This document outlines an approach for quantifying the return on investment of knowledge transfer efforts. It discusses calculating cost savings from avoiding hiring and training costs when critical knowledge is transferred before employee retirements. Potential savings categories include direct salary costs, recruiting costs, reduced time to productivity for new hires, decreased project risks, and performance gains. The document provides examples of calculations using different replacement scenarios and estimates an average savings of $xxK and return on investment of xx% for knowledge transfer events.

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Savings Calculations – One Approach
Andrew Muras, Advanced Learning Manager
andrew.muras@baesystems.com
© BAE Systems, Inc. 2014 1
BAE SYSTEMS, INC.
‘What is my ROI for Knowledge Transfer?’

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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 Practices
Recent 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 knowledge
5. 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 continuity
associated 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 Scenarios
Savings Category No
Replacement
Backfill: Lower
priced Other
Expert
Backfill:
External Hire
Save direct salary costs $xx
$xx
$xx
$xx
Avoid recruiting cost (external
hire)
$xx $xx
Reduce time to productivity
awaiting 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 Savings
1. 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 $xxK
Average Savings for higher global grade employee $xxK

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Return on Investment
Cost of Average KT event $5.3K
Cost 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 ROI
Inc Average $xxK xx%
GG13-16 Employees $xxK xx%