ReliaSoft’s Reliability ROI - Revision history

Lisa Hacker: Redirected page to Target Reliability Tool

2012-08-22T00:37:30Z

Redirected page to Target Reliability Tool

Chris Kahn at 23:13, 7 March 2012

2012-03-07T23:13:23Z

← Older revision		Revision as of 23:13, 7 March 2012
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	<br>		<br>

	~~Based on this~~ the Widget product line generates a gross profit of $1,760,000.		Given these values, the Widget product line generates a gross profit of $1,760,000.

	==== The New Design ====		==== The New Design ====

	Of course, improving reliability will come at a cost. Some of these costs will be fixed (e.g., investments in tools, facilities and people to improve the reliability), and some ~~will be variable~~ (~~per unit cost),~~ such as the cost of better material, etc. For this example, let's assume that this will result in a 10% increase in the production costs per unit. Furthermore we will assume an upfront investment of $500,000.		Of course, improving reliability will come at a cost. Some of these costs will be fixed (e.g., investments in tools, facilities and people to improve the reliability), and some (such as the cost of better material, etc.) will be variable (per unit cost). For this example, let's assume that this will result in a 10% increase in the production costs per unit. Furthermore, we will assume an upfront investment of $500,000.

	<br>		<br>
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	\| align="center" \|  <math> \text{Gross Profit}=\$50,000,000-\$38,500,000-\$1,000,000-\$2,770,000=\$7,730,000</math>		\| align="center" \|  <math> \text{Gross Profit}=\$50,000,000-\$38,500,000-\$1,000,000-\$2,770,000=\$7,730,000</math>
	\|}		\|}



	Given these values, the New Widget product will generate a gross profit of $7,730,000.		Given these values, the New Widget product will generate a gross profit of $7,730,000.
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	==== Computing R3OI ====		==== Computing R3OI ====

	~~Our~~ only ~~costs~~ not ~~counted in~~ was the initial investment of $500,000.		So far, the only value not considered was the initial investment of $500,000.

	The gain from the investment was		The gain from the investment was:

	<br>		<br>
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	\|}		\|}

	Thus

			Thus:



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Chris Kahn at 23:10, 7 March 2012

2012-03-07T23:10:54Z

← Older revision		Revision as of 23:10, 7 March 2012
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	To illustrate, consider the case of ACME and their best selling product: ACME's Widgets. The current design has had less than stellar reliability performance in the field, yielding ACME a 10% market share. ACME offers the same warranty as its competitors (1 year) and prices its product similarly. Some high level specifics are given below.		To illustrate, consider the case of ACME and their best selling product: ACME's Widgets. The current design has had less than stellar reliability performance in the field, yielding ACME a 10% market share. ACME offers the same warranty as its competitors (1 year) and prices its product similarly. Some high level specifics are given below.



	{\| width="400" align="center" cellspacing="1" cellpadding="1" border="1"		{\| width="400" align="center" cellspacing="1" cellpadding="1" border="1"
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	Before we continue let's quickly examine the costs and revenue for ACME. The below provides these values. Note that for the warranty cost per unit, a fixed $400 per incident was assumed for associated overhead, plus the cost of a new unit ($140).		Before we continue let's quickly examine the costs and revenue for ACME. The below provides these values. Note that for the warranty cost per unit, a fixed $400 per incident was assumed for associated overhead, plus the cost of a new unit ($140).

			<br>

	{\| align="center" cellspacing="1" cellpadding="1" border="0" class="FCK__ShowTableBorders"		{\| align="center" cellspacing="1" cellpadding="1" border="0" class="FCK__ShowTableBorders"

Chris Kahn at 23:04, 7 March 2012

2012-03-07T23:04:29Z

← Older revision		Revision as of 23:04, 7 March 2012
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	\| <math>\$7,730,000-\$1,760,000=\$5,970,000</math>		\| <math>\$7,730,000-\$1,760,000=\$5,970,000</math>
	\|}		\|}

	~~====   ====~~

	Thus		Thus

Chris Kahn at 23:03, 7 March 2012

2012-03-07T23:03:37Z

← Older revision		Revision as of 23:03, 7 March 2012
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	== Reliability ROI (R<span class="texhtml"><sup>3</sup></span>OI) ==		== Reliability ROI (R<span class="texhtml"><sup>3</sup></span>OI) ==

	To illustrate consider the case of ACME~~ ~~and their best selling product ~~the~~ ACME's Widgets. The current design has had less than stellar reliability performance in the field, yielding ACME a 10% market share. ACME~~ ~~offers the same warranty as ~~it's~~ competitors (1 year) and prices~~ it's~~ product similarly. Some high level specifics are given below ~~in Table 1~~.		To illustrate, consider the case of ACME and their best selling product: ACME's Widgets. The current design has had less than stellar reliability performance in the field, yielding ACME a 10% market share. ACME offers the same warranty as its competitors (1 year) and prices its product similarly. Some high level specifics are given below.

