Letters to remember: ROI and TCO
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By Sophie Matthews-Paul
10 July 2012
It's important to assess all aspects of running a new machine before investing
There are two sets of initials which tend to feature high on the list of terminology involved when print service providers are considering a capital investment. These are ROI and TCO, meaning return on investment on the one hand, and total cost of ownership on the other. When I get banks and finance houses requesting information on a specific print engine so that decisions can be made for potential customers, the emphasis is on ROI because those are the metrics which make it easier to factor in the relevant numbers and time spans to come up with a suitable and acceptable deal.
A correct calculation of ROI over a given period should include costs as well as operational returns and output. But the questions I get asked by lenders tend to be based solely on the investment unit and what it can produce, and its likely street value a certain number of years down the road. Often it's not easy trying to come up with estimates that are accurate, and not merely figures plucked out of the sky.
In TCO terms, the metrics can be very different. Take as an example the display producer that decides to get rid of a multi-colour screen-printing press and replace it with a high-speed digital output device that can handle the same kind of application. It is relatively simple to quantify the differences in throughput, typically the fact that numbers of orders can be increased significantly in a daily workload because of the minimal set-up. But it is important to factor in versatility in terms of run lengths and overall machine uptime, not to mention operators and time spent associated with the printing machine. With an analogue unit, makeready is a very different kettle of fish compared with digital and, even if the cost might be higher when compared print to print with the latter, the convenience factor needs to be quantified in terms of time and overall expense.
Another element to consider when establishing TCO is the type of machine. Using the same example, that is, replacing a multi-station screen press with an industrial strength ink-jet printer, even with the largest digital engine installed, the chances are that the overall footprint will be considerably less than its screen-printing predecessor. Freeing up operating space is a consideration which often gets overlooked when establishing running costs and overall ownership parameters. If a company is moving entirely to digital, there is no longer the necessity to have specific areas set aside for producing screens and washing them down afterwards. So floor area, energy and manpower are all reduced.
Often the less finite elements aren't often easy to quantify, such as time spent in making the transition to new technology, and the training. Also encountered when considering a major move from one technology to another is the fear from management and production staff about how long the metamorphosis will take, how many wasted jobs are likely to result, and how new implementation will affect any monitoring of production that is already in place. In other words, how will the overall learning curve be evaluated when introducing new print processes and the impact on day-to-day running on the print shop floor.
In digital print there is also a risk factor incumbent on its base technology. Although investing in a new machine now is less of gamble than it was in the earlier days of wide-format ink-jet, no-one really knows when a major breakthrough is likely to appear which renders some existing developments pretty much obsolete. There can be nothing more dispiriting that assessing the ROI and TCO for a brand new platform, only to find it is superseded by a more practical and cost-effective successor well inside the time frame allocated for its payback.
ROI tends to be assessed to determine the justification of a party wanting to invest, and the need for that investment to perform satisfactorily during a set period of time. But TCO needs to be incorporated as part of the overall return to combine all of the considerations involved in a particular purchase, including ongoing maintenance and training, as well as the expected lifespan of the equipment.
In a tough economy more questions are likely to be asked, with deeper digging before financial agreements can be made. The factors involved can always be a bit nebulous; it's wise to put as many cards on the table as possible to make it easier to establish the true overall and financial impact of a new investment.
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