PLM Benefits, Metrics, and ROI
By John MacKrell, Senior Consultant, CIMdata
In most organizations, a financial Return on Investment (ROI) is the common comparator for making business investment decisions. An ROI analysis can be used to compare investments—even vastly different types such as purchasing a new machine tool compared to implementing a new PLM solution having very different impacts on an organization. In the case of PLM, an ROI analysis also fulfills two additional roles. It is used to evaluate the financial returns possible from the PLM investment and to determine if the returns are substantial enough to justify making the investment in the first place. ROIs also provide a mechanism for appraising the magnitude of benefits throughout the life of a PLM project. A formal ROI analysis can inform the investment decision and greatly reduce risks.
To arrive at an ROI it is necessary to measure and document both the expected costs and benefits in the same units, and the only unit that makes sense in the context of an ROI is money. The difficulty that generally presents itself is that specific benefits of solutions like PLM can be difficult to discover and quantify in monetary terms. However, PLM solutions provide a large number of cost and time reduction benefit possibilities and most time-based savings can be converted to monetary units without too much effort.
Simply summing up the benefits of a system does not make an ROI. The benefits are only half of the ROI story; they must over-balance the costs of the system being evaluated. This is why benefits need to be realized in monetary terms. So, when a benefit appears as a savings in time, better quality, or reduced inventory, you have to find a way of converting the units to money. It is also important to understand the difference between metrics and benefits and how these are used to create an ROI. Metrics are the measurable values that are used to determine the magnitude of success of achieving a particular benefit. A single benefit may be supported by a number of metrics.
Read the entire CIMData article “PLM Benefits, Metrics, and ROI for PLM".
> Return to Product Lifecycle Management (PLM)
