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.

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Shared by: Nick Milton

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