Introduction
If a fabricator is going to spend money on anything (especially a large ticket item) it needs to be justified and shown that it will generate a good return on investment (ROI). This has been my experience in every industry I have worked in and the metal fabrication industry is no different. I have found fabricators to be even more pragmatic than most other industries and a good ROI schedule is a necessity in helping them with the decision-making process for major purchases.
An effective ROI schedule, from my experience, should be dependent on the capabilities of the solution while accounting for the internal customer processes that are uncovered. Using a generic ROI calculation is a recipe for disaster as it would not resonate with or make sense to the fabricator. Another key to a good ROI schedule is to emphasize things that are gained by the strengths of the software and what it is bringing to the table beyond what the fabricator already has or what a competitor might bring to the table.
Reduction to the Ridiculous
A unique approach that I recently learned to create impactful ROI schedules is the concept of reduction to the ridiculous. For example, if 20 people do a task 5 times a day, it takes 25 minutes per task and our software reduces it to 1 minute per task. I would do the ROI calculations using 10 people doing the task 2 times a day and completing the task in 5 minutes. Then, I would link that with the cost of the module and then divide it out by the number of working days in a year. Showing the cost per day next to the impact per day is a very strong quantitative argument for the solution. I provide an example towards the end of this blog.
Categories of ROI
Return on Investment (ROI) schedule elements can be separated into different categories and subcategories. Most of the elements in the categories are worth mentioning to the company when they apply directly to their business problems. However, the most impactful ROI elements have hard numbers that are based on the reality of the software capabilities and actual challenges experienced by the fabricator. Below are some categories of an ROI schedule that I have identified. My focus will be on the last element which is the most useful and impactful for the fabricator’s decision.
1. Difficult
There are many areas that provide concrete bottom line results but are difficult, if not impossible, to quantify. Some examples: opportunity cost of a bad solution, avoided customization costs, increased closure rate of quotes, using current technology to reduce issues caused by old or obsolete technology, etc.
2. Standard/Generic
These are items that are generic and close to, if not exactly, what the competition might provide. I think that they do not bring much value to the discussion and certainly does not differentiate the software provider from anyone else. For example, most companies already have decent equipment or an acceptable CAD/CAM nesting software. So, doing an analysis as though they do not have it or where the differences are marginal is not very useful.
3. Effective
These are quantifiable items that are based on the unique software capabilities of the provider as well as a deep understanding of the processes of the fabricator to show the savings from using the software system in terms of time, material, and/or capital.
Stakeholder Evaluation
A meaningful ROI schedule should be based on reality for it to be impactful. The actual capabilities of the software solution combined with how the fabricator does business, as well as actual business numbers (cost of materials, overhead, etc.) is a winning combination. This means talking to the different stakeholders, understanding their workflow/work processes, doing time studies, or getting estimated times for tasks. The ROI element would be based on where the software solution simplifies or eliminates the process and provides tangible value.
Example
Product: Lantek has a plugin that allows sheet metal parts to be unfolded and imported directly into the CAD/CAM software database with one click.
Stakeholder: Engineer or CAD designer
Learn about process: Engineer flattens the files, exports as DXFs to a directory, and then the programmer imports the DXFs into the Lantek CAD/CAM nesting solution.
ROI Worksheet
Comparison
Reduction to ridiculous
This process can be applied to processes that can be quantified during the stakeholder discussions. When done this way, the ROI is easier to prove and more credible as it is based on actual information rather than assumed numbers. Contact us today for a personalized calculation of your ROI!