In today's business world, the application of new technologies is both difficult and dangerous. The advantage of not using new technologies will lead to market losses, but too early to start may be to invest in an immature technology or put the company under enormous financial pressure. Unlike the current electronic trading in the securities market, the printing industry needs more revenue to survive and thrive.
In order to cope with the above situation, many printing company managers and market representatives of new technology companies use an analysis method called “Return on Investment (ROI)â€. However, even if such financial technology is properly used, it cannot guarantee absolute success. Simple analysis based on ROi may make a wrong decision and even cause serious business difficulties.
The idea of ​​return on investment is very simple: any investment should generate positive returns, otherwise we do not want to make this kind of investment, which is indisputable. However, most RO analysis ignores factors such as how much return is required, how long the return is, and how large the risk factor is. In addition, some assumptions are often made in order to simplify the analysis. This will also result in a slightly higher rate of return than the theoretical value.
Establish a decision-making mechanism
In order to prevent these problems from happening, an appropriate decision-making mechanism must be enabled. It must not only understand the potential of new technologies, but also must understand the risks of new technologies. It is clearer that the financial analysis of the printing plant cannot substitute for the professional evaluation of new technologies. Financial personnel and technical personnel often find that their work goals are exactly the opposite. In this case, the investment analysis evolves into two kinds of psychological expectations: "win" or "lose". One believes that it will win, and the other thinks that it will lose. It is no longer just a kind of "won't lose." in conclusion. To be successful, each side of the controversy must not only adhere to their own opinions, but also willingly consider the other's requirements.
Both the technical manager and the production manager must understand that it is only through continuous profits from the business that the new technology can be paid for. Once wrong decisions are made on new equipment, new technologies, and new processes, and the company's revenue is interrupted or reduced, there will be a shortage of funds for processes and equipment that will yield more substantial benefits in the future, thus losing greater profits. Technical misjudgments can prevent companies from making the right decisions.
In order to solve this problem, some companies seek suppliers to assist them in evaluating investment proposals. Vendors are also very willing to provide such assistance, but this is not a realistic approach. Without knowing the specific circumstances of a particular company, the assessment can only focus on a simple ROI level. All ROI analysis is subject to many assumptions. Although these abstractions can be accepted abstractly, it is difficult to adapt to all special situations. .
In general, it is considered that the "returns" brought about by new technologies often have a certain subjective willingness. Many of them cannot be quantified with funds. For example: "Fast work processes", "Improve print quality," "Pro-environmental benefits "and many more. We do not mean that these "returns" are not important. In fact, each of them is relevant. However, this “return†can only be used to adjust precious company resources when “returns†can be measured in a certain way and can be quantified using capital projects. The benefits that cannot be quantified cannot be used as a basis for purchasing behavior.
When companies consider investing, the most important thing is to understand that their responsibility is to truly determine the economic benefits of investment. This is not the responsibility of equipment manufacturers and suppliers. Printers often rely on suppliers to provide ROI analysis for themselves and help themselves make decisions. Most supply agents also feel pressure because of their responsibilities to customers. Jim Aust, an analyst with Creoscitex, expressed this general concern, saying: "The potential users need to take more responsibility for their own investment analysis. They can't simply Rely on suppliers to answer their own questions."
The principle of making money
Having said so much, is there a way to help companies cope with the challenges of new technology investment? We think there is. The core of this method is the question that the printing factory must ask: "I have invested in new technology to produce services for my customers. How much does my client pay me for this?" The printer must understand in advance whether the customer is willing to Increase the production efficiency or other benefits brought by new technologies, such as "accurate registration," "faster throughput," etc., to make additional payments. Furthermore, printers must continue to provide value-added services as they have in the past, taking into consideration whether the customers are allowed to benefit from the reduction in the benefit cut-off costs they bring. Customers also want to be able to share the benefits of reduced costs, and they will not bother because the printers have paid for this part of the technology investment, making it possible to reduce costs.
The most important thing is whether the printing plant can convert the potential benefits of increased equipment capacity into real money, which is what impact the increased capacity of the equipment will have on other parts of the company. Any veteran printer salesman can certainly say that the increase in equipment capacity does not guarantee a real increase in business volume.
