With all the inherent benefits of bringing rapid PCB prototyping in-house widely known in every industry, one would think every product design team would have one by now. But the reality of suggesting any business expenditure over five or ten thousand dollars is that engineering managers and product designers rarely have final say.
Like any capital equipment purchase, PCB milling machines, and more costly laser etching PCB prototyping machines, are going to be seen by financial decision makers as investments with undoubted risk. “Will they get used?” “What are the repair costs when they break down?” “What’s the payback period?” “How quickly will they become obsolete?” “What’s the operating cost vs. outsourcing?” These are all legitimate questions that your business case for purchasing a machine must address.
Outlined in this article, and in our downloadable CapEx Justification Kit, are guidelines for crafting a winning business case to secure the rapid PCB prototyping machine you need. You’ll learn how to nail the executive summary, take decision makers through a logical evaluation process, and compile the right data to justify the financial commitment.
A business case is an appeal. Taking the form of a written proposal, it is an appeal that financially justifies any purchase. In other words, a business case tells the C-suite why this investment is worthy of their approval.
A good business case must speak the approvers language, take into consideration each of their concerns about the potential purchase, and demonstrate the return on investment, or ROI. Ideally, it will excite them about making an investment in the growth of the business.
The first part of a business case is the executive summary. Using financial data as its backbone, the executive summary needs to convincingly outline a problem, propose the solution (the rapid PCB prototyping machine), and state the projected results of the purchase in terms of real value to the company’s bottom line—all in the span of about two paragraphs.
Because it is the first item anyone will read, the executive summary can make or break your business case. Like a cover letter to a résumé, an executive summary can either lose your audience or intrigue them.
To start, first break your executive summary into bullet points. There should be three to five, which might look something like this:
• We are spending $XX,000 on outsourced PCB prototyping and related engineering change orders (ECOs) every 12 months.
• We are losing an average of X days on our critical time-to-market schedule with each new product.
• Our capacity to innovate is limited significantly by not being able to quickly iterate on potentially disruptive circuit layout ideas and cost-saving and potentially game-changing new materials.
• Due to these and other factors outlined in this purchasing request, I believe a rapid PCB prototyping machine for use by our entire engineering team is vital to [your company’s] ongoing product development and business success.
After you do this, flesh out your bullet points into two clear, well-written paragraphs. Use an active voice and keep your words direct. Do this effectively, and your executive summary will get management leaning towards approval right from the start.
The objective of the situational analysis is to review your department’s current state of affairs. In addition to expanding on the concerns outlined in the executive summary, the situational analysis should demonstrate that the machine solution you are proposing is the right solution. To do this, you need to include four elements in the situational analysis:
•The current situation.
•The proposed solution.
•The potential alternatives.
•The potential risks.
Put together, these elements break down different levels of the decision-making process and provide a thorough, accessible look into what is hampering your company and what can be done to correct the situation. Let’s break them down.
Going back to the executive summary, this is related to the bullet point containing the phrase “We are spending/losing (X amount of $) on (proposed problem) per year.”
You might begin floating the idea and engaging decision makers in the potential investment by telling them what you’re preparing and asking for help in finding the hard numbers that can be associated with current process behavior.
Here is where you identify the capital equipment as a solution to the status quo. Turn the problems stated in the executive summary into opportunities by stating things like: “Purchasing a rapid PCB prototyping machine will solve this problem by reducing outsourcing costs by X% or $X every 12 months.”
Develop themes between the current situation and proposed solution and focus on real short-term benefits, rather than perceived long-term benefits which are more likely to be scrutinized.
In this section, your job is to show that you’ve done your homework, and that the capital equipment you are proposing is, without a doubt, the right solution to the problem. To keep it concise, it is best to stick to the most obvious alternatives. The first being to continue with the status quo. The second trying to find a less expensive outsource, and the third a less costly machine. Describe the merits first, then present the pitfalls of these decisions.
Every investment, especially one as large as a capital equipment purchase, has at least some element of risk. Financial decision makers are keenly aware of all risk factors, so by demonstrating you have foresight on them you will improve your chance of approval.
As with the alternatives, state only the most obvious risks. Follow each with a one-or-two sentence rebuttal explaining why the risk is minimal when compared to the benefits.
The financial justification is all about detailing the value of the proposed capital equipment. Here you will compile, in an easy-to-read format, the figures that back up your claims made in your executive summary and situational analysis.
Putting together the financial justification will take more work than any other section of your business case. Associating the benefits of the rapid PCB prototyping machine with hard dollar savings may be a challenge, but with a little help from accounting, you will be able to gather all the proof needed to support your claims.
There are three components that determine the value of capital equipment:
•The initial investment.
•The recurring costs of operation.
•The financial benefit gained.
* For this discussion we are recommending that internal labor costs are left out of the value equation. If inquired about, you might state them to be equal or slightly higher, when prototyping is brought in-house, than the labor required to coordinate with the board house.
