The cost of knowledge: why business as usual costs millions.

AuthorKamph, Brad

The aging workforce has been discussed in the trade press continually over the past two years. But what does it really mean to the bottom line? And is there any way to form a business case around the subject of the aging workforce?

Probably the best address to this issue is by investigating the cost of knowledge. Unfortunately, this is usually defined in much too narrow terms, i.e. by looking only at costs associated with obtaining and retaining employee skills. By taking a much wider view, it becomes possible to zero in on the expenditures directly and indirectly involved in all facets of organizational change. The true cost of knowledge encompasses process efficiency, worker productivity, human error reduction, and building the institutional knowledge. The cost of knowledge should always be considered in the context of the entire workforce supply chain instead of focusing on the narrow issue of an aging workforce.

Faulty Logic: The Cost of Knowledge

Ask most people about the cost of knowledge and they trot out a couple of handy numbers taken from training budgets or tally up the implementation costs of retention policies. A few may add anecdotes about letting veteran staff go only to have to hire them in as consultants for double the rate they were previously paid. But this only scratches the surface.

Knowledge, in fact, is a critical strategic element that determines competitive advantage. It isn't something that can be easily bought or outsourced. Yet it has everything to do with the long-term survival of any business. Only by detailed analysis of the many facets of knowledge in a corporation can the true costs be ascertained.

The actual cost of knowledge, then, means more than a glance at numbers taken from an annual report or even a more in-depth workout based on attrition forecasts. It takes an evaluation of the entire workforce supply chain from the development of recruitment pools all the way to stemming the tide of personnel losses through retirement and headhunting. This includes:

* Obtaining knowledge--recruiting programs and new-hire qualification

* Developing knowledge--new employee training programs, costs for developing training, and the creation of standards and procedures

* Retaining knowledge--costs for knowledge capture from retiring employees, inefficiencies caused by capturing the wrong knowledge, supplemental on-the-job training, and documentation of procedures, practices, and lessons learned

* Lost knowledge--erosion of the skill base through attrition leading to costs for rediscovering best practices, and increased error rates due to lack of experience

* Missing knowledge--costs caused by such factors as inefficient processes, human error, low productivity, and an inefficient pace of work.

Building a business case around the costs of knowledge can provide management with the data it needs to stem the losses outlined above through the establishment of precisely formulated and complementary strategies that heighten process efficiency, accelerate worker productivity, reduce human error and formalize institutional knowledge. The business case must be based upon calculations surrounding recruiting, new hire development programs, supplemental training, attrition and skill losses, error rates, process improvements and estimates of efficiency.

Cost of Knowledge Model

The Organizational Cost of Knowledge Model * is a mathematical tool that uses benchmark and utility specific data to model costs and benefits of capability improvement and employee development options. Central to the model are the factors that determine the costs to...

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