There is a mechanism that can make investment analysis meaningful. As with many powerful tools, it's easy to say and really complex to use. It contains four basic steps:
The first step is to identify the full cost of the investment under consideration. Not only the initial cost, but also the cost of increasing or decreasing in the future, including other business expenses incurred during the implementation, the last part of the expenditure is very important. For example, it must be known whether new technologies require expensive training, whether existing market data needs to be replaced, whether new inventory supplies need to be added, and whether new statistical procedures or grading methods need to be developed, all of which are costs to be considered.
The second step is to identify the real benefits (ie, the visible benefits). Each type of return must be quantified in two ways: the amount of money and the reasonable expected time to get those funds. Some gains can only be qualitatively not quantified with funds and cannot be used as a financial basis. What is important is the real gains that can be made, not the huge potential gains.
The supplier's ROI analysis often treats the time saved in the production of an operation as an additional time that can be sold as a new source of income, which becomes a cyclical reasoning. In fact, the new sales come from the efforts of the company sales department, and the new production capacity is only the first step. If there really is new revenue, then there must be an authentication scheme that includes all the costs, such as new salespeople, extra cashiers, promotions, etc. All expenses must be like the ones that consider a job and The cost of paper is the same consideration.
The third step is to consider the so-called "Marginal Cost of Time", which is sometimes referred to as "Time Value" financially. Although its details are very complicated, the concept is very simple. Common sense tells us that the benefits that can be obtained in the future are not as valuable as the benefits that can be obtained today. To find out the current value from the future interests, we must add a certain discount.
Theoretically, this discount is based on the rewards that can be obtained when transferring your money to the second best replacement project, but this return is often difficult to know. As a result, many industries use the bank's borrowing rate to make estimates. This is not accurate, but it works.
In the final step, financial risks must be part of the consideration. The point of the problem is that if you plan to take a greater risk on one type of investment than another, you may be able to pay more for the risk you take. This is why some companies pay very high returns to investors, while others know little to pay. Companies that pay high returns are often new technology companies or companies that contain a high degree of risk. This is the case for new technology investment in printers.
To illustrate this point, look at how a medium-sized printing plant made a decision to invest in CTP technology. In recent years, CTP has become "Technology du jour". All technical publications and most industry authorities believe that it will dominate the future of printers. For many printers, it seems that adopting CTPs as early as possible will be hopelessly abandoned by the market, even though the cost of new technologies is considerable. How to evaluate this investment decision? First of all, answer all the following questions:
1. How much reasonable profit can I expect after adopting CTP?
2. What is the total cost of this investment analysis?
3. What are the exact factors that influence the decision makers in the investment analysis process?
4. What are the benefits of these exact factors?
5. What are the "Unintended Consequences" in this decision?
Real income
In general, benefits come from lower costs and increased income. The main benefit usually obtained from CTP is that it reduces the time required to complete an operation and thus increases revenue. When CTP is running, it can really reduce the time needed to complete the job. This is due to the shortened preparation time, easier downtime changeovers, and more efficient workflow. However, there is no need to interpret these as increasing revenue.
As any printer knows, opening a market is far more laborious than increasing production capacity. Effective sales force, growing market, adequate market support and corresponding data, successful market strategies are all very important. Unless each of the above is in place, there is no reason to expect that simply relying on production capacity will increase income. When you consider increasing revenue as the purpose of adopting CTP, you should critically ask yourself whether all required marketing and market resources are in place, or will be put in place when it is actually implemented. If not, more revenue is envisaged. It became a problem.
Another problem is the use of industry averages to estimate the benefits of reducing costs. Often printers cannot provide reliable and accurate data to support CTP investment analysis. Accurate preparation times, detailed job statistics, weekly or next-day output data, typical job layouts, and other key data are either not completely inaccurate or inaccurate. To cope with this situation, suppliers often use published industry average data, or use data collected from other factories that already have CTP. However, it is very dangerous to use the average number to decide from left to right. How many factories are truly "average" in key areas? How to generate average data for all kinds of usage data? What is the accuracy of statistics when making predictions for a specific company? Therefore, only the use of company-specific information is reliable. If such information is not available, such information should be prepared and provided before major investments are made.
There is another type of income that is often mentioned. Such as "more effective work processes", "improvement of environmental conditions", "fixed digital pattern" and so on. It is clear that only qualified technicians can determine what these expected benefits will look like. The question for decision makers is how these factors affect the company's financial results and when it can be identified. If it is impossible to make an estimate of such returns or to answer the question, it cannot be truly objectively considered when deciding whether to proceed with an investment. Such returns may seem attractive, but only the economic benefits of such returns can change the value of the investment.
