The monetary value of knowledge assets: a micro approach

Measuring the value of knowledge is rapidly becoming a topic of interest in the wake of the increasing attention for knowledge management. Several approaches have been proposed in the past, most of them focused on measuring at a high level of abstraction the “intellectual capital” of a company. A low-level approach, meant to measure the value of separate knowledge assets is defined in a formal model. The model calculates the return on a knowledge asset (its value) as the difference between the cost incurred for using the knowledge asset in activities to produce products minus the revenues generated by these products. The activity side of this equation relies on Activity Based Costing. For the revenues side different procedures can be used for distributing product revenues over activities and knowledge assets. The approach is illustrated by a case study concerning loan revision performed in a large bank in Netherlands. It was shown that the method is applicable and led in the case study to the unexpected result that the return on most knowledge assets for loan revision was negative. The results of the method could also be used to calculate the financial prospects of re-engineering proposals. To conclude, several constraints and benefits of the method are discussed.