Assessing the value of knowledge
A blog by Dr. Uwe-Klaus Jarosch, January 2026
In the blog “Knowledge – Management,”
I attempted to describe a few basics about what constitutes knowledge in companies and how it is “stored.”
The second blog with the title “Externalize Knowledge” cares about methods to bring the knowledge from the people’s brain to as many other members of the staff as possible.
In this text I would like to try to combine the immaterial good called knowledge with an estimated monetary value.
Knowledge and the intellectual assets of a company do not count towards balance sheets.
And they are fleeting if they are not preserved.
Knowledge management (KM) is a topic that is only discussed in many companies in soapbox speeches. People talk about how employees and their knowledge are the company’s most valuable asset. And at the first signs of a crisis, employees are laid off or dismissed without any concern for ensuring that their know-how remains in the company in some way.
Business figures are then the only valid benchmark – and the value of knowledge in the company is typically not a quantifiable value.
This circumstance is evidenced by the fact that the rules applicable to recording company assets, the German Commercial Code (HGB) and the IFRS for listed companies, hardly take the value of knowledge into account. [1]
[1] HGB is the German Commercial Code.
IFRS stands for International Financial Reporting Standards. The aim of this standard is to make companies’ financial statements comparable, transparent, and internationally understandable.
In Germany, individual financial statements of companies must be prepared in accordance with HGB.
Listed companies in the EU, including Germany, are required to prepare their consolidated financial statements in accordance with IFRS.
When it comes to the status of the company in a financing round with banks, only saleable assets count.
Money is also a virtual and immaterial asset. However, since money can be used for trading, it is a saleable asset and part of the balance sheet.
Case 1 is the simpler case for our consideration. Someone who shares his knowledge with others will usually have records that are also designed in such a way that third parties can understand and comprehend them.
In addition, such a person has learned and practiced explaining the knowledge to others, i.e., making it understandable and applying it to use cases.
If we look at this type of knowledge transfer, it consists of two steps:
a) documenting related knowledge modules and
b) explaining constraints. In most cases, it is only by explaining the constraints that other people will be enabled to apply the knowledge modules. Very few people have the genius to recognize these constraints themselves. And it is precisely these constraints, this explanation, that make the knowledge valuable in the first place.
When it comes to a company’s intellectual property, knowledge only counts at listed companies that use IFRS accounting, and even then only
- Tradable patents, trademarks, licenses
- Immediately marketable knowledge, e.g., in the form of project results to be delivered.
All other elements of knowledge in the company are worthless in the company’s balance sheet. However, experience shows that this knowledge is indispensable. So there is a value.
In this blog post, I would therefore like to try to develop at least an idea of the financial values of the various types of relevant knowledge in the company, at least as an estimated value.
I am approaching this question not as a business economist, but as an engineer who deals with knowledge management and needs a connection to management in order to be able to justify knowledge management as a value-creating or value-preserving package of measures and to obtain funding for it.
Knowlege is Power
Knowledge in a company primarily provides strategic advantages. Such strategic advantages consist of
- early recognition of developments and opportunities in the market,
- the company’s ability to translate knowledge into new products and processes (experts, organizational structure),
- in the knowledge of potential errors and loss factors as well as the necessary avoidance, detection, and response measures to work error-free and efficiently (quality planning, production control),
- in the ability to increase one’s own competitiveness vis-à-vis competitors through innovation and quality in order to increase sales and profits (innovation management, cooperation with research, acquisition of licenses),
- the ability to achieve a unique position, or even a monopoly, through business models in connection with products and services,
- the ability to enable human potential within the company to work together effectively (corporate culture, vision and goals, management system, process map).
Accordingly, this type of knowledge can be categorized according to
– human capital,
– structural capital,
– relational capital, and the aforementioned
– marketable knowledge.
In addition, knowledge within the company is divided into two complementary pillars:
- the “environmental” aspects, which include the competitive situation and knowledge of options for action outside the company,
- the “resource-related” aspects, which concern options for action within the company.
Both pillars are constantly changing. Therefore, knowledge management can never be a static process. And the evaluation of existing knowledge also requires regular updates.
KM is always an active activity.
The environmental aspects involve generating the current knowledge that is necessary to react early to politics, trends, and competition, or even to exert influence in a forward-looking manner, from the environment and the company’s external relationships. I would also include external developments that may influence a company’s own products and services among the environmental aspects.
In terms of resource-related aspects, the available personnel, accumulated internal knowledge, “equipment,” and available funds are linked in such a way that as many innovations, products, and services as possible are created at a favorable cost-benefit ratio. The human factor is a core element here, both as a knowledge carrier and as a decision-making authority.
