Prove Your Worth!16 Nov, 2010 By: Robert Green
Quantify your value as a CAD manager by calculating your own personal ROI.
The findings of my CAD Manager's 2010 Survey left me a bit upset over how much economic power and authority CAD managers have lost during the recession. I think it's time to re-articulate how important it is for CAD managers to prove their financial worth and raise their credibility with senior management teams.
In this edition of the CAD Manager's Newsletter, I'll explain how to emphasize your true value to your company by using return on investment (ROI) concepts. I know of no better way for a CAD manager to prove how much he or she is worth. Here goes.
Return on Investment
How many of you know what your return on investment (ROI) is? For that matter, how many of you know that your ROI is essentially a measure of your economic value to your company? I've been asking this question for years when I speak to groups of CAD managers, and I can only recall about 10 hands going up out of thousands of attendees. On the other hand, almost all department-level managers can give you a pretty good idea of their financial performance and ROI levels when asked.
So why would CAD managers want to compute their own ROI? The answer lies in the following questions: "What does a CAD manager do?" "Why do we need one?" Ever heard these questions? Ever had trouble answering them?
Wouldn't it be great to respond like this: "Last year I spent 50% of my time working on a variety of tasks including standards implementation, CAD software automation, and targeted training programs that reduced project costs, and I handled several major projects in-house instead of using outside resources. These tasks generated $135,000 in savings which, based on 50% of my salary, generated a 270% ROI for the company."
The ROI Glossary
So how did the CAD manager in the scenario above come by those numbers? How can you compute your own ROI? First, you need to understand the following terms:
Annualized savings. The total of all the man-hours saved due to a corrective action you've taken. For example, if you lead the effort to implement a plotting routine that saves each of your 40 CAD users (who earn $30/hour) two hours per month, you'll realize $28,800 in labor savings over the next year. (To find that total, multiply 40 users X 2 hours per month X $30 per hour X 12 months.) Remember that credit for this savings belongs to you, because if you hadn't done the work the savings would never be realized.
Total savings. The total of all annualized savings over the past year.
Overhead cost. The amount of time (and therefore money) that you spend performing CAD management tasks that are not billable to a project. An easy way to compute this is multiply the percentage of time you spend on overhead tasks by your annual salary. Make sure to adjust your salary figure to include insurance, taxes, and benefits (I usually add 25%) to reflect your real cost.
CAD manager's ROI. The total savings you've realized, divided by your overhead cost.
Now you know the terms you'll use to start quantifying the savings you are generating with CAD management. To bring it all together, we'll work through a sample case.
Compute the ROI
For this example, let's create a CAD manager who works on overhead 30% of the time, earns an annual salary of $75,000, and has worked on several cost-saving projects over the past year. During the first such project, our subject performed an in-house implementation of new plotting gear, saving $12,000 in outside labor. The fictional CAD manager also standardized block element libraries and made the management of those libraries very efficient using standardized tool palettes, thus saving $14,000 in user labor. Finally, the last project involved automating plotting routines via custom programming routines, saving another $11,000 per year in user labor.
Now let's walk through the CAD management ROI calculations, based on the we defined earlier and the numbers provided above.
Total savings. Simply the sum of the savings numbers I've outlined, for a total of $37,000. All these savings qualify as CAD management savings because they were only realized due to the CAD manager's efforts. Whenever the CAD manager saves on external costs or saves user time, it qualifies as a realized savings.
Overhead cost. The CAD manager's $75,000 salary will be adjusted upward for taxes, benefits, and insurance using my standard 25% addition to achieve an annual adjusted salary cost of $93,750. Now we simply multiply the adjusted salary by the 30% overhead rate to get a final overhead cost of $28,125.
CAD manager's ROI. Now we simply divide the $37,000 of total savings by the $28,125 overhead cost to achieve an ROI of 132%. You may alternately note that this CAD manager paid for his overhead costs and returned an $8,875 "profit" to the company.
I'll now draw some conclusions regarding ROI computation and suggest how to maximize your own ROI using the context of the above example. Along the way, I'll tie the concept of reducing your overhead to that of increasing your ROI in a way that you may not expect, but your management will love.
Savings drive the equation. Since your CAD manager's ROI is simply the savings you realize divided by your overhead cost, there's no way to generate a positive ROI unless you're saving money. This concept sounds simple, but it is amazing how many CAD managers merely scrape by, maintaining the status quo without regard to saving money in the CAD environment. How about you? Are you seeking out savings opportunities and managing your CAD environment to exploit them, like the CAD manager in our example?
Record-keeping is a must. When you do enhance productivity and achieve savings, are you keeping score? If you're not tracking the numbers, you'll never get credit for those accomplishments, and you'll never be able to compute your ROI accurately.
Low costs maximize ROI. If ROI is savings divided by costs, then lowering costs for the same amount of savings will produce a higher ROI. But lowering your CAD management costs can be vexingly difficult, since your salary is fixed and you can only get so much CAD management done in a given amount of hours. Sadly, many CAD managers find that the only way they can lower their costs is simply to perform CAD management duties in off hours or stay late and not count the hours in their costs.
Billable beats overhead. When you work on a project as an engineer, architect, or designer, your time is charged to a project budget and is deemed billable by the accounting department. On the other hand, when you work in a general support environment where you aren't working for a specific project, you're deemed non-billable, and your time is then seen as overhead. And as we've seen, the CAD manager's ROI is computed based on overhead costs, not project costs. Therefore, reducing your overhead by working on billable projects will help you achieve lower costs and higher ROI values. (More on this concept next.)
Throw overhead overboard. Your challenge now becomes converting time that used to be spent on overhead (like work on menus, programming, and standards formulation) and turning those tasks into project-billable time. The easiest way I found to do this is to go to the project managers, department heads, lead architects, etc. in your company and ask them what you can do to make their projects more profitable by saving them money. Once you've agreed on how to help your project teams save money, they should be happy to bill your time to their projects. And when that happens, overhead disappears! Try it, it really does work.
What do you think would happen if you went into your next performance review with an ROI-based summary of the projects you worked on over the past year?
Believe me when I say that CAD managers who take this type of documentation to their performance reviews do not get laid off. They also don't get their pay cut. In fact, these CAD managers actually find it easier to get approval to work on CAD management tasks, precisely because they can demonstrate what a good deal it is for the company.
Why not make an early New Year's resolution to compute your own ROI and demonstrate how well you're performing as a CAD manager? If you have a great ROI already, then you've got a compelling new way to communicate with your management team. And if your ROI isn't so good, you need to get moving on generating savings via your CAD management activities.
No matter where your ROI number is, it is time to focus on your next performance review. Armed with your ROI analysis and a newfound emphasis on documenting your savings, you'll be taken a lot more seriously.