# Return of Investment ROI Determination Based on Lean Manufacturing

In this article, you will learn how to calculate the Return of Investment ROI as part of the lean manufacturing improvements and sig sigma implementation activities.

## Return of Investment Definition (ROI)

Return on Investment (ROI) is a metric to demonstrate when or how long you shall recover and receive back a particular money investment dedicated to improving a particular business, process, machine, or area.

The return of investment is a performance measure used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments done as part of implementing lean manufacturing improvements.

In other words, Return of Investment estimates the actual revenue or profit returned based on a particular investment (investment’s cost) during a specific period of time.

## 4 Factors to Consider Prior to Calculate the Return of Investment ROI

The best way to calculate the return of investment is by considering the following 4 factors:

1. A particular period of time,
2. The amount of money required to be invested to improve a process or business.
3. The amount of money produced by your manufacturing process actually prior to the investment in the improvement.
4. The amount of money produced by your manufacturing process after the investment in the improvement.

## How to Calculate the Return of Investment ROI

To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment.

The result is expressed as a percentage or a ratio.

The return on investment (ROI) formula is as follows:

( Money produced after the process improvement – Money produced prior process improvement ) x 100

———————————————————————————————————————————————————–

Money invested in the process improvement ​

The difference between the money produced after the process improvement versus the money produced prior process improvement is the “Current Value of Investment” with means the revenue or profit obtained from the investment or improvement.

ROI is measured as a percentage, it can be easily compared with returns from other investments, allowing you to measure a variety of types of investments against one another.

## Understanding Return on Investment (ROI)

The ROI is a popular metric since its versatility and simplicity.

Essentially, ROI can be used in an easy manner to measure an investment’s profitability.

This could be the ROI on a machine or facility investment, the ROI a company expects on expanding a manufacturing operation, or the ROI generated in a new product start-up transaction.

ROI can bring positive or negative values and results during its calculation.

A positive ROI means it is probably worthwhile.

But if other opportunities with higher ROIs are available, these signals can help investors eliminate or select the best options.

Likewise, investors should avoid negative ROIs, which imply a net loss.

## Return of Investment Calculation Example:

For example, suppose you have a manufacturing process ABC which generates \$300,000 dollars per month.

If you invest \$500,000 to improve it and now it can generate \$400,000 dollars per month.

To calculate the return on this investment, divide the net profits (\$400,000  – \$300,000 = \$100,000 / month) by the investment cost (\$500,000), for a ROI of (\$100,000/\$500,000) x 100, or 20% monthly.

In other words, you shall recover your whole investment (\$500,000 Dollars) in 5 months.

And, suppose you have a manufacturing process XYZ which generates the same \$300,000 dollars per month.

If you invest the same \$500,000 to improve it, but now it can generate \$500,000 dollars per month.

To calculate this return on this investment, divide the net profits (\$500,000  – \$300,000 = \$200,000 / month) by the investment cost (\$500,000), for a ROI of (\$200,000/\$500,000) x 100, or 40% monthly.

In this case, you shall recover your whole investment (\$500,000 Dollars) in 2.5 months.

### Conclusion

With this information, you can compare the investment in the manufacturing process ABC with the XYZ and with any other process improvement projects.

As you may notice, you shall recover your whole investment with the improvement in the manufacturing process XYZ (\$500,000 Dollars) in 2.5 months instead of 5 months with the manufacturing process ABC.

Based on this ROI analysis, you can observe that the manufacturing improvement in the process XYZ can bring a better return of investment since you can recover your money in less time and obtain more profit and benefits for your money than the process ABC.

CIQA is a quality and regulatory consultant with 25 years of experience developing products and managing projects in the medical device supply chain, and pharmaceutical industries. Rest assured of the safety or being in the right hands.

Our Lean Manufacturing team could provide you a broad range of professional expertise implementing these techniques and tools.

## Three (3) Options to Create Document Control Management DCM Procedures:

### Bronze Option. You Can Create Your Own Quality Procedures, using a Template.

You can download samples of the Document Control Management DCM procedure templates in .pdf format.

To see the complete list of the most popular quality procedures templates, click here.

In addition, you can request a quotation to buy online a full SOP template document in MS Word format that is completely editable, ready to fill, and adapt to your specific needs.

### Silver Option. We Can Bring You Formal Training about the Return of Investment.

This option is recommended if you want to learn more about how to build robust quality system procedures. One of our expert(s) can provide online step-by-step training to your team (unlimited assistance) on how to build reliable SOPs using our template(s). Also, you can improve your corporate quality procedures and policies by incorporating our template(s) and tools.  It includes a fully editable template from the Bronze option, plus training, exams, and a training certificate for each assistant. now.

### Gold Option. We Can Create Customized Quality Procedures.

One of our expert(s) will create and prepare your customized SOPs with the inputs and specific information of your company. It includes a fully editable template from the Bronze option, plus online support in document creation, implementation, and training. Request a quote online.

## REFERENCES: Return of Investment.

httpss://en.wikipedia.org/wiki/Lean_Six_Sigma

httpss://www.greycampus.com/blog/quality-management/a-brief-introduction-to-lean-and-six-sigma-and-lean-six-sigma

httpss://www.investopedia.com/terms/r/returnoninvestment.asp

## Ramon Cayuela, MS, BS, Chemical Engineering

CIQA President and CEO.
I've been working in validation engineering since 1992 with many multinational pharmaceutical companies. I love sharing my passion and knowledge with others. If you have any questions about anything (or just have general questions). I will be more than happy to assist you. You can count on the BEST customer service on CIQA. I go to great lengths to make sure my clients are 100% satisfied with their purchases and check emails/messages consistently throughout the day. You can rest assured that everything being sold here is as-described or your money back. I look forward to working with you!

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