Chad Jackson

Hard Returns in Cost Justifications

July 18, 2019

In one of the last updates, Chad Jackson talked about the shortcomings of soft returns in cost justification. Here, he talks to the advantages of hard returns.

Hard Returns in Cost Justifications

 

Hard returns in cost justifications. This is the return on investment calculations that organizations perform to purchase solutions, typically software, sometimes hardware. A soft return is productivity. A hard return is something that can be monetized such as direct costs, material costs, etc.

In development, there are hard dollars spent on prototypes, change orders, scrap, and rework. This all relates to nonconformances, lost contracts, and penalties due to regulatory compliance or noncompliance.

The benefit of this type of return calculation boils down to actual capital spent by customers.

To learn more about soft returns, check out this video here. In this earlier video, we talked about the two-axis in a soft return. One is a cost perspective and one is a revenue perspective.

With hard returns, there won’t be chances for revenue increases. Companies know they’re going to be spending money on prototypes and they will quantify how much it costs to execute a change order. They know what the scrap rate is on the shop floor. These are hard dollar materials they’re going to spend money on anyway. Reducing this means you’re improving the profitability of the company.

In order to enable this with the solutions in engineering and product development, it relates back to better decisions and catching errors that would cost more money downstream. Simulation, limiting misinterpretation of drawings by replacing it with MBDs, and using the digital thread to track configurations so that you don’t order the wrong parts or start assembling products incorrectly on the shop floor.

Through better decision-making to reduce costs, the impact of switching to a hard return lessens. This is a solid case to bring up when looking at acquiring new solutions.

Share this post
LinkedInTwitterFacebookEmail
Loading cart ⌛️ ...