	{\| ~~border~~="1" cellspacing="1" cellpadding="1" ~~width~~="~~400" align="center~~"		{\| width="400" align="center" cellspacing="1" cellpadding="1" border="1"
	\|+ '''~~Table 1.~~ ACME's Widget Specifics'''		\|+ '''ACME's Widget Specifics'''
	\|-		\|-
	\| valign="middle" align="center" \| Units Sold		\| valign="middle" align="center" \| Units Sold
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	\| valign="middle" align="center" \| $200		\| valign="middle" align="center" \| $200
	\|-		\|-
	\| valign="middle" align="center" \| Cost to ~~produce ~~a~~ ~~Unit		\| valign="middle" align="center" \| Cost to Produce a Unit
	\| valign="middle" align="center" \| $140		\| valign="middle" align="center" \| $140
	\|}		\|}

	<br>		<br>

	ACME's management believes that they can, and should~~, ~~build a more reliable widget~~, and by~~ doing so reduce ~~both~~ warranty costs and increase market share. Based on some preliminary studies they believe that they can reduce the warranty returns to 2%~~ ~~per year. Additionally, ~~and~~ by building a better product they also believe that they can more than double their market share to ~~say~~ 25%.		ACME's management believes that they can and should build a more reliable widget. By doing so, they will both reduce warranty costs and increase market share. Based on some preliminary studies, they believe that they can reduce the warranty returns to 2% per year. Additionally, by building a better product, they also believe that they can more than double their market share to 25%.

	=== ACME Numbers ===		=== ACME Numbers ===

	Before we continue ~~lets~~ quickly examine the costs and revenue for ACME. ~~Table 2~~ provides these ~~numbers~~.~~ ~~ Note that for the warranty cost per unit a fixed $400 per incident was assumed for associated overhead plus the cost of a new unit ($140).		Before we continue let's quickly examine the costs and revenue for ACME. The below provides these values. Note that for the warranty cost per unit, a fixed $400 per incident was assumed for associated overhead, plus the cost of a new unit ($140).

	~~ ~~

	{\| ~~class~~="~~FCK__ShowTableBorders~~" ~~border~~="0" ~~cellspacing~~="1" ~~cellpadding~~="1" ~~align~~="~~center~~"		{\| align="center" cellspacing="1" cellpadding="1" border="0" class="FCK__ShowTableBorders"
	\|+ '''~~Table 2:~~ Revenue & Costs for ACME'''		\|+ '''Revenue & Costs for ACME'''
	\|-		\|-
	\| align="right" \|		\| align="right" \|
	<math>Sales\,Revenue=</math>		<math>Sales\,Revenue=</math>

	\| align="right" \| <math>100,000\cdot \$200=</math>		\| align="right" \| <math>100,000\cdot \$200=</math>
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	\|-		\|-
	\| align="right" \|		\| align="right" \|
	<math>Production\,Costs=</math>		<math>Production\,Costs=</math>

	\| align="right" \| <math>100,000 \cdot \$140=</math>		\| align="right" \| <math>100,000 \cdot \$140=</math>
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	\|}		\|}

	<br>		<br>

	Based on this the Widget product line generates a gross profit of $1,760,000.		Based on this the Widget product line generates a gross profit of $1,760,000.
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	==== The New Design ====		==== The New Design ====

	~~Now~~ improving reliability will come at a cost. ~~These~~ costs ~~are going to~~ be fixed ~~costs~~ (investments in tools, facilities and people to improve the reliability) and variable (per unit cost) ~~for~~ better material etc. For this example ~~lets~~ assume that this will result in a 10% increase in the production costs per unit. Furthermore ~~they estimate~~ an upfront investment of $500,000 .		Of course, improving reliability will come at a cost. Some of these costs will be fixed (e.g., investments in tools, facilities and people to improve the reliability), and some will be variable (per unit cost), such as the cost of better material, etc. For this example, let's assume that this will result in a 10% increase in the production costs per unit. Furthermore we will assume an upfront investment of $500,000.

