Symptoms

No user can create or modify workflow in K2 Designer. When users try to create or modify workflow, the error shows "Server Error in '/Designer/Workflow' Application. The resource cannot be found.'
 

Diagnoses

The issue was caused by Authorization Rules set on the Workflow application level in IIS. (Navigate to IIS Manager > Sites > K2 > Designer > Workflow then click on Authorization Rules)
 

Resolution

Resetting the authorization permission and that resolved the issue.