How to Use the ROI Calculator?
In our ROI calculator for OEE Software and production monitoring, we look at two different scenarios.
Our first scenario (optimize cost) looks at the hourly running cost of a production machine or line and is suitable for most manufactures to use. The second scenario (maximize output) looks at a situation where you have a high demand product and are running at your current maximum output.
From the calculator, choose the scenario that applies best to your situation and calculate the expected ROI for your company using Evocon.
If you are unsure, look at the examples for both scenarios.
What are the variables?
The variables to enter into the calculator depend on the scenario you use to calculate ROI.
Below is an explanation of the variables in both scenarios.
- Production days per week. How many days per week do you schedule your machines to work?
- Working hours per day. How many hours per day do you schedule your machines to work?
- The number of machines to monitor. How many machines are you looking to monitor? Learn more about how Evocon licences work
- OEE growth %. By default, this is set at 15%. At Evocon, we have found that on average, this is the minimum that new clients can expect. See below how we calculate this
- Average hourly running cost of one machine (optimizing cost)
- Yearly turnover (maximizing output)
- Variable cost ratio % (maximizing output). By default, this is set at 55%. You can calculate your variable cost ratio by dividing variable costs with net sales.
- Baseline OEE. For the sake of simplicity, the calculator sets the baseline OEE at 60%. If you know what your current OEE is, you can change this, otherwise, you can use the default value.
What costs are used in the ROI calculation?
Our ROI calculator for OEE software takes into account the following costs related to implementing Evocon:
The calculation also includes investment into displays (e.g. iPad or PC) that the client sources based on their specific need.
The calculation does not take into account the time invested in setting Evocon up in your factory.
It is also possible to implement Evocon as a hardware-free solution, thus eliminating all hardware-related costs and increasing your ROI.
How to read the ROI calculator?
Depending on the scenario you use to calculate the ROI of Evocon’s OEE software, you get different outputs.
Here is a quick explanation to understand what is behind the numbers:
- The value created per year (optimizing costs). In this case, we look at the costs involved in running your machines for a year. Then multiply it with the growth in OEE. This allows us to see what is the value created with the help of Evocon’s OEE software.
- Profit from additional turnover (maximizing output). In this case, we look at the profit created by the additional turnover due to increased output.
- ROI. For both scenarios the ROI is calculated as seen below:
ROI = Value created – Investment in OEE system / Investment in OEE system* 100
ROI Calculation Examples
If you are unsure about which scenario to use in our ROI calculator for OEE software or what values to enter, then these two examples will give you an overview and help you make the choice.
Scenario 1: Optimizing cost – ROI of OEE software based on the hourly running cost of the production machines
In this scenario, we will look at a company that wants to optimize the hourly cost of running a production machine or line. We determine the input variables and look at how to calculate ROI based on these number.
How does the calculation work when optimizing cost?
Variables included in this scenario
- Baseline OEE is 60%
- We estimate that growth of OEE is 15%
- Number of machines to monitor is 1
- The running cost of the machine is 95 EUR/hour
- The machine is scheduled to run 16 hours per day and 7 days a week which converts to 5840 hours/year
- Approx. hardware cost to implement Evocon – 749 EUR
- Annual software license – 12 x 119 EUR/month = 1428 EUR/year
Calculating the ROI
- Valued operating time per year before 5840 x 60% = 3 504 hours.
- Valued operating time per year after 5840 x 69% = 4 029,6 hours.
- Gain operating time -> 525,6 hours/year.
- Created yearly value per machine -> 525,6 h x 95 EUR = 49 932 EUR.
- ROI on the first year = 49 932/(749+1 428)*100 = 2 294%.
In conclusion, if your OEE improves by 15% then your 2 177 EUR investment in the first year can turn into 47 755 EUR (49 932 – 2 177) of profit, which means that you achieve the same output as before by working 525,6h less during the year.
Scenario 2: Maximizing output – ROI of OEE software for production machine or line working at maximum output
Now let’s look at a company that has a high demand for its products and is working at maximum output with 7 machines. In this scenario, the growth in OEE can have a higher impact than just hourly running costs or the general profit margin applied to the extra volume.