	<br>		<br>

	~~Then~~ based on ~~these numbers:~~		The profit calculation will be based on the below values.

	<br>		<br>

	{\| ~~class~~="~~FCK__ShowTableBorders~~" ~~border~~="0" ~~cellspacing~~="1" ~~cellpadding~~="1" ~~align~~="~~center~~"		{\| align="center" cellspacing="1" cellpadding="1" border="0" class="FCK__ShowTableBorders"
	\|-		\|-
	\| align="center" \|  <math> \text{Sales Revenue}=250,000\cdot \$200=\$50,000,000</math>		\| align="center" \|  <math> \text{Sales Revenue}=250,000\cdot \$200=\$50,000,000</math>
	\|-		\|-
	\| align="center" \|		\| align="center" \|
	<math> \text{Production Costs}=250,000 \cdot \$154=\$38,500,000</math>		<math> \text{Production Costs}=250,000 \cdot \$154=\$38,500,000</math>

	\|-		\|-
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	\|}		\|}

	~~Based on this~~ the New Widget product~~ ~~will generate a gross profit of $7,730,000.		Given these values, the New Widget product will generate a gross profit of $7,730,000.

	==== Computing R3OI ====		==== Computing R3OI ====
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	The gain from the investment was		The gain from the investment was

	<br>		<br>

	{\| ~~class~~="~~FCK__ShowTableBorders~~" ~~border~~="0" cellspacing="1" cellpadding="1" ~~width~~="~~200~~" ~~align~~="~~center~~"		{\| width="200" align="center" cellspacing="1" cellpadding="1" border="0" class="FCK__ShowTableBorders"
	\|-		\|-
	\| <math>\$7,730,000-\$1,760,000=\$5,970,000</math>		\| <math>\$7,730,000-\$1,760,000=\$5,970,000</math>
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	Thus		Thus

	{\| ~~class~~="~~FCK__ShowTableBorders~~" ~~border~~="0" cellspacing="1" cellpadding="1" ~~width~~="~~200~~" ~~align~~="~~center~~"		{\| width="200" align="center" cellspacing="1" cellpadding="1" border="0" class="FCK__ShowTableBorders"
	\|-		\|-
	\| <math> \text{R3OI}=\frac{Gain\,from\,Investment\,-\,Cost\,of\,Investment}{Cost\,of\,Investment}</math>		\| <math> \text{R3OI}=\frac{Gain\,from\,Investment\,-\,Cost\,of\,Investment}{Cost\,of\,Investment}</math>

Chris Kahn at 22:56, 7 March 2012

2012-03-07T22:56:19Z

← Older revision		Revision as of 22:56, 7 March 2012
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	Traditional ''Return On Investment'' (ROI) is a performance measure used to evaluate the efficiency of an investment, or to compare the efficiency of a number of different investments. In general, to calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; and the result is expressed as a percentage or a ratio. The following equation illustrates this.		Traditional ''Return On Investment'' (ROI) is a performance measure used to evaluate the efficiency of an investment, or to compare the efficiency of a number of different investments. In general, to calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; and the result is expressed as a percentage or a ratio. The following equation illustrates this.

	{\| ~~class~~="~~FCK__ShowTableBorders~~" ~~border~~="0" cellspacing="1" cellpadding="1" ~~width~~="~~400~~" ~~align~~="~~center~~"

			{\| width="400" align="center" cellspacing="1" cellpadding="1" border="0" class="FCK__ShowTableBorders"
	\|-		\|-
	\| <math>ROI=\frac{Gain\,from\,Investment\,-\,Cost\,of\,Investment}{Cost\,of\,Investment}</math>		\| <math>ROI=\frac{Gain\,from\,Investment\,-\,Cost\,of\,Investment}{Cost\,of\,Investment}</math>
	\| valign="middle" ~~nowrap~~="nowrap~~" align~~="~~right~~" \|		\| valign="middle" align="right" nowrap="nowrap" \|
	\|}		\|}



	In this formula, "gains from investment" refers to the revenue or proceeds obtained from the investment of interest.		In this formula, "gains from investment" refers to the revenue or proceeds obtained from the investment of interest.

