of it may still be in peoples’ heads?

This link, between knowledge and performance, is fundamental to the concept of knowledge management.  Knowledge management, at its simplest, is ensuring this loop is closed, and applied in a systematic and managed way, so that the organisation can continuously learn and continually improve performance.  The  knowledge manager should

  1. Know what sort of organisational performance needs to be improved or sustained (and in some organisations this may not be easy – the performance requirements of public sector organisations, for example, may not always be easy to define);
  2. Know what knowledge is critical to that performance;
  3. Develop a system whereby that knowledge is managed, developed and made available;
  4. Develop a culture where people will seek for that knowledge, and re-use and apply it;
  5. Develop work habits and skills that ensure performance is analysed, and that new knowledge is gained from that performance (using processes such as lesson learning or After Action reviews);
  6. Set up a workflow to ensure that the body of knowledge is updated with this new knowledge; and
  7. Be able to measure both the flow of knowledge through this loop, and also the impact this has on performance.

That’s KM at its simplest; a closed cycle of continuous learning and continuous performance improvement.

The complexities come in getting this loop up and running, in a sustainable way, in the crazy complex pressurised world of organisational activity.

But that’s what they pay us Knowledge Managers for, right?  Dealing with those complexities. Designing the framework that closes the loop. Delivering the value.

Ensuring that knowledge drives performance, and that performance results in new knowledge.

View Original Source (nickmilton.com) Here.

The cost of your knowledge inventory, and how it can be reduced.

What is the price, or cost, of your knowledge inventory? In fact, you already pay the cost without knowing it.

Creative commons image from pxhere

Let’s look at the cost of acquiring and maintaining the inventory of tacit and explicit knowledge.

Tacit knowledge

As people become more experienced (through gaining tacit knowledge) they command a higher salary. They aren’t getting any smarter, but they are getting more knowledgeable, 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, and the value increases by . 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 about 60% of your non-capital spend).

Imagine 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. 
You can reduce this management cost by ensuring the knowledge does not stay in the heads of the experts, and distributing it more widely and making it available to the nextperts (people just below the role of expert) and to the general practitioners. If nextperts can do the work that experts used to do, then the salary cost can come down, or you can do work more efficiently with the same salary.

Tacit knowledge is acquired through experience, which is basically people doing their job (see below about the cost of learning from mistakes), or acquired through hiring people. The hiring cost can be reduced by keeping the knowledge in-house when the individual retires, so that maybe you don’t need to hire a replacement, or if you do, you can minimise the development cost of that individual by providing them with knowledge when they need it.

Explicit knowledge 

The acquisition cost of explicit knowledge is measured in the mistakes and rework of the past upon which the practices of today are based. Sometimes that cost is very high. According to Captian Sully Sullenberg, the hero of the emergency landing on the Hudson river (interviewed here);

“Almost every rule in the Federal Aviation rulebook, almost every bit of knowledge we have is because someone, somewhere died. Often many people did. And so we have learned these important lessons at great cost, literally bought with blood. We dare not forget and have to relearn them”.

Please note that this historical acquisition cost is a sunk cost – you would have paid this cost whether you learned from the mistakes or not. It does however give you some ideal of the scale of the potential inventory value.

This acquisition cost can be reduced in future by ensuring lessons are embedded into guidance and that people follow the guidance, thus avoiding repeat mistakes (which are the cost of reacquiring knowledge), and also by learning from the repetition of good practice and not just from mistakes.

There is also an acquisition cost associated with conducting lessons capture events, and with documenting knowledge into guidance, but these are generally trivial when compared to the cost of the mistake or rework.

Once acquired, the management cost of explicit knowledge is relatively small. Maintaining the knowledge will be the job of a practice owner or a community of practice, and that cost needs to be factored in. Then there will be the licence fee for whatever software you use to house the explicit knowledge.

However there will be a transaction cost incurred with the re-use of the knowledge. This includes:

  • The time people spend browsing and searching for the knowledge;
  • The time wasted looking for knowledge which they do not find;
  • The licence for the search engine;
  • The efficiency by which people can integrate the new knowledge they find into their existing working habits.
These costs can be lowered, apart from the search engine licence, by packaging and structuring knowledge well and wisely, and by maximising its findability (see this post on the Knowledge Supermarket). 
So it seems much of the costs associated with knowledge acquisition are sunk costs associated with staff wages and with mistakes and rework. Your organisation has paid this price already; all you need to is release the value tied up in this cost. Then many of the other costs can be reduced as well.

You might as well use that knowledge, given how much you have paid for it!

View Original Source (nickmilton.com) Here.

A story about the long tail of knowledge

Here’s a story about how Knowledge can be found in the Long Tail within a community of practice.

The Long Tail by Chris AndersonI blogged recently about the Long Tail of Knowledge, and how a Community of Practice can find answers and advice from practitioners other than the core group of company experts.

Here is a story from a young man I interviewed many years ago, explaining how, although only a recent graduate, he was able to share results of a study with another business unit, and so help them make the correct decision.

