ROI and KM
Posted by Arjun ThomasAs with every business venture , unless there is a solid case built on the ROI the chances are the initiative wouldn’t get the backing of the executive team. It’s a numbers game, and without a clear indication of some benefit, in terms of a dollar figure, it get more and more difficult to justify the costs.
This is a problems most KM teams struggle with, given that these investments are a lot larger at an organization level. However, if there is a central team that handles KM initiatives half your battle is won. Your focus then is to leverage them to get KM promoted within your project ( if they haven’t done so already ).
How do teams justify these investments?
- It Improves overall asset/people utilization
- It allows the organization to maximize market potential by leveraging its collective strengths
- Minimizes redundant investments and/or expenses
- Increasing customer satisfaction through people results
- KM becomes a great way to differentiate an organizations services to a customer
- Faster response time by having the right resources, with the right skills at the right time
- A more efficient and effective [domain] organization that enables the business to meet its objectives
As a project or program manager there is a good chance you would be in charge of profitability so it becomes imperative that you take a close look at your financial investment in KM as you would do with any other aspect of your project.
You can make use of existing infrastructure and systems that your organization offers to reduce investment costs in technology, however there is no guarantee that the existing system will meet your requirements. If you have a KM group within your organization do approach them with help in this regard.
In most cases the greatest investment comes with the time people put in to the initiative. if you have a dedicated KM process within the project your team might be spending a portion of their time implementing it thereby adding to your project cost. In some cases there might be individuals within your project team whose sole focus is to manage KM activities.
At the end of the day its a judgment call, you need to figure what you need to get done and what you have at your disposal to do it. Start slowly and refine your process with time.
Now the reason i started up this post is to get an idea of how companies , if at all, calculate the ROI on a knowledge management initiative. Based on my experience, figuring out where the knowledge is and getting it to flow is tough enough, adding a number value to it seems very challenging ( too put it mildly) . Sure , there have been methods where people have attempted to calculate it. But the question of a methodology robust enough to calculate the ROI of a KM initiative doesn’t seem to be here as yet, then again i could be wrong.
So, if any of you have managed to implement an accurate ROI calculation in a KM environment i’d love to hear about it. Do leave a comment , against this post so other people can get involved in this discussion.
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Pawan says:
Hi Arjun,
The RoI issue can be resolved if you first decide why KM is being implemented. That means defining the problem correctly and smartly. Very often KM is presented at such a high level and that too in a generic way that it become absolutely difficult to reach an RoI calculation.
We have done rather well in that area in Airtel. have clearly defined measures, including savings from implementing KM. Let me assure you that these are certified by the CFO and are quite high.
Pawan Bakhshi, Ph.D.
Arjun Thomas says:
Pawan,
Thank you for posting your experiences here. It would be useful to the rest of the folks here if you could give us a small example of how this was done at Airtel.
Thanks!
Innobrain says:
I’ve been consulting various clients with KM – ROI related issues. In the end none of them came up with a explicit ROI, in Euro’s. The minimum you should do in each initiative is to adress the benefits in terms of i.e. economic profict, cost reduction, client satisfaction, etc. How do you benefit? If you don’t, nearly all KM initiatives will become ‘cost’ and will be set on hold the sooner or later .
Vincent says:
Hi there,
I’m just rounding up a complete business case for a Collaboration and KM project. In fact this is what I’d recommend anyone to do: make a real busines case out of it – and combine KM with collaboration tools. The way I see it, KM is the qualitative side of collaboration and it is easier to list benefits for collaboration (save on travel expenses, work together on documents, etc). So by introducing a set of collab tools, or adjusting whatever you have in place, you are actually promoting KM to happen. But the business case is easier by the combination of the two. My case shows a profitability of 300+ % over a 5 year period, after an 350k euro investment which mostly consisted of depreviation of billable hours of approx 60 professionals in the first year. Do the math, calculate the Net Present Value and you’ll convince the management.