A journey of numbers, and beyond, to assess PLM’s worth.
Few topics stir up an engineer’s emotions like discussing the return on investment (ROI) of product lifecycle management (PLM). In the bustling corridors of corporate strategy, ROI discussions invoke a realm of cold numbers contradicting intangible benefits which can often produce an intricate PLM narrative.
Picture this: an organization, standing at a crossroads, considers implementing a PLM solution. Excitement and uncertainty mingle in the air. The journey to define the elusive benefit case begins. Amidst spreadsheets and boardroom discussions, the truth emerges: the ROI of PLM is not just about the dollars saved or earned. It is a matter of contextually defining what PLM means for the organization, based on its maturity and business model, while balancing the blend of quantifiable metrics and the unquantifiable sparks of progress.
The tale of PLM ROI traverses the narrow path between financial gains, current improvements, future growth aspirations and across the broader landscape of strategic impact. On one side, there are the clear-cut numbers—from cost reductions to time savings, revenue bumps, knowledge capitalization and, more recently, computing environmental impacts to hit sustainability agendas.
Yet, these are only part of the story, a layer in the intricate tapestry of PLM’s influence. When entering the realm of qualitative impact, collaboration deepens, innovation takes flight and risks shrink. But these are whispers in the wind, challenging to quantify but undeniably powerful. They speak to the heart of ROI—the transformational shifts that ripple through the organization.
In this post, I revisit the hot topic of PLM ROI. While there is no silver bullet when justifying business investments, I expand on considerations and contradictions when defining PLM benefits.
The Holistic View of PLM
In the heart of the matter lies the holistic evaluation of PLM. It is about understanding how it:
- Aligns with the organization’s strategy and vision.
- Reshapes processes.
- Becomes the compass for navigating the competitive landscape.
- Changes businesses to drive new ways of working and adopting technologies.
These are essential and mandatory steps to realize PLM value. ROI estimation links to actual or indicative key performance indicators (KPIs), which in turn link to business objectives and key results (OKRs).
Overall, there is no right or wrong approach when estimating PLM ROI; contextual alignment is essential based on organizational culture and maturity. The key is to drive strategic alignment across stakeholders and define (and continuously manage) the relevant expectations.
And so, as organizations journey to seek a true reflection of PLM’s worth, it’s laden with complexities, where numbers and emotions collide. It’s a voyage that promises not only a stronger bottom line but also a reimagined approach to business — launching more, better, faster and cheaper products to market.
ROI Estimation: Building the Narrative
When it comes to ROI justification for PLM investments, there are several schools of thought. For instance, Mark Frary highlighted in a Raconteur article “How to measure the ROI of agile projects” that project ROI is not always straightforward and multiple estimation methodologies can be used. He wrote: “Simply put, both agile and traditional methods can deliver comparable ROI, but we should not necessarily view ROI solely in terms of financial return.”
ROI estimation can be a difficult process, albeit a critical step in building PLM-related business cases. Based on the type of investment and context, traditional project management methodologies (like PMI and PRINCE2) or agile methodologies (like PMI-ACP, LeanIX and SAFe Agile) can be used to estimate initiative, value stream or ROI.
SAFe website by Scaled Agile puts the overall responsibility of the ROI in the hands of the business owner (BO). Its page on Business owners states that: “[BOs are key Agile Release Train (ART)] stakeholders who have the primary business and technical responsibility for ROI, governance and compliance.” Furthermore, Scaled Agile nuances this by stating in its Value Stream KPI page that, “Although the return ROI would seem to be an obvious KPI, ROI is a lagging economic indicator and may not help measure early-stage investment. Instead, Innovation Accounting, non-financial KPIs, offer faster feedback.”
Broadly speaking, here are 10 complementary ROI-related tips which can be combined and tailored to the organization’s context and approach to driving change:
- Financial emphasis: focusing on measurable monetary gains like cost savings and increased revenue.
- Strategic alignment: justifying ROI based on how the investment supports long-term strategic goals.
- Risk management: considering ROI in terms of mitigating potential losses and reducing risks.
- Customer-centric: centering on enhancing customer experience, retention and loyalty.
- Operational efficiency: justifying based on improved processes and resource optimization.
- Innovation and competition: tying ROI to innovation and gaining a competitive edge.
- Intangible benefits: acknowledging value from non-quantifiable benefits like enhanced decision-making, organizational culture and brand reputation.
- Economic value added (EVA): focusing on generating returns exceeding capital costs.
- Payback period: emphasizing how quickly the investment recoups its initial cost.
- Sensitivity analysis: considering varying scenarios to assess impact on ROI.
This is perhaps not an exhaustive list; there could be other dimensions to consider — tangible or intangible. These 10 perspectives, however, are a good start for some, and may be enough to convince others.
Value from PLM: Finding Business Evidence
As the PLM narrative unfolds, what comes to light is a story that transcends the ordinary, that embraces the interplay of numbers and visions. In this story, ROI is not just a mathematical formula — it’s a narrative of transformation, growth and the unyielding pursuit of value realization and delivery excellence.
Effective storytelling should be both strategic and easily digestible in the boardroom, expanding on vision and north star statements. It should be backed up by compelling evidence with enough specifics to stimulate the required support while engaging business leaders, data stewards and process experts. The narrative must transcend the surface-level notion that ‘PLM investment pays for itself’ and avoid misleading assurances — especially sidestepping the pitfalls of a hard technology sale.
Business value statements without baseline KPI metrics can lack significance and context. Every organization aims for a similar laundry list of benefits, such as enhanced product innovation, user empowerment, faster data retrieval, quicker task handling, improved data accessibility, swifter time-to-market, better information sharing, collaborative design, greater process efficiency, increased profits, reduced production costs, minimized recalls, meeting market demand, elevated sales, overall improvements, resource conservation and risk reduction.
In a Harvard Business School article “How to Calculate ROI to Justify a Project” Tim Stobierski elaborated on the financial aspect by comparing possible anticipated (or expected) ROI versus actual (or real) ROI. The former is calculated beforehand to seek PLM investment approval, whereas the latter is typically calculated after implementation and user adoption.
As Stobierski put it: “Actual ROI is the true return on investment generated from a project. This number is typically calculated after a project has concluded and uses final costs and revenues to determine how much profit a project produced compared to what was estimated.”