“I had been involved in writing a report on the success of fishing for stuck pipe* in the Gulf of Mexico. I had written this report for a manager who needed to pull together lessons in order to make a decision of whether to fish or not, and I was able to use some of the tools that we have to capture our experience, and also to go back to the databases and make some statistical analysis of our success rates. 

“One day a question comes through on the online Community of Practice forum, and the question was “what has been a success rate of fishing for stuck pipe in different areas”, and this came from another business unit on another continent. Basically it was very close to the my scenario, so I could share what I had done with them.  

“You feel the power of knowledge, and the value that this may represent, when you receive a response back saying ‘Thank you very much for your reply, because it actually helped us to make a decision’. It was an incredible experience to be able to answer a question on the forum, even with having very little experience, 2 1/2 years of experience, and already I am able to advise the whole world on some of the things that we do and how we do it”.

The last sentence shows some of the spin-off cultural benefit. This young man is now a real believer in knowledge sharing, having been “part of the process” depsite being (in experience terms) a long way down the tail.

* (Fishing for stuck pipe is what you need to do on an oil well if the drilling equipment breaks off while drilling. You can either try and fish it out (a difficult task!) or start the well over again (an expensive task!). Making the correct decision here is not easy)

View Original Source (nickmilton.com) Here.

Finding knowledge better vs finding better knowledge

Here is another reprieve from the archives, looking at the 2 ways in which KM can add value.

There are two ways in which Knowledge Management can add value to an organisation, and we can look at them in this way:

  1. Finding Knowledge Better;
  2. Finding Better Knowledge.
The first approach focuses on better content management, tagging, taxonomy, portal structure, effective search, semantic search, RSS and so on. The intent is “documented knowledge at your fingertips”, and the result is faster access to documents and documented knowledge.  This approach is delivered through better information management (see this post).
The second approach focuses on learning from experience, on capturing lessons, on connecting people into networks and communities of practice, on collaboration, and on synthesising knowledge into current “best” practices. The intent is to create learning loops and channels in the organisation, for improvement of practice.
The value of the first approach is in saving people time in searching for relevant material. The value of this comes through improved efficiency and time saved. 
The value of the second approach is in delivering better decisions, avoiding risks, and delivering better results. The value comes through improved effectiveness and better quality results.
The value of the second approach, I would estimate, is at least an order of magnitude greater than the first; maybe 2 orders of magnitude. I do not have the statistics to test this estimate however. 
But,this is not an “Either/Or” situation, this is a “Both/And”.

Both of these approaches can be combined into one holistic approach, value can be added through both mechanisms, and, as the quotation below (from Martine Hass in Does Knowledge Sharing Deliver on Its Promises?) shows, both have their time and place.

“We find that using codified knowledge in the form of electronic documents saved time during the task, but did not improve work quality or signal competence to clients, whereas in contrast, sharing personal advice improved work quality and signalled competence, but did not save time,” Haas says. 

“This is interesting because managers often believe that capturing and sharing knowledge via document databases can substitute for getting personal advice, and that sharing advice through personal networks can save time. But our findings dispute the claim that different types of knowledge are substitutes for each other. Instead, we show that appropriately matching the type of knowledge used to the requirements of the task at hand — quality, signaling or speed — is critical if a firm’s knowledge capabilities are to translate into improved performance of its projects.”

The other interesting message from Martine’s text is –

Good knowledge is rarely fast, fast knowledge is rarely good.

View Original Source (nickmilton.com) Here.

Quantified KM Value stories numbers 121 to 123 – ROI of knowledge retention

From this published article comes three examples of quantified value from KM.

Image from wikimedia commons

The article is entitled “Assessing the Business Value of Knowledge Retention Projects: Results of Four Case Studies”, and much of it comes from the work of Larry Todd Wilson, who operates a Knowledge Harvesting service.

Larry always tries to determine the ROI of the work he does, and he and his co-authors share the following 3 case stories:

The business result of harvesting (a senior forestry manager) expert’s knowledge was a single source for understanding how to manage delinquent accounts and how to respond to bad debt events, e.g., bankruptcy, collections, etc. The final deliverable was an interactive tool that was developed to capture and disseminate the key decisions relating to the management and response to delinquent/bad debt events. The estimated cost of developing the project was approximately $33,000, with a recognized benefit of $150,000. The immediate benefits to the company included not only improved productivity gains due to bad debt management practices being deployed, but also the ability to move forward without replacing the senior manager. The total estimated benefit over a three-year timeframe is approximately $450,000, with a net present value of approximately $334,000. Therefore, the return on investment of this project was approximately 10:1.

The deliverable captured the expertise from the technical (call-centre) expert and developed an interactive tool around the key decisions relating to the call center, eGain. The estimated cost of developing the project was approximately $12,000 with a recognized benefit of $41,000. The total estimated benefit over a three-year timeframe is approximately $124,000, with a net present value of approximately $89,000. Therefore, the return on investment of this project was reported as approximately 6:1. The efficiency gains from this project would include transferring 60% of the work from a high-cost employee to a lower-cost employee. 

