How to Evaluate PLM Costs and ROI

Historically, companies have targeted payback of three years or less for effective ROI on PLM implementations, but the tougher business climate of recent years has reduced this expectation to two years or fewer.¹⁸

PLM Costs

On the cost side, there are two basic areas of consideration: up-front costs (e.g., software configuration, data migration, licensing fees, employee training) and ongoing costs (e.g., system support, license renewals, and maintenance fees). These costs are not especially difficult for organizations to determine, but actual costs will vary according to the number of sites, users, and business functions entailed, among other factors.

Companies would do well to consider “soft costs,” such as the time spent by management teaching, leading, and encouraging staff, as PLM implementations get underway. According to analysts, these costs are typically underestimated. 19  Primary among expected benefits—and criteria for evaluating ROI—are the following: 

• Reducing engineering change orders to drive up productivity and reduce time to market
• Lowering product costs; particularly during recent times, top-down benefits have taken a back seat to bottom-up  benefits such as cost reductions
• Improving quality and regulatory compliance

PLM Risks

In addition to costs and benefits, risks must be calculated to assess the overall value of PLM implementations. Studies have shown that key risks include scope creep (i.e., burgeoning costs due to extending the footprint of PLM within the enterprise) and misalignment with business goals.

The integration of PLM with other enterprise applications is a definite trend. Integrating PLM applications across the enterprise allows organizations to:

• Share and reuse product definitions  across virtually all aspects of the enterprise
• Align their systems and processes internally with those of partners, suppliers, dealers, and service providers
• Make product information more easily available across systems
• Automate business procedures prone to human error.²⁰

Integrating PLM and ERP Systems

Research conducted by CIMdata reported multiple benefits of integrating PLM and ERP systems, including 75% reduction in the time, cost, and errors associated with re-keying data entry from one system to another; 75% reduction in bill-of-materials error costs; 15% reduction in inventory cost; and 8% reduction in scrap materials. ²¹

The integration of PLM and ERP can significantly improve the productivity and effectiveness of users and organizations working with product- and plant-related information. These two enterprise domains cover many of the critical functions required to develop, test, manufacture, deliver, use, and support a product throughout its life, and integration of PLM and ERP can deliver significant benefits for companies of all sizes. ²²

A recent study conducted by AMR/Gartner shows the typical range of PLM cost, based on a multimillion dollar-investment plan with deployments being supplier-facing, customer-facing, or internally oriented.²³