Accounting assumption costs
When focusing on the cost of CTP or other new technologies, the accuracy of the data used is often problematic. The choice of data also affects the results of the analysis. The problem is
In order to cope with the above situation, many printing company managers and market representatives of new technology companies use an analysis method called “Return on Investment (ROI)â€. However, even if such financial technology is properly used, it cannot guarantee absolute success. Simple analysis based on ROi may make a wrong decision and even cause serious business difficulties.
The idea of ​​return on investment is very simple: any investment should generate positive returns, otherwise we do not want to make this kind of investment, which is indisputable. However, most RO analysis ignores factors such as how much return is required, how long the return is, and how large the risk factor is. In addition, some assumptions are often made in order to simplify the analysis. This will also result in a slightly higher rate of return than the theoretical value.
Establish a decision-making mechanism
In order to prevent these problems from happening, an appropriate decision-making mechanism must be enabled. It must not only understand the potential of new technologies, but also must understand the risks of new technologies. It is clearer that the financial analysis of the printing plant cannot substitute for the professional evaluation of new technologies. Financial personnel and technical personnel often find that their work goals are exactly the opposite. In this case, the investment analysis evolves into two kinds of psychological expectations: "win" or "lose". One believes that it will win, and the other thinks that it will lose. It is no longer just a kind of "won't lose." in conclusion. To be successful, each side of the controversy must not only adhere to their own opinions, but also willingly consider the other's requirements.
Both the technical manager and the production manager must understand that it is only through continuous profits from the business that the new technology can be paid for. Once wrong decisions are made on new equipment, new technologies, and new processes, and the company's revenue is interrupted or reduced, there will be a shortage of funds for processes and equipment that will yield more substantial benefits in the future, thus losing greater profits. Technical misjudgments can prevent companies from making the right decisions.
In order to solve this problem, some companies seek suppliers to assist them in evaluating investment proposals. Vendors are also very willing to provide such assistance, but this is not a realistic approach. Without knowing the specific circumstances of a particular company, the assessment can only focus on a simple ROI level. All ROI analysis is subject to many assumptions. Although these abstractions can be accepted abstractly, it is difficult to adapt to all special situations. .
In general, it is considered that the "returns" brought about by new technologies often have a certain subjective willingness. Many of them cannot be quantified with funds. For example: "Fast work processes", "Improve print quality," "Pro-environmental benefits "and many more. We do not mean that these "returns" are not important. In fact, each of them is relevant. However, this “return†can only be used to adjust precious company resources when “returns†can be measured in a certain way and can be quantified using capital projects. The benefits that cannot be quantified cannot be used as a basis for purchasing behavior.
When companies consider investing, the most important thing is to understand that their responsibility is to truly determine the economic benefits of investment. This is not the responsibility of equipment manufacturers and suppliers. Printers often rely on suppliers to provide ROI analysis for themselves and help themselves make decisions. Most supply agents also feel pressure because of their responsibilities to customers. Jim Aust, an analyst with Creoscitex, expressed this general concern, saying: "The potential users need to take more responsibility for their own investment analysis. They can't simply Rely on suppliers to answer their own questions."
The principle of making money
Having said so much, is there a way to help companies cope with the challenges of new technology investment? We think there is. The core of this method is the question that the printing factory must ask: "I have invested in new technology to produce services for my customers. How much does my client pay me for this?" The printer must understand in advance whether the customer is willing to Increase the production efficiency or other benefits brought by new technologies, such as "accurate registration," "faster throughput," etc., to make additional payments. Furthermore, printers must continue to provide value-added services as they have in the past, taking into consideration whether the customers are allowed to benefit from the reduction in the benefit cut-off costs they bring. Customers also want to be able to share the benefits of reduced costs, and they will not bother because the printers have paid for this part of the technology investment, making it possible to reduce costs.
The most important thing is whether the printing plant can convert the potential benefits of increased equipment capacity into real money, which is what impact the increased capacity of the equipment will have on other parts of the company. Any veteran printer salesman can certainly say that the increase in equipment capacity does not guarantee a real increase in business volume.
There is a mechanism that can make investment analysis meaningful. As with many powerful tools, it's easy to say and really complex to use. It contains four basic steps:
The first step is to identify the full cost of the investment under consideration. Not only the initial cost, but also the cost of increasing or decreasing in the future, including other business expenses incurred during the implementation, the last part of the expenditure is very important. For example, it must be known whether new technologies require expensive training, whether existing market data needs to be replaced, whether new inventory supplies need to be added, and whether new statistical procedures or grading methods need to be developed, all of which are costs to be considered.