The deliverable captured the expertise from the Senior Systems Analyst and developed an interactive tool around the key decisions relating to troubleshooting the (IT portfolio management) tool. The estimated cost of developing the project was approximately $13,000 with a recognized benefit of $69,000. The total estimated benefit over a three-year timeframe is approximately $207,000, with a net present value of approximately $156,000. Therefore, the return on investment of this project was reported at a greater than expected ratio of 10:1. Since the expert quickly adapted to the harvesting process, it took less time for the harvester to capture his valuable information; hence, reducing the time and cost required for the harvesting process.

View Original Source (nickmilton.com) Here.

Quanitified KM value story #120 – Petroleum Development Oman

Our list of KM Value stories reaches number 120, with this story from Petroleum Development Oman (PDO). See the complete list.

Image from wikimedia commons
The story was presented last week at the UK KM Summit by Hank Malik, who gave an excellent presentation on how standard project-based Knowledge Management has been developed and deployed at PDO.  The elements of KM Hank described included 
  • Lesson Learning, 
  • Best practices, 
  • Knowledge Assets, 
  • Content Management, 
  • Knowledge Retention and 
  • Communities of Practice; 
in fact all the core elements of project-based KM, plus a complete Governance layer and a Processes toolbox.
Hank described a whole set of acheivements from the KM program, including the following quantified benefits delivered to date:
  • 5,554 Lessons Learned captured to date across over 50 projects,
  • Over $740 M savings,  and $80M realised for in-country value.

Well done to Hank and the KM team at PDO!

View Original Source (nickmilton.com) Here.

How Fluor raise the profile of KM – "Knowvember"

Fluor, the construction company, use the month of Knowvember” as an opportunity to publicise KM internally.

Fluor are an international engineering and construction company, who have been applying a Knowledge management approach, based primarily on Communities of Practice, for nearly 20 years. And with a long-running program such as this, it is easy for people to start to forget about KM, or take it for granted. Fluor have a powerful approach for keeping KM live in the corporate consciousness, described in a 2011 blog from Jeff Hester entitled “Successful KM storytelling“.

Welcome to Knowvember.

Knowvember is an annual collection and celebration of KM success stories. It is a time when the Fluor offices sprout posters describing KM successes, chosen from submissions over the previous year. 
Each story has been collected – either informally and formally – from the various communities of practice and describes an example where knowledge was sought and shared, and where value was delivered to the organisation or to a client as a result. The stories come with pictures and quotes.

Then every year during the month of Knowvember the KM team reviews the stories shared over the past 12 months, and select a list of finalists. These are presented to a panel of C-level executives that select the winning stories. Jeff describes how “in 2010 we collected roughly 300 stories, culled this down to 20 finalists, from which the executives selected six winners. If your success story is selected as a winner, you get to select a local charitable organization to which a $500 donation is made in your name.”

Although these stories are collected and publicised through the year, the annual one-month focus brings KM to the fore. As Jeff says

“During the final judging for the annual contest, the exposure these stories and the people involved get at a very high level of the organization serves two purposes: 

  • it provides recognition to folks who are often from far flung offices, and 
  • it reminds our executives of some very concrete ways KM strengthens and improves our company. 

And we’ve found that these stories provide the most tangible measure of the value of knowledge management — much more than the number of clicks and downloads”.

Try a similar communication campaign at your organisation, focused on value stories. I could help keep alive and fresh the perception of KM as a value-delivery tool.

View Original Source (nickmilton.com) Here.

Selecting KM pilots to address non-Quality

Among many interesting discussions at the KAConnect 2018 conference was one on selecting KM pilots focused on reducing the cost of non-quality. 

Participants at KA connect 2018

The conversation was, as many KM conversations are, about Value.

The annual KAConnect conference is for the Architecture and Engineering community, and many of the architects were struggling to find value measures that KM could help with, especially as many of them are billed on a day-rate basis, and so have no direct incentives to be more efficient. Helping them to deliver their work faster would save the client money, but would not impact the profits of the firm.

One insightful suggestion was to address the cost of non-quality, which we discussed on this blog last week. Non-quality, in architectural terms, results in write-offs (doing extra work at the firms expense to correct errors), rework and change requests. A Knowledge Management pilot project aimed at reducing write-offs and rework would deliver real value to the organisation, and act as a proof-of-concept for KM.

This pilot would need to look analyse the causes of write-offs and rework, identify how many of these causes were knowledge-related, identify the critical knowledge which would reduce write-offs and rework, and then put in place an approach to ensure this knowledge was available to the teams at the point of need. The approach need not be complex – a “minimum viable” solution may be enough – but provided it was targeted at the critical knowledge, and focused on reducing the cost of non-quality, it could be an excellent showcase for the value of KM. 

View Original Source (nickmilton.com) Here.

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