All Life Is Problem Solving

In his recent blog on “Defining KM In Terms of Critical Failure Cost,” Stephen Bounds says:

“What we do know is that KM implemented properly reduces risk profiles. For example, less chance of having to re-learn a process because your critical staff member just moved to Rome, or less chance of a critical failure driven by inadequate communication . . . “

And later on he says:

“KM should not be aiming to achieve “x minutes per day” style savings. Rather, our job is to save “$X million over 5 years” by reducing the number of critical incidents where problem solving failure and/or knowledge loss occur. Otherwise, Fogbank happens. There are three components to this equation for critical KM failure in an organisation:

— the current risk probability

— the level that KM can reduce that risk

— the true cost of a critical KM failure”

I agree very much with the idea that KM can reduce risk by “reducing the number of critical incidents where problem solving failure and/or knowledge loss occur.” In fact, I’ve written about the relationship between KM and Risk here, without, however, saying exactly what the relationship is. I’ll do that here. But first I need to say a few things about risk. There are two categories of risk:

— First, there is the risk arising out of a decision; and

— Second, the risk of error in one’s decision model.

The risk accompanying a decision arises because most major business decisions do not immediately cause or bring about their intended outcomes. Instead, decisions only create a propensity, a probabilistic disposition, for many of their most important outcomes to occur. So, if we make a decision and act on it, there is a real risk which is equal to sum of the probability of each possible outcome of our decision, times the value of that outcome.

Now, if each decision we make comes with a particular real risk then, in general we can vary that risk by selecting an alternative decision. Some decisions will increase our risk, some will reduce it. How do we know which is which? Well, we have decision models that we view as more or less likely to be true, and we act on the basis of our ideas about which among our decision alternatives are most likely to work. So this brings us to the second category of risk: the risk of error in our decision models. I don’t have the space here to go into how the risk of error in a decision model can be computed, though I’ve discussed that in my business fable referenced above. The salient points here are that:

— If we can lower the risk of error in our decision models we will not then compound the real risks that are inherent in any decision we choose to make;

— We can lower the risk of error in only one way and that is to improve the quality of our knowledge processing including: problem seeking, recognition, and formulation, making new decision models specifying problem solutions, and integrating those solutions where they are needed;

— As I’ve said in many places Knowledge Management is activity intended to enhance knowledge processing;

— If it is good KM, it will enhance knowledge processing which, in turn, will produce better quality decision models (knowledge) with a lower risk of error.

So, that’s the general relationship between risk and KM and it explains why good KM will “reduce the number of critical incidents where problem solving failure and/or knowledge loss occur.” Put simply, good KM will improve problem solving and spread the resulting knowledge solutions.

What about ROI? ROI is a very specific term and it doesn’t seem to me that you were really discussing it in your blog, but rather that you were discussing how to measure the value of KM in terms of its impact on reducing the number of critical incidents likely to occur. I think that’s a good way to measure the value of KM, but I don’t think it’s ROI. Here, I’ve talked about three approaches to KM, and discussed the Partners HealthCare case, and the Alcoa case in connection with these. In both cases KM can be viewed as paying off by reducing certain risks. In the Partners HealthCare case KM reduced the risk of medical errors. In the Alcoa case, (even though it wasn’t called KM) it greatly reduced the risk of on the job accidents and injuries.