Post on 18-Jul-2015
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Savings Calculations – One ApproachAndrew Muras, Advanced Learning Managerandrew.muras@baesystems.com
© BAE Systems, Inc. 2014 1
BAE SYSTEMS, INC.
‘What is my ROI for Knowledge Transfer?’
Non-export controlled. Releasable to non-US persons per INC-DSEA-2015-00032
Goals
• Quantify Business Value: Focus on savings and return on investment
• Use Credible Data: Finance-supplied data, industry standards and accepted financial calculations
• Be Conservative: Use reasonable, but lower figures when developing results
• Employ Scenario-based Rules: Construct impact using results from ongoing efforts
Provide a straightforward and credible approach for quantifying ‘hard-to-quantify’ knowledge, collaboration and learning efforts.
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Basic Process
1. Identify value-added
benefits
2. Make reasonable
assumptions
3. Gather supporting
data
4. Perform practical
calculation
5. Assess and iterate
Complete for each independent
value-added benefit
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Knowledge Transfer Savings Calculations
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Why Knowledge Transfer for BAE Systems?
Upcoming significant retirement issue: Approximately x% of our staff is eligible to retire over the next 10 years
• Intellectual capital is our competitive advantage
• We sell expertise and knowledge, it’s what our customers expect from us
We are defining and implementing an Inc.-wide strategy and process for capturing and transitioning knowledge and expertise from experts to our
current and future employees
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Example Industry PracticesRecent Study completed by APQC – Top 6 practices in transferring critical knowledge
1. Create strategy and process to protect critical knowledge 2. Identify critical knowledge 3. Capture and transfer critical knowledge 4. Manage access to critical knowledge5. Manage change related to knowledge capture, transfer, reuse 6. Ensure critical knowledge is applied and used
Corporate wide initiative begun in 2008
Integrated with other knowledge initiatives
Dozens of teams running simultaneously
Promoted as a business discriminator
Knowledge sharing initiated early 1990’s
Moved to advanced knowledge sharing behaviors-2010
Annually they conduct 20,000 individual knowledge transfer activities
George Washington University independent study of Knowledge Transfer/Continuity efforts:91% Documented Success Rate>$140K Cost avoidance/team
Focus is on knowledge flow, conversation, learning and reuse versus documentation and repositories.
Examples of two other firms investing in Knowledge Transfer efforts
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How Does Knowledge Transfer add Business Value and Reduce Cost?
1. Preserves intangible capital and provides for business continuityassociated with that position.
2. Saves direct cost if the team is able to continue the work without replacing the departing employee or by replacing with a new hire at a reduced salary
3. Avoids recruiting costs when the departing employee is replaced by internal Other Experts or not replaced.
4. Reduce time to full productivity while awaiting replacement employee.
5. Decreases risk by quickly ramping up new employee and reducing probability of failure.
6. Realizes performance gains for KT team members as they learn more about business processes and lessons learned.
7. Improves processes associated with current team’s business efforts.
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Quantifying ScenariosSavings Category No
ReplacementBackfill: Lower
priced Other Expert
Backfill: External Hire
Save direct salary costs $xx$xx
$xx$xx
Avoid recruiting cost (externalhire) $xx $xx
Reduce time to productivityawaiting backfill (3 mos avg)
$xx$xx
Decrease risk: improve ramp-up & decrease failure rate (1/3rd)
$xx$xx
Performance gain : KT team (eliminate rework, 1% improve) $xx $xx $xx
Process improvement: (reduce 5% NVA = 1.25% improvement) $xx $xx $xx
TOTALS $xx$xx
$xx$xx
$xx$xx
Direct Cost Savings $xx$xx0
$xx$xx
Calculations based on higher global grade departing employees
To be conservative: did not consider additional cost savings associated with Facilities, IT, etc. or other recruiting/HR costs such as training, use of outside recruiters and others.
Financial Analysis: Preserving
Intangible Capital per employee
$154,423
Based on BAE Systems Annual Report to Investors
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Calculating Savings1. Average Savings from the three Scenarios and Intangible Capital
2. Discount by 20% to be conservative
3. Sanity check with other industry/independent studies: >$140K savings
Average Savings $xxKAverage Savings for higher global grade employee $xxK
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Return on Investment
Cost of Average KT event $5.3KCost for GG13-16 departing employee (assume 3 of 5 team members at GG13-16)
$7.6K
1. Calculate cost of conducting a KT event:- xx team members for xx one-hour sessions + xx hours planning- To be conservative, increase total costs by 20%
2. Calculate ROI: (Savings – Cost)/Cost
Average GG+
Savings $xx $xxK
Cost $xx $xxK
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Real-Life Examples to date
Captured 30+ years of Reliability insights which resulted in over $200K in cost savings/avoidance
Engineering
Through process improvements and increasing team skills, no replacement was needed, thus eliminating need for backfill. >$175K cost savings
Inc Function
Members of our Strategic Initiatives Group (SIG) are working with business development and proposals to use knowledge transfer concepts and methods to enter new customer and market areas. It provides a powerful message: we have a proven system for capturing, transferring, and applying knowledge.”
Business Winning
KT provides an effective and orderly transition of responsibilities when a person leaves the company.It gave my direct reports additional insight into my total responsibilities and forced us to reflect on those responsibilities that are not always intuitive.KT provides an opportunity for our future leaders to be more prepared to lead this company.
VP, Supply Chain
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Summary
• Business Value of Knowledge Transfer processes are quantifiable
• KT processes are relatively simple to implement across multiple home markets, sectors, functions and global grade levels.
• KT processes require minimal investment and provide significant cost savings/avoidance and return on investment
Cost Savings ROIInc Average $xxK xx%GG13-16 Employees $xxK xx%