How to Approach a Digitalization Project with ROI in Mind

In television, a successful pilot episode can generate interest and attract investment by demonstrating the show’s potential and appeal, ultimately securing funding for the series. Similarly, a phased digitalization project begins by proving its value in an initial stage, laying the groundwork for broader implementation.

Digitalization projects are aimed at boosting reliability and efficiency in both facility processes and operations. While they contribute to growth, they’re often not seen as essential. That’s why it’s crucial to show that the capital invested is being put to good use. But how is that done?

A Phased Approach to Digitalization

In a phased digitalization project, the process begins with a small-scale implementation to validate the concept, followed by expansion as the benefits become clear. This often takes the form of a pilot project, where a digitalization concept is applied to a single machine or plant area rather than the entire facility. Once the pilot proves successful and demonstrates value to upper-management, it can be replicated on a broader scale.

There are generally two scenarios in such projects. The first involves implementing one digitalization concept on a small scale, as a pilot. The second scenario entails starting with one digitalization concept and then gradually deploying additional technologies sequentially across the facility. This second method is particularly suitable for facilities seeking to fully digitalize their operations without committing to a large, all-encompassing project from the outset.

Success in a phased digitalization project hinges on developing a clear roadmap and understanding the interconnections between existing technologies and the new ones being introduced. It is important to distinguish this approach from an engineering or front-end study, which involves an in-depth analysis of a facility’s equipment and operations to assess project feasibility. In contrast, a phased deployment approach focuses on the installation and operation of new technology in the initial phase, with an emphasis on practical implementation and gradual scaling. However, it is still critical to plan ahead and calculate expected ROI.

Building a Roadmap

Developing a roadmap for a digitalization project is essential for identifying the project’s end goals and benefits. These goals are critical for measuring success and calculating ROI. A well-structured roadmap outlines the necessary steps, engages the relevant stakeholders, and defines the expected outcomes. It is important to collaborate with all stakeholders to prioritize the initial projects and ensure that each project has a clearly defined profitability target.

When engaging with an external resource, such as a system integrator, it is crucial to select a partner capable of effectively developing and supporting this roadmap to ensure the project’s success.

ROI in a Digitalization Project

Digitalization projects frequently pose challenges in justifying ROI, as their benefits are primarily realized through cost reductions or avoidances achieved via efficiency improvements and waste minimization. Were you able to reduce energy use? Avoid an unplanned outage? Increase first pass quality? This underscores the importance of the initial phase in a phased project. Clearly defining the project’s objectives and aligning them with the current state of the facility are critical steps in accurately assessing the project’s success and financial returns.

Factors to Consider for ROI

To properly calculate the ROI of a project and demonstrate its impact, consider these best practices:

Set and manage expectations. Overestimating returns to secure funding may be tempting, but over-optimism may close the door to future projects, depending on the outcome.

Select the right project. For a phased digitalization project, the first project must be the right size. It will be difficult to measure the outcome for a project that is too small or is not very impactful. A project that is too large may not get approval or may risk not making ROI goals when encountering issues that could have been more easily addressed at a smaller scale.

For example, identify a production line where an increase in uptime will be noticeable and have a significant impact on financial performance. Enhancing uptime on this line can lead to higher production output and increased revenue.

Allocate the right resources. Many projects will require support from multiple work groups in your organization, in addition to software costs and external expertise. It’s important to have active engagement from people who will support and utilize the technology. Avoid the “champion model” as projects that depend on a single champion are vulnerable when that person changes roles or leaves the company. It’s also important to plan for post-install maintenance support as well as to allocate enough budget to the project so that it can make a measurable impact.

Avoid the lure of technology. At times, it is easy for an engineer to be excited about and focus on the technology of the project, but there are also financial targets that need to be met. Keep in mind the project with the best ROI may not be one with the most advanced technology. It is the one that solves the biggest problem for the lowest investment.

Establish the right metrics. To be able to calculate the ROI of a project, it is crucial to obtain good metrics at the start of the project. ROI will rely on before and after metrics, which means the ‘before’ needs to paint a clear picture. Metrics can involve uptime, conversion rates, utility usage, and more. Plan for enough time and a wide enough deployment that clear benefits can be calculated and that those benefits cannot be the result of other unrelated activities or conditions in the plant.

Cybersecurity projects are not digitalization projects. Cybersecurity projects are often must-do projects that are just part of normal business activities. Normal cost payback metrics typically do not apply to these projects since they are often mandated by corporate policy or government regulations.

Calculating the ROI in a digitalization project is contingent upon the specific goals and desired outcomes of the initiative. Ideally, the initial phase should demonstrate ROI within a six-month to one-year timeframe. For instance, in a project aimed at reducing downtime and shutdowns, ROI calculation would begin with the collection of data on the frequency of failures prior to project implementation. The associated costs of this downtime would then be analyzed. Upon completion of the project, ROI can be determined by comparing the frequency of failures before and after the digitalization effort. The resulting ROI is reflected in the cost savings achieved and the overall impact on profitability. Remember, downtime and poor-quality issues usually have a double impact on profitability, not only did you not make saleable product but typically additional costs are incurred for rework or labor to make repairs.

Conclusion

Digitalization projects have the potential to reveal valuable insights into a facility’s processes, mitigate risks, and deliver actionable data for operational decision-making, among other benefits. However, maintaining a clear focus on ROI is crucial to justify ongoing investments in digitalization aimed at modernizing operations. Although transitioning from manual processes to digital tools or automating routine tasks may present challenges in quantifying ROI, a phased approach, coupled with the expertise of qualified digitalization specialists, can make these goals attainable.

Engaging with a knowledgeable team, such as the experts at Hargrove Controls & Automation, can be instrumental in identifying key challenges, establishing clear objectives, and developing an appropriate roadmap for a successful digitalization project. Hargrove’s extensive experience with companies at various stages of their digitalization efforts enables them to provide the critical insights necessary to ensure that projects remain on schedule and within budget. For support in advancing your facility’s digitalization journey, the experts at Hargrove are available to help.