Knowledge Management – Measuring Return on Investment

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A common and recurrent theme that I keep coming across is how to measure the value of knowledge management, e.g. the return on investment (ROI) of implementing a knowledge management strategy. This may cross over into having a social media strategy where the goal is to support knowledge sharing, so I’ll use these terms – KM Strategy and social media strategy interchangeably in this particular context.

I don’t doubt the importance of being able to measure results and it’s the job of managers to ensure they get value out of any investment in training, technology, organisational development or whatever.  However, these things are notoriously difficult to measure – for example – how do you put a price on a conversation? This led to me thinking about turning all of this on its head and considering how we should measure the cost of NOT having a knowledge management or social media strategy, or NOT making any change.

Using this approach we can at least examine the current status quo and determine whether business processes, capacity, staff knowledge etc. are fit for purpose.  So, rather than spending time and effort creating a business case for a KM or SM strategy, ask managers to justify why things should stay as they are.

Some pertinent questions for managers might be:

  1. Are your staff currently motivated and inspired?
  2.  Do your staff have all the relevant information to do their jobs effectively?
  3. Do your staff have the right tools for the work they are being asked to do?
  4. Do your staff understand their place in the wider organisation and their input and output dependencies for the business processes they contribute to?
  5. Do your staff have adequate opportunities to share knowledge and information with other parts of the organisation? Are they encouraged to do so?
  6. Are you confident that you can react to rapidly changing demands on your staff?
  7. Do you have sufficient knowledge and information to consider the impact of external events on you and your staff and to plan accordingly?
  8. Do you know what your customers are saying about you (within and external to your organisation)?
  9. Do current policies and guidelines support or hinder you and your staff in their work?
  10. Does your manager fully understand what you and your staff do?

There are probably other questions that could be asked, but the key point is that any question which triggers a negative response is potentially a catalyst for change.  This also means it could become a performance indicator if change is agreed, i.e. using qualitative or quantitative techniques.

So, we have the beginnings of a measurable approach to change; we know where we are now and we should know what the desired outcomes are. The difference is what we need to measure.

Of course, the problem remains that not all changes can be measured in strictly cash value terms, which is what many people consider to be the true meaning of ROI. I go back to the point I made earlier – how do you measure the value of a conversation or some information shared?  The answer is, you don’t, and the sooner that everyone recognises this the better. Measuring impact can be just as important as measuring value.  The impact might be things like improved customer satisfaction (measured using surveys), or less time to complete a task, or improved staff morale (measured using surveys). Any of these can – and potentially will – have an effect in terms of cash value to the organisation, but I firmly believe that converting impact to cash value is an exercise in futility, since more often than not, the formulae and algorithms have too many variables.

So, in terms of ‘ROI’, think ‘Return on Impact’ rather than Return on Investment when considering Knowledge management strategies, and develop the strategy from the starting point of getting staff to justify the present  status quo.  After all, change is part of life, and as Darwin once said:

It is not the strongest of the species that survive, nor the most intelligent, but the one most responsive to change.

(Originally published by Stephen Dale, June 2010)

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About Steve Dale

Stephen Dale is both an evangelist and practitioner in the use of Web 2.0 technologies and Social Media applications to support personal development and knowledge sharing. He has a deep understanding of how systems and technology can be used to support learning and facilitate smarter working, where connections and conversations are the key to self-development and creativity within the organisation.
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3 Responses to Knowledge Management – Measuring Return on Investment

  1. Pingback: Knowledge Management – Measuring Return on Investment – Communities and Collaboration | Public Sector Blogs

  2. Gary Colet says:

    Steve,
    I agree that ‘converting impact to cash value is an exercise in futility’. Too any times I have seen organisations attempt to attribute cost savings or efficiency gains to organisational learning initiatives. This is made worse when cash ‘benefit’ is scaled-up across the whole organisation. This invites a coach-and-horses to be driven through the unsupportable multi-variable extrapolation. There is one exception to this; where a repeatable process (think of well-drilling or manufacturing process) is improved through a statistically significant trial. Of course any metric must be made against a benchmark; an oft neglected imperative.
    I recommend consideration of 3 categories of metric:
    1. Transactional (documents uploaded, questions posted, time of response, number of online ‘lurkers’, etc). This is the least valuable, however if you don’t have this stuff, someone senior will ask.
    2. Impact (decisions made faster, mistakes avoided, connections made, effectiveness of communities of practice etc). Impact metrics are often best supported by vignettes or examples.
    3. Perception (improved collaboration/cooperation {different things},
    The latter two can be measured using survey results to turn qualitative views into qualitative measures; a legitimate way, and perhaps the only way, of doing this.

    You may notice that I have used the terms metric and measurement. At the risk of being called a pedant, it is worth considering the difference between measurement and metric.

    Bill Ravensberg provides a succinct and useful definition:

    Measurement – A MEASURE (rating, sizing, etc.) of one thing. Examples are cost, function points, effort, time, etc.

    Metric – A RESULT of taking two or more measurements to create a value. Using the measurement examples, you can get cost per function point, function points per unit of time, etc.

    Basically, the measurement is something you need to create a metric that can then be used for reporting and analysing. A measurement generally will not provide much value or meaning until it is combined with other measurements. The metrics provide the value.

  3. Steve Dale says:

    Hi Gary,

    many thanks for the comments. I must admit I’ve previously assumed that “metric” and “measurement” were essentially the same thing. I now know better!

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