Here’s the premise; I am the IT manager for Pete’s Monkey Business, an organization that delves into the world of exotic trading. The life cycle of our current database system has come to its end, and management has decided to replace it with a completely different system, and intend to install and develop it by outsourcing. After the development phase, the consultants will then hold classes (in house) to train the staff on how to use the new system.
After hearing their proposal, I wonder if it would be more beneficial to send my personnel to training sessions so that they will be able to monitor and possibly co-develop the new system along with the consultants. In this way, they would gain first-hand experience with the system and all its intricacies. They could then train all non- technical employees on how to use the system for their needed use.
The idea that I have just shared is the quintessential knowledge management exercise. What I am proposing is to use the intellectual and human assets that the company possesses to cut down the training costs for consulting, to shorten the learning curve on the new system, and to prolong the life of the system by A) Shortening the time that the product will be profitable, and B) Using the system for a longer period of time, because of the comfort level and knowledge that employees will possess with the system.
Now, here is the problem; I want to implement this idea because it will save time, and all employees will be better informed. Also, there should be someone in house that can solve most of the problems that arises with the new system, from technical to trouble shooting. However, management will be looking at one thing; the bottom line. So you must correlate your ideas with a Net Positive Value for cash flow for the activity (the new database system).
Herein lies the need to build a Knowledge Management Business Case. This is based on the Value-Chain Analysis that most all executives from business school will know by heart. By building a case to display your ideas, you can convey exactly how the improvement in knowledge management will increase NPV cash flow, which will get the manager’s attention.
Here are the steps to building your case (Lines in quotation are from J. Ford Brett, “Leveraging Success:”):
1) “Inventory your core value-producing activities.” In our case, the core activity is the installation of the new database system.
2) “Quantify business-as-usual cash-flow profiles.” This is just the initial investment costs, the cash flow provided by the new system, and the expected life. We would rely on the cost quotes given by the consultants, and the managers expected positive increase in cash flow due to the new system.
3) “Quantify how knowledge management will add value.” This is where your estimates come into play. It is important to do extensive research and find other examples similar to yours to develop a solid foundation for costs and positive returns. Also, it is difficult to establish an exact rate on things such as better skill-development by employees and the ability to have questions answered in-house, so quantify these by lessening work lost due to downtime and better employee productivity.
4) “Calculate the NPV of incremental cash flows.” This is simply the difference in net cash flow between the core activity and the core activity using the knowledge management implementation.
All of this is explained in detail in Brett, Appendix A, so I’ll spare you the details. Now lets see our plan in action. First, we’ll do the first two steps. We know the core activity, and have collected the cash flow estimates from management. Plug these into a spreadsheet, incrementing them at equal intervals of time. Then plot the core activity in a chart. Identify the key concepts, such as Investment, Time Lag, Positive Return, and Productive Life, as described by Brett. Here is the Full Life Cycle Value for our database.
Next, plot the same graph, except add the net cash flow for the knowledge management case in the spread sheet, and plot them both. Make sure to point out the good and bad things. On our plot, we want to highlight the initial investment cost increase, the shorter learning curve, higher returns, and increased product life.
Finally, on the spreadsheet, find the incremental cash flow by subtracting your original net cash-flow from your case net cash-flow. This curve will show the NPV increase your ideas can have on the core activities.
John Mark Kennedy is currently a Senior at the University of Kentucky pursuing a degree in Descision Sciences and Information Systems. His e commerce interests include eCRM and supply chain management infrastructure.
