r&d cost-benefit analysis
How much money can Pateo save your business...
Most challenges or problems in R&D lead to delays in the introduction of one or more new products. Such delays are very expensive, as the following analysis shows.
Pateo's customers benefit by our success in finding a problem solution hence eliminating or limiting these costly delays.
The analysis further shows that the ratio of the cost of using Pateo services relative to benefit is such that the risk taken by investing in our services is well justified.
Scenario:
An R&D-based company has scheduled 12 months to develop a new product. The company is investing 10% of the anticipated annual sales of the new product in its development. The company has a gross margin of 50% on its products.
What is the cost of a one month delay in the product development ?
The table below calculates this cost for various levels of new product sales.
Note that not only is the current new product development delayed and additional R&D expense incurred, but a probable follow-on product development is also delayed, because the R&D team will be delayed in starting development of that subsequent new product.
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Cost-Benefit Analysis |
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Planned total annual
revenue of new product - $M |
2.50 |
7.50 |
15.00 |
25.00 |
50.00 |
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Annual Gross Profit on new product - $M |
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1.25 |
3.75 |
7.50 |
12.50 |
25.00 |
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Net total R&D investment in new product - $M |
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0.25 |
0.75 |
1.50 |
2.50 |
5.00 |
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Planned schedule for R&D project - months |
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12 |
12 |
12 |
12 |
12 |
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GP opportunity cost per month - $M |
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0.10 |
0.31 |
0.63 |
1.04 |
2.08 |
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Additional R&D
expense caused per month of delay - $M |
0.02 |
0.06 |
0.13 |
0.21 |
0.42 |
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Follow-on product GP Opportunity cost/month - $M |
0.10 |
0.31 |
0.63 |
1.04 |
2.08 |
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Total Opportunity cost -
per month of delay - $M |
0.23 |
0.69 |
1.38 |
2.29 |
4.58 |
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Pateo Cost - $M per month |
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$0.008 |
$0.008 |
$0.008 |
$0.008 |
$0.008 |
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Ratio - Opportunity Cost/Pateo Cost |
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27.5 |
82.5 |
165.0 |
275.0 |
550.0 |
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Cost savings not included:Intangible costs arising from the delay are not included in the table above - for example loss of momentum in the market hence probable loss of market share; loss of customer, distribution channel and employee confidence; costs of increased executive involvement in resolving the cause of the delay, and consequent opportunity cost across the whole business…
Contact:
To explore finding a solution to a current issue or discuss something mentioned here
call Andrew Herrington - Canada (519) 635-5308/ UK - Mobile: 077 36717312;
Pateo Consulting
UK - Mobile: 077 36717312;
Canada - Cell: (519) 635-5308;
email: xxxpateo@pateo.com.
76 York Street,
Kitchener,
Ontario N2G 1T7,
Canada.
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