Productivity and Return on Investment from COSMOS Finite Element Analysis Software Prepared by: MIT Sloan School of Management Report prepared for: Structural Research & Analysis Corporation Prepared by: Michael L. Volpe michael.volpe@sloan.mit.edu
Table of Contents Executive Summary... 3 Discussion of Key Findings... 4 Improved Product Quality is Most Frequent Benefit... 4 ROI Comes from Many Sources... 4 COSMOS is Fast and Easy to Learn... 5 COSMOS Analysis Enables Significant Productivity Increases... 5 Qualitative Comments Support Quantitative Results... 6 Sample ROI Calculation... 7 Mid-Sized Mechanical Machinery Company... 7 Appendix A: Disclosure... 8 Appendix B: Table of Summary Results... 8 Appendix C: Analysis Software Evaluation Recommendation... 9 Total Cost of Ownership (TCO) Methodology... 9 Return on Investment (ROI) Methodology... 9 Features and Performance... 10 Ease of Use... 10 CAD Compatibility and Related Applications... 10 Market Acceptance... 11 After-Sales Support... 11 Vendor Viability... 11 Appendix D: Sample ROI Calculation... 12 Page 2 of 12
Executive Summary This report summarizes the results of a third-party survey of the productivity gains experienced by hundreds of users of COSMOS analysis software. This data is useful to companies considering the purchase of new analysis software that operates with their current CAD solution. The findings of the survey show that using COSMOS analysis software for product development produces the following results: 100% of the companies reported an increase in productivity; 67% of the respondents reported an improvement in product quality; 59% of the respondents reported fewer product field failures; 56% reported a reduction in the number or prototypes; 88% of the respondents reported they were satisfied with their purchase of COSMOS analysis software. When evaluating analysis software, manufacturers often view increased productivity as the most important point of comparison. To obtain the most objective understanding of potential productivity gains, manufacturers should calculate their expected Return on Investment (ROI) and consider as many quantifiable benefits as possible. To calculate expected ROI, manufacturers should use Total Cost of Ownership (TCO) to compare costs, including those for hardware, maintenance, upgrades, support, and training. This report provides details on how companies can calculate TCO, determine expected ROI, and evaluate analysis vendors before making a decision to purchase new analysis software. Survey Purpose and Method The purpose of this survey was to have a third party measure the ROI and the productivity impact experienced by companies using COSMOS analysis software. Web-based questionnaires were distributed to thousands of COSMOS customers. The survey produced hundreds of responses that were suitable for analysis. This report shows averages as representative of the overall and should not be interpreted to mean that nearly all responses indicated something very close to the average. Many responses were lower and many were higher, and the number shown is an average to provide a simple summary of the data. Page 3 of 12
Discussion of Key Findings Overall, 100% of the companies reported an increase in productivity from using COSMOS analysis software. Survey respondents cited multiple areas where they experienced productivity increases, such as faster time-to-market and a reduction in the number of required prototypes (Detail is provided in Appendix B). An in-depth review of the data reveals several key findings. Improved Product Quality is Most Frequent Benefit Improved product quality was the most frequently cited productivity benefit of using COSMOS analysis software, with 67% of the respondents reporting improvements in product quality. Improving product quality is a critical objective for nearly every business because higher quality products demand higher prices, resulting in increased revenue and profit, and are typically less costly to maintain, service, and warranty in the field. Because COSMOS analysis software helps manufacturers improve product quality, it also helps companies minimize the risk of expensive product failures and recalls. More than 59% of respondents said they were able to avoid field failures by using COSMOS analysis software, and 15% of respondents indicated they were able to avoid product recalls completely. In addition to improving product quality, respondents indicated using COSMOS analysis software provides productivity benefits that reduce product development costs and accelerate time-to-market. More than 35% of respondents said they get products to market faster and 56% of respondents said they were able to reduce the number of prototypes as a result of using COSMOS analysis software. ROI Comes from Many Sources The ROI a company experiences as a result of using COSMOS analysis software is related to several specific productivity benefits. Productivity Benefit Percent of Respondents Reporting Improve Product Quality 67% Avoid Field Failures 59% Reduce Number of Prototypes 56% Faster Time to Market 35% Avoid Recalls 15% Reported Any Productivity Increase 100% Page 4 of 12
COSMOS is Fast and Easy to Learn Becoming proficient with analysis software quickly is an important component when calculating ROI. Survey respondents indicated that it took about 10 days on average to learn how to use COSMOS analysis software, with 40% of respondents saying they learned how to use the software in 5 days or less. Time to Learn COSMOS 6 to 15 Days 5 Days or Less 16 to 30 Days More Than 30 Days COSMOS Analysis Enables Significant Productivity Increases For many companies, the size of each productivity increase related to using COSMOS analysis software was substantial. Amount of Productivity Increases 40% 30% 20% 10% 0% Increase in Product Quality Reduction in Prototypes Time to Market Improvement Reduction in Physical Tests Reduction in Field Failures Reduction in Recalls Page 5 of 12
