SKiM - Estimating the Value of Knowledge Management

Abstract

Decision makers may be reluctant to invest in knowledge management (KM) without understanding the value to them or their institution of such investments. KM creates economic value through two direct pathways: (i) by reducing the time and other costs of obtaining knowledge needed for decision making; and (ii) by reducing the uncertainty associated with decision options (or policy alternatives in the case of policy decision making). The first pathway is relatively obvious, but calculating the value of saved time is difficult. The second pathway, however, is an important main source of value; knowledge and access to it reduces the probability that an improper (wrong) decision is taken. There is a large literature on the value of information in decision making, whether public or private, but it is widely accepted that the economic value comes through reduction in uncertainty about the returns to a specific decision (Arrow 1969, Gardner 1999, Lindner 1987)