The Return On Investment

Introduction

The objectives of a management system investment program must be specified. A systematic approach is required to determine current performance levels and define potential performance improvements. Having established the processes that will deliver improvements, an applicable system and implementation program can be constructed, costed and the return on investment can then be analyzed. The following topics are covered to help give consideration to the Return-On-Investment (ROI) business case.

Realistic Approach

It is necessary to be realistic on the return assumptions and to be prepared to invest sufficient resources to get the system working well. "Unrealistic high returns are often projected against insufficient investment", take a realistic approach. False expectations generally lead to failure!

ROI Explanation Clarification

The ROI described allies itself to a medium sized single site implementation for a new site that requires information to be collected and input. This substantially increases the initial stages of data input such as equipment, specifications, stock and vendor information. If the system is replacing an existing system and the original system contained reasonable information then electronic transfer would speed the initial implementation process significantly, however time would likely be needed to perform data cleaning and enhancement.

Starting From

There are numerous factors that need consideration. A few of them are below:

• Will the staff use the system and contribute?
• How efficient is current administration?
• Is material control optimized?
• Is there potential to increase plant availability?
• Can improved policies improve availability?
• Can work efficiency be improved?
• Can outages be shortened?
• Do you need to improve safety issues?
• Do you need to improve environmental issues?
• Is it viable to extend plant life expectancy?

Business Case

A business case with calculated costs and returns should be prepared. The presented business case requires purposeful figures, supported and backed with detailed explanation if questioned. Drive the point home for the necessary investment or at least match capability expectations to a proposed lower investment. This does not mean an excessive investment; it means realistic values to secure the necessary internal and external resources.

Investment

The table below “Implementation Cost Ratio” breaks down the ratio of cost distribution across the entire investment. The table covers purchase, implementation and running cost ratios. Approximately eighty percent is consumed by set-up costs, and the remaining twenty- percent is utilized to familiarize and train users. The most significant ratio is data mapping, collection and entry, which is essential to system launch, where users become familiarized with, and experience benefits of the system.

Implementation Cost Ratio Table

Returns

The Percentage Performance Improvements Table below shows a high level view of potential benefits. Tangible entries have been given values. Intangible entries are difficult to quantify and have not been given values (although these have good potential to bring savings). The given percentage values can be used to calculate potential savings in monetary terms against your internal costs. Care has been taken to make the minimum values "real potentials", especially the availability value of 0.1%. The Possible column figures are realistic for either a new plant or badly run organization.

Percentage Performance Improvements Table

Investment and Return Timescales

As is normal in a typical viable initiative, the need to invest to accrue is essential. The Figure below Typical Investment and Return Time (IRT) Chart shows a period of approximately 1 year to get the system up and running (this is fast, the team are pro's). It is based on a new site, which needs to collect and input information. As shown, the initial returns start to kick in after a year and a half.

Investment and Return Time (IRT) Chart

Delivery

With plant availability and other business objectives defined, an administration system can be designed to deliver control processes to match local needs. This covers aspects associated with plant and operational information, organization structures, staffing and productivity, maintenance policies, planning and scheduling programs, work control and its quality, material and procurement management, financial control and managerial indices.

Running Costs

Having driven the system to good operational use, awareness that the systems implemented require maintenance and administration in their own right and allocation of funds are needed to support the system. These are normally value for money in "Best of Breed" systems.

Assistance

If you are in the process of renewing or preparing for a new system Engica’s consultancy services have the experience to guide you or construct a ROI for your organization.