How does the calculation work when maximizing output?
Variables included in this scenario
- Yearly turnover is 10 million EUR.
- Estimated OEE growth is 15%
- Variable cost ratio is 55% – material, energy and machine maintenance cost per produced unit proportion to net sales value of the unit.
- Number of machines to monitor 7
- Approx. hardware cost to implement Evocon – 4 376 EUR.
- Annual software license – 7 x 119 x 12 = 9 996 EUR/year.
Calculating the ROI
- By increasing OEE we increase the output by 15% and generate additional sales of 1,5 million EUR.
- Created value from increased sales is 0,675 million EUR.
- 1,5 x 55% (variable cost ratio) = 0,825 million EUR
- 1,5 – 0,825 = 0,675 million EUR of value created from additional turnover.
- ROI on the first year = 675 000/(4 376+9 996)*100= 4 697 %.
In conclusion, if OEE growth improves the output by 15% and the variable cost ratio is 55% then in the case of 10 million EUR turnover your 11 597 EUR investment generates an additional yearly profit of 675 000 – 11 579 = 663 421 EUR.
When we produce more with the same fixed costs (salaries, rent, insurance etc.) we generate more profit per unit on the additional output because the fixed costs have already been offset and every additional unit comes only with the price of variable cost.
Let’s consider what alternatives your company has if you choose not to invest in increasing OEE. In this case, to increase production output your company will be looking at large capital investments. These would typically include:
- More space, land, and buildings,
- New machinery,
- More workers.
Thus, an investment in OEE software and production monitoring can also keep fixed costs lower.
A Common Mistake When Calculation ROI
We often see a tendency to misunderstand percentages when looking at the ROI of OEE software. This, in turn, leads to a misunderstanding in the change to the bottom line that OEE tracking and improvement brings.
To illustrate this let’s look at an example of OEE change week over week and what it means to the business. The data is based on one of the Evocon free trials.
Example: OEE changes from 29% to 61%
In our example, the client started with a baseline OEE of 29%. At the end of Evocon’s free trial, the OEE reading for that machine was 61%.
So even though the OEE change in percentage points was 32%, the actual change in terms of OEE and output growth was 110,3%. When calculating ROI, this is a very big difference and something that company managers and owners must keep in mind.
Calculating the OEE growth from 29% to 61%: (61-29)/29*100%=110%
Why look at OEE growth as a metric?
When you use our ROI calculator for OEE software, you should look at your baseline OEE and the increase compared to baseline, instead of looking at the change in percentage points.
If at baseline you use 10 machines to produce 1 000 products (100pcs/machine), then after an OEE growth of 110,3% you can produce 2103 products with the existing resources.
Or to put that into another perspective, then after the increase in OEE, you can produce 210,3 pcs/machine. In effect, using only 5 machines to reach the same output as previously.
So always look at the big picture when you are tracking OEE and improving your production efficiency. Because a change in OEE from 45% to 55% can have tremendous effects on your bottom line.
Qualitative Factors to Consider When Calculating ROI of OEE Software
While ROI is a quantifiable metric, there are other qualitative factors to consider when it comes to the benefits of investing in OEE software and production monitoring.
These benefits include:
- Providing a means of communicating with operators based on facts.
- Engaging operators and creating ownership.
- Driving understanding of the importance of efficiency on the shop floor.
- Identifying improvement projects and maintenance issues.
Other benefits of investing in OEE software include a reduction of paperwork thanks to data automation and time gained thanks to automated reports that simplify the analysis of production data.
Overall this means that teams can get straight to the business of finding and implementing solutions. But this only scratches the surface.
Learn more: 10 OEE Software Benefits for Manufacturers
With our ROI calculator for OEE software and production monitoring, we have presented you with two scenarios to understand and calculate ROI. We have also presented you with several qualitative measures to account for as you consider a potential investment in production monitoring and live OEE tracking.
It is important to remember that each company will be different and that the calculators are conservative in their approach.
For example, while our experience shows us that clients can expect an average of 15% OEE improvement, the result can be much higher depending on a variety of factors.