Chris Kahn: /* Traditional ROI */

2012-03-07T22:33:08Z

Traditional ROI

← Older revision		Revision as of 22:33, 7 March 2012
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	== Traditional ROI ==		== Traditional ROI ==

	~~First, traditional~~ ''Return On Investment'' (ROI) is a performance measure used to evaluate the efficiency of an investment, or to compare the efficiency of a number of different investments. In general, to calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; and the result is expressed as a percentage or a ratio. The following equation illustrates this.		Traditional ''Return On Investment'' (ROI) is a performance measure used to evaluate the efficiency of an investment, or to compare the efficiency of a number of different investments. In general, to calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; and the result is expressed as a percentage or a ratio. The following equation illustrates this.

	{\| class="FCK__ShowTableBorders" border="0" cellspacing="1" cellpadding="1" width="400" align="center"		{\| class="FCK__ShowTableBorders" border="0" cellspacing="1" cellpadding="1" width="400" align="center"

Chris Kahn: /* Traditional ROI */

2012-03-07T22:32:26Z

Traditional ROI

← Older revision		Revision as of 22:32, 7 March 2012
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	== Traditional ROI ==		== Traditional ROI ==

	First, traditional ''Return On Investment'' (ROI) is a performance measure used to evaluate the efficiency of an investment, or to compare the efficiency of a number of different investments. In general to calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; and the result is expressed as a percentage or a ratio. The following equation illustrates this.		First, traditional ''Return On Investment'' (ROI) is a performance measure used to evaluate the efficiency of an investment, or to compare the efficiency of a number of different investments. In general, to calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; and the result is expressed as a percentage or a ratio. The following equation illustrates this.

	{\| class="FCK__ShowTableBorders" border="0" cellspacing="1" cellpadding="1" width="400" align="center"		{\| class="FCK__ShowTableBorders" border="0" cellspacing="1" cellpadding="1" width="400" align="center"

Chris Kahn: /* Traditional ROI */

2012-03-07T22:31:38Z

Traditional ROI

← Older revision		Revision as of 22:31, 7 March 2012
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	== Traditional ROI ==		== Traditional ROI ==

	First, traditional ''Return On Investment'' (ROI) is a performance measure used to evaluate the efficiency of an investment, or to compare the efficiency of a number of different investments. In general to calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; and the result is expressed as a percentage or a ratio.~~  Equation (1) that follows~~ illustrates this.		First, traditional ''Return On Investment'' (ROI) is a performance measure used to evaluate the efficiency of an investment, or to compare the efficiency of a number of different investments. In general to calculate ROI, the benefit (return) of an investment is divided by the cost of the investment; and the result is expressed as a percentage or a ratio. The following equation illustrates this.

	{\| class="FCK__ShowTableBorders" border="0" cellspacing="1" cellpadding="1" width="400" align="center"		{\| class="FCK__ShowTableBorders" border="0" cellspacing="1" cellpadding="1" width="400" align="center"
	\|-		\|-
	\| <math>ROI=\frac{Gain\,from\,Investment\,-\,Cost\,of\,Investment}{Cost\,of\,Investment}</math>		\| <math>ROI=\frac{Gain\,from\,Investment\,-\,Cost\,of\,Investment}{Cost\,of\,Investment}</math>
	\| valign="middle" nowrap="nowrap" align="right" \| ~~                             (1)~~		\| valign="middle" nowrap="nowrap" align="right" \|
	\|}		\|}

	In this formula "gains from investment" refers to the revenue or proceeds obtained the investment of interest.		In this formula, "gains from investment" refers to the revenue or proceeds obtained from the investment of interest.

	Return on investment is a very popular metric because of its versatility and simplicity. That is, if an investment does not have a positive ROI, or if there are other opportunities with a higher ROI, then the investment should be not be undertaken. Reliability ROI, is similarly computed by looking at the ~~investment as the~~ the investment in improving ~~the~~ reliability.		Return on investment is a very popular metric because of its versatility and simplicity. That is, if an investment does not have a positive ROI, or if there are other opportunities with a higher ROI, then the investment should be not be undertaken. Reliability ROI is similarly computed by looking at the return on the investment in improving reliability.

	== Reliability ROI (R<span class="texhtml"><sup>3</sup></span>OI) ==		== Reliability ROI (R<span class="texhtml"><sup>3</sup></span>OI) ==

Chris Kahn: moved ReliaSoft's Reliability ROI to ReliaSoft’s Reliability ROI

2012-01-31T16:42:33Z

moved ReliaSoft's Reliability ROI to ReliaSoft’s Reliability ROI

← Older revision	Revision as of 16:42, 31 January 2012
(No difference)