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Operating cost savings is the leading Roi Metric

Return on investment (ROI) resides at the very foundation of all commercial enterprises. It is unlikely that businesses will be able to scale up, prosper or even survive absent an adequate rate of return on the investments they make to produce goods or provide services.

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Return on investment (ROI) resides at the very foundation of all commercial enterprises. It is unlikely that businesses will be able to scale up, prosper or even survive absent an adequate rate of return on the investments they make to produce goods or provide services. The return rate itself is influenced by a number of factors, including the kind of business, the industry in which it operates and, perhaps most important, the prevailing economic climate.

In the current global economic downturn, characterized by a constricted flow of funding, particularly of credit, ROI considerations have catapulted to the top of the priority listand the Lab Manager Magazine 2009 lab practices survey, as well as follow-up discussions with a number of the participants, suggest that it will remain there for some time.

G&T Metallurgical Services (Kamloops, BC, Canada) is an integrated mineral process R&D facility that provides mineral process testing and mineralogical and chemical analysis services, among others, to all the major mining companies in the world. At G&T, the expectation is that any piece of equipment installed in the lab should pay for itself within one year, according to Derek Blundell, analytical laboratory manager.

Blundell says that G&T buys directly from suppliers and vendors, adding, We have never acquired a piece of equipment that did not pay for itself in a year. It took just eight days for an atomic absorption spectrometer that we acquired to pay for itself.

There was widespread agreement (about 85%) among the survey participants that their organizations are always more receptive to projects in the research labs if they have real business value and show possible ROI. More than a third (35.4%) of the participants completely agreed with this premise, while 49% indicated that they were in agreement with it. Only about 16% of the respondents disagreed.

Still, the mechanisms to conduct ROI assessments are not readily available in many laboratories. In fact, 59.3% of the participants indicated that the management of their organizations did not require formal ROI studies of potential investments against the opportunity and risk. Almost 41% of the participants reported that their organizations do require just such formal studies before making laboratory investments.

When the survey questionnaire drilled deeper among participants whose organizations did not require formal ROI studies, 78.5% responded that they knew of no plans within their groups to adopt procedures for formal ROI studies within the next 12 monthsonly 21.5% of them said that such plans were afoot in their organizations.

To be sure, ROI is not a primary concern in a number of organizations. John Bardzik, laboratory certification officer at the Wall Experiment Station of the Massachusetts State Facility for Environmental Test Research, says his organization is involved in the certification of commercial and environmental laboratories. He says that his laboratory is not profit-driven and there is no formal ROI process. Still, we have reasonable expectations about the efficiency and durability of the equipment that we buy, he says, adding that all vendors must submit to state processes, which include bidding for larger items. The idea is to find the best value based on different criteria: availability and quality of service, parts, warranty and overall reliability.

In organizations where formal ROI studies are required, almost a quarter of the survey participants indicated that operating cost savings is a specific metric employed to determine a reasonable estimate of the value the laboratory is likely to receive after the purchase. The relative importance of cost savings and other important metrics, including staff productivity, are shown in Figure 1.

To be sure, ROI calculations are not always clear-cut. Judy Yen, a laboratory manager at the Whitehead Institute for Biomedical Research at MIT, says, It is hard to put an exact measure on ROI. We make sure we get our moneys worth, but it is really hard to quantify.

The difficulty of measuring the economic benefit of technology was identified by more than a quarter (26.3%) of the survey participants as a barrier to measuring ROI. Eighteen percent of participants also reported being unable to determine technology returns. These and other barriers are shown in Table 1.

Overall, there seems to be a solid sense among lab leaders that they are getting value for the money they spend on new technology, but putting exact numbers on the return can be elusive. Melissa Porter, laboratory manager at the National Institute of Arthritis and Musculoskeletal and Skin Diseases (Bethesda, Md.), says, ROI is measured in terms of the use we are getting out of the equipment that we buy, how many users we have on it, the projects it is involved with, how the equipment will progress the science and, of course, its durabilitythat is, how many years we will be able to get out of the equipment.

Eric Buckstein, manager of validation at Sanofi Pasteur (Swiftwater, Pa.), who runs a quality control (QC) laboratory with about 200 workers, says, ROI is an important concern that has gotten bigger in the past few years because of the tighter economic conditions.

Like most other commercial enterprises, Buckstein says, We want to ensure that the equipment we acquire makes its money back in a relatively short time. As a result, we always do ROI evaluations and justifications prior to purchasing systems.

We are a GMP facility, so there is always the question of how long it will take to get a system up and running, qualified and validated. That has always been a deterrent for bringing in new technology or replacing existing systems with better equipment.

Like-for-like is a bit easier because validation, documentation and qualification are already in placeit is more streamlined. In general, it is easier to tweak and make incremental additions than to replace or improve systems entirely.

Still, the likelihood of a shorter payback period is always an attractive prospect. Buckstein says that his QC facility is currently looking to acquire a system that will reduce the number of full-time people typically needed to run an operation. In such a case, the ROI would probably be shorter, he says.