how to justify the cost of a rapid prototyping system
DESCRIPTION
You know the value and need for a rapid prototyping system. But it is often less clear to management and accounting. To improve the odds of gaining approval, here are tips and guidelines for creating a compelling business case for the acquisition of additive manufacturing equipment for prototyping.TRANSCRIPT
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MAKING THE CASE
How to Justify the Cost of a Rapid Prototyping System
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Who is Stratasys
FDM Technology
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Today’s Event
Host Kim Killoran, Stratasys, Inc.
Presenter Todd Grimm, founder and president,
T. A. Grimm & Associates, Inc.
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Additive Manufacturing Justification
Enormous value… Time, cost and quality
But… Difficult to quantify Difficult to put into words
Getting to “Yes” How to build a business case
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Business Case
Report that summarizes: Proposed capital expenditure Associated value, risk and investment
Business case includes: Executive summary Situational analysis
• Current challenge/opportunity• Proposed solution• Alternatives• Risk
Financial (cost) justification
Tip: Seek help &
guidance
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Executive Summary
Executive summary Will make (or break) the case
State: Challenge, solution, investment and return 2 or 3 paragraphs
Highlight the highlights Emphasis on the numbers
Tip: Be succinct
Tip: Be compelling
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Situational Analysis
Current situation (the diagnosis)
Describe the challenge or opportunity• State who is affected and how
Hone in on one justifiable aspect
Emphasize the numbers
TELCO
Sales R&D Prototypes + ECOs
$50M $2.5M (5%) $80K/year $50K/year
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Situational Analysis
Proposed solution(the treatment) Describe the additive manufacturing
proposal• What is being proposed• Total investment• Implementation time
Detail the benefits• Stress the hard numbers• Reference the softer gains
TELCO
AM System On-Going Savings
$105K $34K/year $75K/year
Tip: State end result
Tip: Lead with hard
numbers
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Situational Analysis
Alternatives
List options considered
State why each was not selected
Risks
List possible risks
State how each will be addressed
Tip: List only the
obvious
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Financial Justification
Two alternatives Cost reduction Revenue increase
Two parts Capital expenditure
• And on-going costs Return (value)
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Investment
Initial investment System Ancillary equipment & licenses Installation & training Shipping IT expenditures Facility modifications
TELCO
AM System Equip/License Install/Train
$90K $8K $7K
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Investment
On-going expenses Maintenance contract Routine maintenance Materials/consumables Labor Facility charges
Input needed Estimated part count Operational estimates
TELCO
Maintenance Consumables Labor
$15K $12K $7K
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Financial Justification
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Investment
- CapEx ($105,000)
- On-going expense ($34,000) ($34,000) ($34,000) ($34,000) ($34,000)
Return - - - - - - - - - - - -
Total ($105,000) ($34,000) ($34,000) ($34,000) ($34,000) ($34,000)
CUM. TOTAL ($105,000) ($139,000) ($173,000) ($207,000) ($241,000) ($275,000)
TELCO
ANALYSIS SUMMARY
RETURN ON INVESTMENT (ROI) (5 year) - -
Simple annual ROI - -
INTERNAL RATE OF RETURN (IRR) - -
NET PRESENT VALUE (15% cost of capital - -
PAYBACK PERIOD - -
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Return
Challenge: hard numbers 2 weeks = $________ ?
Recommended approach Three-tiered
• Hardest to softest Iterative
• Realistic yet compelling
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Return
Tier 1 Savings from transition of work to AM
system
Two sources Outsourced
• AM and conventional In-house
Collect historical data 12 to 36 month look back
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Return
Outsourced costs Part, engineering, labor Expedite fees, shipping, taxes
In-house Internal cross charges Seek cost accounting assistance
TELCO
Prototypes Patterns Total
$60K $5K $65K
Tips: Create buckets Use averages Document
everything
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Financial Justification
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Investment
- CapEx ($105,000)
- On-going expense ($34,000) ($34,000) ($34,000) ($34,000) ($34,000)
Return
- Outsourced $65,000 $65,000 $65,000 $65,000 $65,000
Total ($105,000) $31,000 $31,000 $31,000 $31,000 $31,000
CUM. TOTAL ($105,000) ($74,000) ($43,000) ($12,000) $19,000 $50,000
TELCO
ANALYSIS SUMMARY
RETURN ON INVESTMENT (ROI) (5 year) 48%Simple annual ROI 10%
INTERNAL RATE OF RETURN (IRR) 15%NET PRESENT VALUE (15% cost of capital) -$1,100
PAYBACK PERIOD 46 months
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Returns
Tier 2 Increasing prototyping activity Due to speed, ease, convenience & cost
Leverage Generally accepted values
Concept
Design
Test
Pilot
ProduceP
P
PP P
PP
P
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Project Increased prototype activity Resulting return
TELCO
ECOs
$10K
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Financial Justification
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Investment
- CapEx ($105,000)
- On-going expense ($34,000) ($34,000) ($34,000) ($34,000) ($34,000)
Return
- Outsourced $65,000 $65,000 $65,000 $65,000 $65,000
- ECOs $10,000 $10,000 $10,000 $10,000 $10,000
Total ($105,000) $41,000 $41,000 $41,000 $41,000 $41,000
CUM. TOTAL ($105,000) ($64,000) ($23,000) $18,000 $59,000 $100,000
TELCO
ANALYSIS SUMMARY
RETURN ON INVESTMENT (ROI) (5 year) 95%Simple annual ROI 19%
INTERNAL RATE OF RETURN (IRR) 27%NET PRESENT VALUE (15% cost of capital) $32,400
PAYBACK PERIOD 31 months
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Returns
Tier 3 Value of speed
Recommend Omit from calculation Include as added value
If needed to justify Locate last-in-process step Show cause-and-effect
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Financial Justification
Year 0 Year 1 Year 2 Year 3 Year 4 Year 5
Investment
- CapEx ($105,000)
- On-going expense ($34,000) ($34,000) ($34,000) ($34,000) ($34,000)
Return
- Outsourced $65,000 $65,000 $65,000 $65,000 $65,000
- ECOs $10,000 $10,000 $10,000 $10,000 $10,000
Total ($105,000) $41,000 $41,000 $41,000 $41,000 $41,000
CUM. TOTAL ($105,000) ($64,000) ($23,000) $18,000 $59,000 $100,000
ANALYSIS SUMMARY
RETURN ON INVESTMENT (ROI) (5 year) 95%Simple annual ROI 19%
INTERNAL RATE OF RETURN (IRR) 27%NET PRESENT VALUE (15% cost of capital) $32,400PAYBACK PERIOD 31 months
TELCO
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Business case Financials Situational analysis Executive summary
Recommendations Concise & compelling Compelling & realistic Realistic & tangible
Recap
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Stratasys
• Stratasys uses tough engineering-grade thermoplastics• Dimensionally stable materials lock in accuracy• Technology can be used for manufacturing tools & end-use parts
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More Information
More information: www.stratasys.com/CostJustification Request a free sample part, download White Paper, presentation &
more
Method Cost Time
Injection molding
$60,000 70 days
In-house FDM prototyping
$1,200 2 days
Savings $58,800(98%)
68 days(97%)
Customer Success: Polaris Previously used injection molding for prototypes Purchased a Fortus machine Evaluated physical part, improved design Would have required $60,000 in mold revisions
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Questions?
More information: www.stratasys.com/CostJustification Request a free sample part, download White Paper & presentation