Written by Dennis Strieter, Product Manager
We have a saying at DASI, “Don’t let perfect get in the way of very good”. Over the years I’ve found this can apply to the need for a return-on-investment. For some technology investments more justification is required, however in the majority of situations where one of my customers states they need to justify a technology investment we often find that a simple ROI is good enough.
With that idea in mind, I’d like to cover both situations over a three-part series on Technology Justification. This first part will cover the Simple ROI. As we look at the factors needed for a simple ROI I’ll include some anecdotes from when I was on your side of the table as an engineer, to examples over the past 13 years working with our customers at DASI Solutions.
When Simple is Good Enough!
In most cases you’ll find a simple ROI fits the needs for you, your manager and the management team in your company. You can probably get by using this method 99.9% of the time when a technology being considered is just for your department. In this case, other departments might still get benefits from the data you create or the process improvement you gain, but your department is the only one using the technology. Some examples in the engineering world would be SOLIDWORKS, Simulation, or SOLIDWORKS Electrical.
When using the Simple ROI process I consider two factors…
- First, that four letter word… T. I. M. E.
- The other factor that I consider are the “Big Bang Issues”
Let’s take a look at both in more detail.
Generally speaking, when we discuss time we’re talking about a process improvement. How can I get the same amount of work done in less time? Even better, how can I get MORE work done in the same, or less, amount of time? My second job in engineering was a wastewater treatment plant designer doing work on the drawing board. It would take us up to 6 months to finish a project design from initial layout to final details. As management wanted to grow our business to more than 2-3 systems per year, we realized engineering time was a bottleneck in the goal.
Enter… technology! At that time, 2D CAD was just emerging. By adopting that technology we were able to reduce our 6 month process down to 2 months.
What is the value of your time? You’ll need to have an idea of that to use in our Simple ROI formula. Everyone knows their hourly rate; what you might want to research is the burdened rate and/or average rates across the engineering staff. Management teams often like that extra detail. However, if you don’t have access to those last two rates, using your hourly rate will only be more conservative in the ROI results. I’ll show later how that works in to an ROI formula.
Big Bang Issues
These are the issues that no one either wants to remember or acknowledge that they might happen again! (Often the results are painful on a personal level.) With that said, I don’t often have the chance to apply these to a Simple ROI. But I’m sure if we outline how it can be done here, there will be a few opportunities for some of you to apply this factor. A couple of examples from my previous engineering life where technology could have been helpful…
- Putting a tolerance of +/- 0.01 versus +/- 0.001 on a critical dimension, then having 10,000 parts made out of spec. Ouch…. That could have been caught with a tolerance analysis feature available in SOLIDWORKS Professional.
- Or… omitting a solenoid value during a manual bill of material roll up done in a spreadsheet instead of letting a compiled SOLIDWORKS BOM or, better yet, using SOLIDWORKS + SOLIDWORKS Electrical to collaborate mechanical and electrical bill of materials. That happened to have been a long lead time item that wasn’t discovered missing until project startup.
While no one intends to repeat these type if issues, it is probably safe to assume something bad will happen again in the future. Because these types of issues can vary so greatly, it’s hard to factor them into an ROI. If you know the cost or impact of such an issue, you should decide if there is value in showing an example of how the technology you’re evaluating could have saved that cost. Again, I’ll show how this is calculated in a ROI formula as we wrap up this part of the Simple ROI discussion.
It Is What It Is
Remember the end goal… Save time and/or prevent mistakes. In order to know what we can save, we need to how we’re doing in those areas today. That makes it necessary to keep track of our progress so we can identify challenging processes that need improvement. This is an area that I don’t see as many companies tracking as I thought I’d see when I switched roles some 18 years ago. I’d encourage everyone to implement some type of tracking system or Key Performance Indicators (KPIs) so when the time comes to schedule work, justify an investment or increase staff, you have the metrics to back up your position.
If you don’t have this documented, the Simple ROI can still be useful. You’ll just be “guesstimating” a bit, rather than having the hard numbers. As you start to consider a technology investment, begin jotting down those challenges you face today.
Stay with me now as we’re almost ready to put this together!
The last piece of information you should have is the payback period your company expects for their investments. I see this vary between 1-3 years. For our formula, I’m going to use a 1-year payback. This again keeps it very simple and provides a conservative result that tends to only get better as you factor in a longer payback period.
Putting the Pieces Together
So in summary, for your Simple ROI you’ll need the following…
- Labor rate or Cost per Issue
- Current process time
- Cost of the technology
- Payback period
Now you’re then ready to crunch numbers and determine how much time the technology you’re going to evaluate will need to save you. Here’s the formula:
(Cost of Technology/Labor Rate)/Work Weeks per Year = Hours Saved per Week required for a 1-Year Payback
Now you know how much time you need to save per week to justify the technology(s) you’re considering. By having the list of challenges to your current process, you can effectively work with your reseller to investigate areas they know to address those challenges. Outline the potential time savings or cost avoidance and see how long it takes to reach your payback hours.
I found this process to work for almost all my technology investments in the past. I’ll start to get into some of the more involved cases in our follow up articles. In the meantime, if you have some examples you’d like to share or run past me please feel free to contact me.