The productivity increases related to COSMOS analysis software help many companies to accelerate product time-to-market while improving product quality at the same time. Qualitative Comments Support Quantitative Results The comments provided by respondents provide additional support for the conclusions drawn from the data. We are now able to utilize more advanced designs that we were unable to calculate in the past. This has led to less prototypes and reduced testing time in R&D. - Mechanical Machinery Company with 12 designers [S]ince I started using COSMOS (12 years ago) I would say that I have been able to reduce overall machine cost by around 10%, reduced machine mass by around 20%, and increased dynamic stiffness by around 30% - Supplier to the Glass and Ceramics Industry with 4 analysis users Our monetary savings are through optimization of materials used. I estimate that my company has reduced its material cost by about $40,000 for 2002. I anticipate a further cost avoidance of about $75,000 for 2003. [M[y seat was paid for after just one project applying the software. - HVAC Equipment Producer with 12 designers In combination with solid modeling, analysis has increased product development productivity by a factor of 4. - Small Mechanical Machinery Company By doing detailed analysis on new product designs we can build products for markets we would not be able to compete in at a profit. - Mechanical Machinery Company with 2 designers Overall, comments from survey respondents indicated that COSMOS analysis software delivers productivity gains in the design process when implemented and used properly. Page 6 of 12
Sample ROI Calculation While any business needs to perform its own ROI calculation based on its unique processes and needs (suggestions on how to do this are contained in Appendix C), the data gathered through this survey can be a useful guide for determining if analysis software makes sense for your business. A sample ROI calculation for a hypothetical business follows. Mid-Sized Mechanical Machinery Company This business has five designers that are currently using 3D CAD but are not using analysis software. The designers have an average salary of $50,000 plus 30% for benefits and overhead. The company has annual sales of $20 million, its profit margin is 8%, and its discount rate is 15%. We will assume that selling higher quality products will increase sales by 5% and that these increased sales will generate $128,000 per year in additional profit. Taking into account costs that have been eliminated through the use of COSMOS analysis software, the company s annual profits will increase by more than $335,000. Using the data from this survey as a guide, we can expect that this company will realize the following productivity benefits as a result of implementing COSMOS analysis software: 30% faster time-to-market 20% reduction in field failures 15% reduction in product recalls 32% reduction in prototypes 23% reduction in physical tests If we assume that the first-year cost of analysis software for all five designers, including training and new hardware/software, is $10,000 per seat and that ongoing costs are $3,000 annually per seat, then COSMOS analysis software provides a one-year ROI of over $250,000 and a three-year ROI of over $800,000. Page 7 of 12
Appendix A: Disclosure I am a graduate degree candidate in the 2003 MBA class at the MIT Sloan School of Management with experience in the software industry, both as an investment banker and as a strategic consultant for software and other companies in the high tech industry. I believe this survey was conducted impartially and the conclusions drawn are based on sound statistical and business analysis. I want to disclose that I received financial consideration for my work in conducting the survey and preparing the report. I encourage all companies to do thorough research into all appropriate analysis software before purchasing and not to rely exclusively on this or any other single piece of information. Appendix B: Table of Summary Results Percent of Companies Reporting Each Productivity Increase 67% Improve Product Quality 35% Increase in Product Quality 58% Avoid Field Failures 32% Reduction in Prototypes 56% Reduce Prototypes 30% Time to Market Improvement 35% Reduce time to market 23% Reduction in Physical Tests 15% Avoid recalls 21% Reduction in Field Failures 18% Other 15% Reduction in Recalls Average Costs of Activites as Reported by Companies Average Amount of Productivity Increases as Reported by Companies Time to Learn COSMOS as Reported by Companies $85,130 Cost of Single Prototype 43% 5 Days or Less $349,205 Annual Cost of Field Failures 19% 6 to 15 Days $164,814 Annual Cost of Recalls 20% 16 to 30 Days $172,311 Annual Cost of Physical Tests 18% More Than 30 Days Percent of Companies Performing Each Type of Analysis 96% Stress Analysis 50% Thermal Analysis 35% Vibration Analysis 25% Motion Simulation 23% Fluid Flow Analysis 13% Other Primary Use of Analysis 56% Conceptual analysis to support a design at an early stage of development 18% Quick check of design in progress to assist designer 12% Standard analysis of a new product from an established product line 8% The last check of production-ready new design before final testing Design Validation 6% Evaluate product failures in the field 1% Accelerate the redesign process after prototype failures Page 8 of 12