Furthermore, effective networking among people as a motivated, creative, and productive community is a central part of the resource-related aspect. Culture, effective goal setting, and leadership all have an influence here. Investment is therefore made in structural interaction, organizational development, regulatory systems, and guided cooperation in the form of processes. The amount of work (=money) that the company puts into developing, maintaining, and communicating this structural capital could express its significance for the company in monetary terms.
I would like to place knowledge that has been created through development work and standardization efforts in the same group. One of my main activities is the moderation of FMEA and FMEA templates, which are then used in teamwork. The knowledge that arises in the team when a common understanding is created systematically about product structures, detailed tasks, potential errors in achieving development goals, and the many measures for prevention and detection. In addition, new facts are usually identified and incorporated. However, FMEA is only one of many methods that generate knowledge.
Here, too, this work is included in the project budget or in the budget of the cross-functional staff unit. Here, too, the effort would not be taken if there is not the expectation of an added value[2].
[2] Of course, there are companies that use such methods only “out of necessity” and more as a placebo. This puts a strain on the budget without generating knowledge. They only have themselves to blame.
Both technical experts at all levels and managers represent “human capital” for the company. Their work performance is remunerated through their remuneration as long as they are available to the company and is therefore included in the cost-benefit analysis.
The monetary value of employees becomes fleeting when there is staff turnover. In my view, it is therefore plausible to measure the value of employees by the costs incurred until a person is fully replaced. These costs can include lost working hours, the costs incurred by the (HR) organization for advertising, recruiting, replacements, and even training for the new job. Depending on the qualifications required and the labor market situation, the replacement process can take up to a year and accumulate costs. However, the person is needed. The money invested is worth it to the company even before the person actively (and remunerated) starts working.
New employees will not know and be able to do everything their predecessors knew and could do at the beginning. Training and educating employees is the usual way to acquire the knowledge and skills they lack, after analyzing what they don’t know or can’t do. Their value can also be estimated here in terms of the cost and time (=money) required for training, which should also include the working time of the employee being trained. This also “costs” the company money.
New employees can also bring new knowledge and ideas to the table. In some cases, personnel recruitment may have been used specifically for this purpose. To quantify this potential, I would assume that searching for and recruiting a new employee with increased potential expectations has a monetary equivalent due to the effort involved in searching, possibly poaching, and negotiating compensation, i.e., it is treated as described above for “normal” hiring.
The blog „The knowledge of long-term employees“ deals with the issue of externalization, i.e., the activities necessary to make knowledge from the minds of individuals available to the company independently of individuals. To measure the value of these derivations, my approach is to calculate the amount of work in hourly rates for recording and condensing the externalized knowledge. If it did not have at least the value of this work input, it would have been “reasonable” to refrain from doing this work.
If the decision-makers are of the opinion that the knowledge of the “old” employee can no longer contribute to future value creation, such externalization will no longer take place.
This gives us the key elements with which knowledge is sorted and rateable.
|
|
Type of knowledge | Valuation formula |
|
1 |
Patents, trademarks up to 1 year before the end of the protection period (marketable know-how) | Sales value based on existing offers, fees for maintenance |
|
2 |
Value of employees (human capital) | Full costs of searching for, hiring, and training all employees as needed replacements |
|
3 |
Knowledge of employees leaving before the end of their notice period (human capital) | Full costs of externalizing knowledge, preparing it for use by third parties |
|
4 |
Vision, goals, policy, dos and don’ts / culture description, management system (structural capital) | Expert costs for creation and updating per year / budget of a PMO, alternatively proportionate costs of the management |
|
5 |
Process descriptions, procedures, work instructions, test instructions, control plans (structural capital) | Expert costs for creation and updating per year |
|
6 |
Descriptions of standards and methods in the company (structural capital) | Expert effort for creation and updating per year |
|
7 |
Knowledge about customers, competitors, and suppliers (relationship capital) | Estimated damage if this knowledge were available to competitors |
|
8 |
Project results (marketable know-how) | Calculated development effort, sales value of development results for development orders, unless |
Conclusions:
- Knowledge is virtually absent from companies’ balance sheets.
- In order to save costs, employees are often laid off in crisis situations, regardless of how much knowledge is lost to the company.
- Knowledge within a company can be divided into structural, organizational, and human capital, as well as marketable intellectual assets.
- Knowledge within a company can also be divided into external and internal aspects.
- All forms of knowledge represent an expense for a company, both in terms of acquiring this knowledge and in terms of “maintaining” or regaining it.
- Great attention is paid to human capital. On the one hand, this can be evaluated by the expense of externalizing knowledge for further use. On the other hand, the costs of acquiring equivalent replacements or personnel for new tasks and making them operational must also be added.
- All valuations of intangible assets in a company are estimates. However, the sums that companies spend on acquiring, preserving, and making meaningful use of their knowledge in all its forms are enormous.
Stay curious
Uwe Jarosch