The best way to understand these terms in relation to value is by viewing them through the lens of inflow and outflow. The financial benefit, or return, is inflow—money coming into (or not going out of) the company. In your case, return will be represented by the amount of money your company will save by stopping the outsourcing of PCB prototyping to your board house. Be sure to include soft costs, such as engineering charges, shipping and expediting fees, markup on materials, and taxes charged by the PCB outsource.
The initial investment and ongoing costs of the machine are outflow—money leaving the company. The initial investment includes the cost of the machine, shipping costs, and any other startup expenses involved with getting the machine operational. Ongoing or recurring costs are also outflow expenditures and include everything from maintenance contracts to investing in your own materials, and any consumables needed.
Your goal is to show inflow exceeding outflow, resulting in a quick payback period and an excellent ROI.
Note: For years, ROI was the most prevalent financial measure used, but recent economic conditions have vaulted the popularity of gauging value more in terms of payback period. Work with your financial department to learn your company’s preferred measure of value.
So how do you go about gathering the inflow and outflow numbers? Beginning with inflow savings, you’ll need to go back 12-36 months to gain accurate insight into how much your company is spending on outsourcing your PCB prototyping. Gathering these numbers is where the work really begins. Again, engage the financial department in helping you and they’ll feel involved in the solution.
The initial investment is the easiest of the inflow and outflow measures to calculate. Total the price of the unit, the cost to ship it, and any startup charges associated with getting the equipment up and running. From here, you must now determine the outflow expenses of the capital equipment, which includes the ongoing costs of keeping the equipment running. This might include training, installation, or software involved with getting the machine operational. These are often referred to as “ancillary expenses.”
Lastly, you’ll need to calculate the ongoing costs of keeping the machine running. A machine can have a variety of ongoing costs. To calculate these expenses, you might need the expert advice of the machine supplier. Ongoing costs can include everything from routine maintenance, expected replacement parts, service and training contracts, and consumables.
To determine the payback period of your machine, divide the capital expense figure by the yearly net value of the machine, which is the annual return less the yearly operating costs.
To calculate ROI, subtract the capital expense from the total net value. Divide this number by the same capital expense, and you have the five-year ROI for the capital equipment.
So, what do good value numbers look like? A five-year ROI of 100% is a winning number, and a 24-month payback period is ideal. However, don’t panic if your results don’t quite live up to these standards.
As stated, a 24-month (or shorter) payback period is ideal. However, some companies accept a payback period of up to four or five years. Generally speaking, if your payback falls within two to three years you have a very solid case to acquire the capital equipment.
As far as ROI goes, let’s consider this from the vantage point of a stock investor. A stock with 10% annual ROI is considered a good investment. A stock with 20% annual ROI is considered a great investment. Therefore, with a well-written business case behind you, you should feel comfortable presenting annual ROI of 10% or more, and feel very confident with annual ROI of 15% or more.
The peripheral benefits section is not always necessary. If your first go-around on the financials reveals outstanding value, you may feel satisfied standing pat. However, if you feel your numbers aren’t quite up to snuff or you want to quantify seemingly qualitative measures, what follows are some useful suggestions to strengthen your business case.
Perhaps the most beneficial aspect of in-house PCB prototyping, but the one that is most difficult to assign a value to is the ability to “stay in the flow." Having the ability to output a circuit idea, test it, and revise it several times over in a single day or week can be game-changing for an engineer who would otherwise have to stay occupied while waiting for the board house. This not only equates to dozens more iterations and revelations that would have gone unrealized, it will ultimately improve your company’s technological advantage, expedite your time to market, and uncover design for manufacturability (DFM) advantages.
While upper-management might scoff at these additional financial benefits if presented as keys to the financial ROI, they’re worth including as value-added benefits.
Losses related to scrapped materials and lost time and revenue due to rework of circuits rushed to production too early is a real issue in any manufacturing environment. Equating more iterations to ultimately better products that are also more readily manufactured puts another check in the advantage column. In addition, in-house PCB machines can also be used to do repairs, and to produce test boards for other components involved in an assembly. The best machines are intuitive and get adopted quickly by engineers and technicians who have innate capability to use them in imaginative ways. Adding to this argument are the administrative time and resources saved when there’s no purchase requisition paperwork to fill out and no logistics to coordinate, such as shipping/receiving and bill paying. While challenging to quantify, communicating these extra benefits may be the extra edge a CFO or purchasing manager needs to approve your request.
Writing a winning business case is all about defining and solving a problem and taking advantage of an opportunity. In the executive summary and situational analysis, your job is to gain management’s attention. Back up your claims up with measures of value in the financial justification and peripheral benefits section, and they will see your case as an undeniably good idea.
1. Find the right PCB prototyping machine for your needs and get a fast price quote by using our intuitive PCB system selector.
3. Request a free ROI calculator based on your PCB prototyping volume and expenses.