Realizing ROI in KM Initiatives

I know it's been some time since I written an entry into the Knowledge Management Depot blog. I have been working with a number of clients keeping busy during these tough economic times. One of these clients is the United States Air Force. During a briefing with Randy Adkins the Air Force Knowledge Now (AFKN) Program Manager (AFMC/A8C at Wright-Patterson AFB) he mentioned that ROI (Return On Investment) for knowledge management initiatives at Wright Patterson are not measured in a traditional sense, however it is measured by how well it supports the mission. Taking this into account at the end of the day what maters is did the KM initiative increase the performance of its users or how well did it support the strategic mission of the organization.

When we are looking at achieving a return on our KM initiatives historically it can take a considerable amount of time to show results or visible ROI for an organization. However, there is an approach by Mark Clare who originally presented this in the KM Review, Volume 5 Issue 2, May/June 2002, to estimate the value of the intangible benefits of KM. This approach , the Knowledge Value Equation (KVE) simple states that the value created from managing knowledge is a function of the costs, benefits and risks of the KM initiative. Thus mathematically stated: KM Value = F (cost, benefit, risk), which equals Total Discounted Cash Flow (DCF) created over the life of the KM investment. This formula attempts to quantify the intangible impacts of KM relating it back to cash flow. This includes improved problem solving, enhanced creativity, and improved relationships with customers and other performance related activities.

Knowledge Management projects produce a stream of benefits over time. This will enable KM projects to be evaluated based on a series or stream of cash flows. However eliciting feedback from the KM user community in your organization, asking if and how something they leveraged as a result of practicing the KM policies, practices, procedures and technology contributed to thier performance will be a key indicator on how well the KM initiative is working. This will provide feedback on a more timely manner than quantifying results using KVE and allow for adjustments to be made to improve the KM environment.

I am particularly interested in what others have done to demonstrate the value a KM initiative has brought to their organization. I look forward to your comments.