Knowledge management (KM) will save the world and we should all do it, right?

Well, there’s the small matter of getting a budget for it. The good news is that most knowledge management initiatives can show solid returns on investment (ROI). Some even deliver all the financial benefits they promised to deliver. The bad news? Accurate, comprehensive ROI analyses for KM are few and far between. But they are pretty straightforward: follow the steps below.

Step 1: Start with a Baseline

If you run a tight ship, you already have a cost baseline for support. If not, you’ll have to build one. It’s a bit of work, to be sure, but the good news is that it can be used over and over again, only adjusting the variables that change over time such as case volume and length of case. You only need a handful of numbers to create your baseline.

• Start with the size of the customer base. If you provide support based on entitlements, that data is easily available. If you provide “free” support use your best estimate.
• What’s the incident rate (that is, how often do customers request assisted support)? This is probably the most critical piece of data for the entire exercise, since the bulk of KM savings is typically created through case deflection.
• What’s the effort time per case? This is often the most difficult metric to gather since many support organizations do not capture it. Use the most exact estimate that you can find, breaking it down into components handled by different groups of staff since likely carry a different price tag: so many minutes for level 1, so many minutes for level 2, etc.
• What’s your cost per case? Use fully-loaded figures or outsourcers’ costs, whichever you use. Remember to add some percentage amount for the management overhead.
• What’s your current online support cost? If you are replacing an older KM system with a new one you may realize significant savings through lower costs on the system itself or on the staffing for KM rather than or in addition to savings on assisted support.

Step 2: Estimate the Savings

This is the fun part. How much do you think you can save through your KM initiative?

• Estimate savings step by step against the current cost model. For instance, you may decide that customers will log 2% fewer cases if they can find information themselves, that each case will be 3 minutes shorter at level 1 because the support staff will be able to find answers faster, and that your escalation rate to level 2 will drop by 1%.
• Validate the estimates. Especially for large-scale decisions, either run a small test or benchmark with colleagues to ensure that your estimates are reasonable. The tendency with ROIs is to exaggerate savings. Let’s face it: if you run a support operation for highly-complex products, your incident rate cannot possibly plunge by 20% when you roll out KM (and if it does, please call me: I want to know.)

Step 3: Include all the Costs

The cost of the KM tool license is only the tip of the iceberg. Include all the add-ons: the hardware to run it on; complementary software, including reporting software; the system integrator you will likely need for implementation; and your own staff’s time to create content.

And you want to plan for TCO (total cost of ownership), not just the initial expenditures. The most neglected item in ROI analyses is the cost of maintaining the content, which will involve some amount of people resources regardless of how wonderful the tool is. Depending on your knowledge management model (whether you are planning a dedicated team, a product specialist approach, a batch approach, or a full-blown KCS implementation) the costs will accrue in different ways.

Step 4: Pick the Right Metrics for your Group

Most often KM initiatives will impact case volume, cost per case, cost per customer, and customer satisfaction, as well as more specific metrics such as case length, escalation rates, document quality, etc. Not all initiatives will target all areas: many initiatives start with a focus on decreasing case volume, and that’s fine, but do consider enlarging your horizons.

Even if you decide to stick with a small set of success metrics it’s a good idea to monitor several more so, in the future, you can expand your definition of success as the knowledge management environment matures. For instance, you may not have paid much attention to escalation rates to level 2 in the past but as the knowledge base improves you should be able to monitor a pleasant decrease.

Finally, you may have no metrics to use as a baseline. For instance, you may have no metrics for document quality at this point, or even no notion of what a “good” document may be. The benefit of the KM initiative is that you will finally have a way to measure quality.

Step 5: Stick with the Quantitative Improvements for the ROI

In my experience, almost all KM initiatives create benefits that can’t be easily measured with a financial yardstick. Typical ones include staff satisfaction (yes, it should go up!) and customer satisfaction. What to do with them?

Qualitative improvements are important. (Imagine justifying an initiative that you know will decrease customer satisfaction?) But they should not be tortured to fit into the ROI. Instead, present them as a pleasant “lagniappe” (icing on the cake) that enhances, but does not dilute the financial integrity of the ROI analysis.

Step 6: Convince the CFO

Your CFO has seen more devious ROI analyses than you can ever hope to create…  Your best bet is to present a short, tightly-justified analysis without hyperbole or loose ends. Here’s a success checklist.

• Does your baseline match the budget? If your bottom-up cost baseline does not match (at least roughly) the top-down number the CFO uses, you won’t get heard.
• Did you justify every saving? Naturally, the larger the potential saving the more important the justification is.
• Do the total savings make sense? CFOs know that financial miracles are rare.
• What’s your plan for the savings? Let’s say your staff costs will decrease by 10%. Are you prepared to lay off 10% of your team?
• Are your risks clearly laid out? A good strategy here is to present both best case and worst case scenarios that include slightly different assumptions.

About the Author………………………………………………………………
Francoise Tourniaire is the founder and owner of FT Works, a consultancy firm that helps technology companies create and improve their support operations. She’s the author of three books, including the latest, written with David Kay, Collective Wisdom. You can find more information at www.ftworks.com or call 650 559 9826.

Don’t miss Francoise’s upcoming workshop at the
SSPA Conference!
Join her on Sunday, May 6th at the SSPA Best Practices Conference in San Diego for a pre-conference workshop featuring the complete process of building ROIs for knowledge management, including a template spreadsheet you can use for your own analysis, and plenty of examples from her past clients in a variety of settings.

For more details, click here.

To register for the conference, click here.