Appendix C: Analysis Software Evaluation Recommendation When doing an evaluation of analysis software, I recommend that companies evaluate the total cost of ownership (TCO) and return on investment (ROI) from each system for comparison. The upfront license cost is often only a small portion of the total cost, so it is important to use the TCO methodology to measure costs. Calculating the ROI enables manufacturers to compare the value of different systems. The choice of analysis software should be based on ROI. For example, a system with a 25% higher TCO but a 40% higher ROI is still the right choice even though the upfront cost is higher. Total Cost of Ownership (TCO) Methodology - What is the total expected cost? Include all aspects of cost over the expected life of the software, or at least a minimum of the next 3-5 years. o Training (both cost of training and lost productivity while engineers are in class) o Internal maintenance (your additional MIS costs) o Additional hardware (if the analysis software necessitates the purchase of new hardware) o Additional software (if the analysis software is not compatible with your CAD system, you may need to incur additional costs to upgrade or change your CAD system) o Future upgrades o Service and support Return on Investment (ROI) Methodology - Quantify all of the expected benefits from the software. What is the specific dollar value that this software can provide by o Improving product quality? o Avoiding field failures? o Reducing the number of prototypes? o Getting to market faster? o Eliminating recalls? o Reducing the number of design errors? o Decreasing materials costs? o Lowering training, retraining, or hiring costs? o Communicating better with partners? o Using less expensive hardware? Page 9 of 12
Within the categories of TCO and ROI, there are numerous detailed lines of questioning that you should pursue when evaluating an analysis software product. Below is a description of some of the topics you might want to evaluate when comparing analysis software. Features and Performance - What are the basic types of analysis you want to perform (e.g., stress, thermal, etc.)? How does the software perform for these analyses? - Will you ever have demand for more advanced types of Analysis (e.g., electromagnetic, nonlinear)? How does the software perform for these more advanced analyses? - What size of assemblies do you expect to work on? Does the vendor you are considering support assembly analysis? - Will you need to upgrade hardware to get the performance you want? How well does the software you are evaluating perform for the analysis you want to do? - Have you seen the key features you want in action? Ease of Use - How long will it take for you to become a productive user of the new software? - If you don t use it for a while and then go back to using it, are the commands intuitive enough that you will remember how to do most things? - Are the advanced features accessible enough that you will be able to use them? CAD Compatibility and Related Applications - How well does the analysis software integrate with your CAD system? o Is it a plug-in or a separate application? o Do you have to learn entirely new commands? o Do you have to move your model data in and out of the CAD system to use it in the analysis software? o Is your CAD system able to use the data from analysis to optimize parts and features? - Are there any applications besides CAD that you want to work with your analysis software or use the data from your analysis? Do the applications work well together for the software you are considering? Page 10 of 12
Market Acceptance - How many other companies are using this product? - What is the track record of other companies achieving productivity gains? - Will your file types work with external partners that you collaborate with? After-Sales Support - How does the company provide technical and user support? - What will this cost and when is it available? - What do other customers have to say about their experience? Vendor Viability - How long has the vendor been around? - Does the vendor have a track record? - Is the vendor profitable? - What is the vendor s cash position? - Are the vendor s sales growing (both in dollars and number of seats)? - Will the vendor be around for the next 5-10 years? Where can you get support if the vendor goes out of business? Page 11 of 12
Appendix D: Sample ROI Calculation Cost Savings from Faster Time-to-Market Size of engineering and design team 5 Average fully-loaded salary (includes variable overhead) $65,000 Time-to-market improvement using COSMOS Analysis 30% Annual time savings from increased productivity (in man-hours) 3000 Annual cost savings from improved time-to-market $97,500 Cost Savings from Improved Product Quality Annual cost of field failures $100,000 Reduction in field failures from using COSMOS Analysis 20% Annual cost savings from reducing field failures $20,000 Annual cost of product recalls $10,000 Reduction in recalls from using COSMOS Analysis 15% Annual cost savings from reducing recalls $1,500 Total cost savings from improved product quality $21,500 Cost Savings from Reducing Prototypes and Physical Tests Annual cost of prototypes $150,000 Reduction in prototypes from using COSMOS Analysis 32% Annual cost savings from reducing prototypes $48,000 Annual cost of physical tests $175,000 Reduction in physical tests from using COSMOS Analysis 23% Annual cost savings from reducing physical tests $40,250 Total cost savings from improved product quality $88,250 Increased Profit from Faster Time-to-Market and Increased Quality Annual revenue $20,000,000 Average profit margin 8% Increased sales from higher quality products 3% Annual profit increase from higher quality products $48,000 Increased sales from faster time-to-market 5% Annual profit increase from higher quality products $80,000 Total profit increase from faster time-to-market and increased quality $128,000 Summary of Savings and Increased Profit Annual Cost Savings from Faster Time-to-Market $97,500 Annual Cost Savings from Improved Product Quality $21,500 Annual Cost Savings from Reducing Prototypes and Physical Tests $88,250 Annual Increased Profit from Faster Time-to-Market and Increased Quality $128,000 Discount rate 15% Annual financial benefit from COSMOS Analysis software $335,250 Three year financial benefit from COSMOS, net present value $880,269 Total Cost of Ownership (TCO) Assumed first year total cost (including license, hardware, training, support, installation, management, etc.) per seat ($10,000) Assumed annual cost after first year (including upgrades, support, additional training, etc.) per seat ($3,000) Number of seats purchased 5 TCO for first year for all seats ($50,000) TCO over three year period for all seats, net present value ($74,386) Return on Investment (ROI) Total ROI for first year $285,250 ROI for first three years, net present value $805,883 Page 12 of 12