Knowledge Management is an ongoing process of capturing, optimizing, and delivering information.
Therefore, to calculate the ROI (Return on Investment), you should evaluate the cost of implementation and the cost of management. The cost of implementation applies to the purchase of software, hardware, communications, training, and services required for the creation of the knowledge base and its use on daily basis. The cost of management relates to the ongoing costs of maintaining the knowledge base and the infrastructure that was implemented.
Managing the intellectual assets of the company is everyone’s responsibility
Accordingly, more people are involved in the selection of a knowledge management platform and its implementation into the company. A successful solution should be in line with corporate and departmental goals. Therefore, not only are IT executives involved in, but also users and even financial executives play a role in the selection and implementation of knowledge management platform.
Organizations can achieve a return on their knowledge management investments by applying a systematic approach to evaluating needs, opportunities, and employee’s commitment to the organizational goals — and then establishing realistic and achievable goals, and adopting a methodology to consistently measure the results against projected goals. Finally, organizations will need to document actual improvements.
What you don’t measure, you can’t manage
There may also be other opportunities for improvement that are unique to your business. Determining what improvements are best exploited in your company requires in-depth knowledge of your workplace processes, people, culture, legacy systems, and your customers.
The three basic types of improvements are: Efficiency, Effectiveness, and Innovation.
When can a return from knowledge management be realized?
Many organizations begin to see improvements almost immediately after implementing a KM solution. For example, short run ROI is possible simply by creating a centralized knowledge base of all processes and customer practices in the company. This positively leverages human capital. Most companies see significant improvements after just a few months. It is important to begin measuring immediately after implementation to manage by performance. ROI can only be measured after the implementation has been in place for a period of time and the organization is actively using the solution.
If there is one metric, however, that persuades companies to consider investing in a knowledge management system it’s this one: A good knowledge management system reduces the time employees spend looking for information dramatically.
Usually employees spend 20% of their day looking for information they need to do their jobs. Even if we assume a knowledge management system can cut the time employees spend searching in half, a company of 150 (with an average salary of $60,000) would save $750,000 a year. And no knowledge management system costs that much. This is why, typically, knowledge management systems pay for themselves in months — not years.
A properly deployed KM solution puts information at the employee’s fingertips, allowing the new employee to find accurate answers quickly. This not only cuts down on the amount of time needed for formal training, it also empowers the employee to solve problems with more confidence, and frees up time that might otherwise be spent asking questions of busy more experienced coworkers. The overall result is a win-win situation where the company saves money while ensuring greater job satisfaction for the employees.
There are lot of calculators for ROI for knowledge management. Calculators often fall short because they don’t ask things like “what are your business rules, how do you interact with your customers, and why are today’s performance metrics at the levels they are now?” They don’t tailor the output of their solution to the unique characteristics of each company’s complex situation.
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. Here comes the question: how do you measure the value of a conversation or some information shared? The answer is, you don’t.
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.
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