Friday, August 15, 2008

KM ROI Redux

I have written about the problems with calculating ROI for KM programs before. But it is a issue that will not go away. For example, the topic came up again in one of the discussion lists in which I participate.

The proposed argument went something like this:

  • Improving corporate search will reduce the time spent looking for information.
  • An IDC report calculates that on average knowledge workers spend 9.5 hours a week looking for information.
  • If we improve search and reduce that time by just 10% (one hour), and if we assume, conservatively, that we impact 10% of the workforce, the savings in time alone for a moderately large corporation would be the equivalent of $4 million in salaried hours.

You can't argue with the logic or the arithmetic. Unfortunately, the pragmatics of business are neither logical nor straightforward. Getting people to do their work 10% faster, does not result in 10% more work being done; or, more importantly, 10% more product or revenue being generated. So calculating cost savings in terms of improved performance is a faulty argument that most business managers will jump on. Usually, if you raise this argument in a budget discussion, the conversation goes something like this:

  • "We just spent $XXX thousand dollars last year on a new search engine. Where are the savings from that improvement?"
  • "1 hour a week is 2.5% of a 40 hour week. Show me where I am getting a 2.5% increase in production or performance?" (Not theory but actual improvements in the bottom line.)
  • "$4 million return on an investment of what? -- say 4 people for a year, approximately $500K -- that's an ROI of 700% in one year. Who are you kidding? Real ROI for things like SAP are 200-400% over a 6 year period, not breaking even for 2-3 years. I don't believe it."

That said, what I realized from the discussion was that there are two separate situations when conversations like this occur. The justify-your-program discussion with your direct manager and the justify-your-expenditure discussion with upper management.

What I have just described is the latter, which is why justifying KM programs is so difficult. Saved time and unmeasurable performance improvements simply don't go over in budget discussions.

However, for justifying your program to your direct manager, the argument concerning saved time is important, because usually that person is also managing the people whose performance you will impact. So I would suggest three things for that sort of discussion:

  • Keep the argument about saving time. This has meaning to that manager (since they directly manage employees such as yourself)
  • Don't bother getting into the theoretical monetary savings, because it is meaningless. Your manager is not going to see that money, so it is a waste of time.
  • As Stan Garfield has suggested before, use multiple arguments. Argue the saved time. Also provide supporting evidence -- emails, forum postings, performance review input -- whatever testimonials you can garner from people who say your program has helped them save time or be more effective.

It is best to collect this type of information on an ongoing basis so you have it handy when you are asked to justify your program. It is hard (if not impossible) to collect in a hurry at the last minute.


Atul said...

You are talking about essentially anecdotal stuff, from what i understand ... and, that is probably one of the most valuable inputs you can get. Because, if we look at ROI, its difficult to capture the R, and hence, the ROI.

Andrew Gent said...

"You are talking about essentially anecdotal stuff, from what i understand..." Absolutely. Stories that make the value of the services come to life for whoever your audience is. If that is your manager, often stories from others who report to them (or who he/she reports to!)