The second step is to identify the real benefits (ie, the visible benefits). Each type of return must be quantified in two ways: the amount of money and the reasonable expected time to get those funds. Some gains can only be qualitatively not quantified with funds and cannot be used as a financial basis. What is important is the real gains that can be made, not the huge potential gains.
The supplier's ROI analysis often treats the time saved in the production of an operation as an additional time that can be sold as a new source of income, which becomes a cyclical reasoning. In fact, the new sales come from the efforts of the company sales department, and the new production capacity is only the first step. If there really is new revenue, then there must be an authentication scheme that includes all the costs, such as new salespeople, extra cashiers, promotions, etc. All expenses must be like the ones that consider a job and The cost of paper is the same consideration.
The third step is to consider the so-called "Marginal Cost of Time", which is sometimes referred to as "Time Value" financially. Although its details are very complicated, the concept is very simple. Common sense tells us that the benefits that can be obtained in the future are not as valuable as the benefits that can be obtained today. To find out the current value from the future interests, we must add a certain discount.
Theoretically, this discount is based on the rewards that can be obtained when transferring your money to the second best replacement project, but this return is often difficult to know. As a result, many industries use the bank's borrowing rate to make estimates. This is not accurate, but it works.
In the final step, financial risks must be part of the consideration. The point of the problem is that if you plan to take a greater risk on one type of investment than another, you may be able to pay more for the risk you take. This is why some companies pay very high returns to investors, while others know little to pay. Companies that pay high returns are often new technology companies or companies that contain a high degree of risk. This is the case for new technology investment in printers.
To illustrate this point, look at how a medium-sized printing plant made a decision to invest in CTP technology. In recent years, CTP has become "Technology du jour". All technical publications and most industry authorities believe that it will dominate the future of printers. For many printers, it seems that adopting CTPs as early as possible will be hopelessly abandoned by the market, even though the cost of new technologies is considerable. How to evaluate this investment decision? First of all, answer all the following questions:
1. How much reasonable profit can I expect after adopting CTP?
2. What is the total cost of this investment analysis?
3. What are the exact factors that influence the decision makers in the investment analysis process?
4. What are the benefits of these exact factors?
5. What are the "Unintended Consequences" in this decision?
Real income
In general, benefits come from lower costs and increased income. The main benefit usually obtained from CTP is that it reduces the time required to complete an operation and thus increases revenue. When CTP is running, it can really reduce the time needed to complete the job. This is due to the shortened preparation time, easier downtime changeovers, and more efficient workflow. However, there is no need to interpret these as increasing revenue.
As any printer knows, opening a market is far more laborious than increasing production capacity. Effective sales force, growing market, adequate market support and corresponding data, successful market strategies are all very important. Unless each of the above is in place, there is no reason to expect that simply relying on production capacity will increase income. When you consider increasing revenue as the purpose of adopting CTP, you should critically ask yourself whether all required marketing and market resources are in place, or will be put in place when it is actually implemented. If not, more revenue is envisaged. It became a problem.
Another problem is the use of industry averages to estimate the benefits of reducing costs. Often printers cannot provide reliable and accurate data to support CTP investment analysis. Accurate preparation times, detailed job statistics, weekly or next-day output data, typical job layouts, and other key data are either not completely inaccurate or inaccurate. To cope with this situation, suppliers often use published industry average data, or use data collected from other factories that already have CTP. However, it is very dangerous to use the average number to decide from left to right. How many factories are truly "average" in key areas? How to generate average data for all kinds of usage data? What is the accuracy of statistics when making predictions for a specific company? Therefore, only the use of company-specific information is reliable. If such information is not available, such information should be prepared and provided before major investments are made.
There is another type of income that is often mentioned. Such as "more effective work processes", "improvement of environmental conditions", "fixed digital pattern" and so on. It is clear that only qualified technicians can determine what these expected benefits will look like. The question for decision makers is how these factors affect the company's financial results and when it can be identified. If it is impossible to make an estimate of such returns or to answer the question, it cannot be truly objectively considered when deciding whether to proceed with an investment. Such returns may seem attractive, but only the economic benefits of such returns can change the value of the investment.
Accounting assumption costs
When focusing on the cost of CTP or other new technologies, the accuracy of the data used is often problematic. The choice of data also affects the results of the analysis. The problem is
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