Investing to Save : A Simple Tool for Calculating ROI Can
Determine Which Investments are Best for Your
Is your laboratory looking for ways to save money?
Try spending (investing) some!
This idea seems counterintuitive, doesn’t it? The traditional
approach to cutting expenses has always been just that-cutting.
Very few laboratories will even consider the idea that they can
spend, actually invest, their way to an improved bottom line.
Yet there are opportunities to make cost-saving improvements if
you look in the right places. Over the past 20 years of
visiting testing labs in nearly every industry, we have noticed
a common problem- many labs have inefficient processes that are
costing them a significant amount of time and money. Sometimes
the problem is an old piece of equipment that once was state of
the art but now is a few generations behind current
technologies. In other cases, you have an outdated procedure.
Maybe you developed it 15 years ago, or maybe you were given it
by your customer. Either way, it takes too much time and uses
too many resources. Finally, in the quest to lower staff costs,
companies have lost their experienced laboratory leaders, who
used to mentor junior staff on how to do things the right way.
We see many labs filled with young, inexperienced analysts, and
few who can be resources to them for solving problems. As a
result, they make more mistakes or are just less efficient in
everything they do, which is not their fault. Most are a joy to
work with;they are eager to learn and appreciate the help that
we give them, because it makes their jobs easier and reduces
their stress levels. Of course, the laboratory benefits as well
when its staff are happier and more efficient.
Why don’t more laboratories make an effort to fix these
situations? Today’s laboratories face many challenges, and each
case is unique, but there is a common theme. Many supervisors
and managers have technical backgrounds that rarely focus on
the financial aspects of running a lab. They have not been
trained to recognize that improvements in processes are not
just another expense. Such process improvements are an
investment that resides in another location on the company’s
balance sheet. We will consider a case study from
chromatography laboratories to illustrate this idea.
Using smaller HPLC columns
High-performance liquid chromatography (HPLC) has become one of
the most useful analytical tools in the modern laboratory.
Since its development in the 1970s, the technique has matured
into a necessary tool for laboratories in almost every
industry, but especially in pharmaceuticals, food, chemicals,
and petroleum. There are more than a dozen major and minor
manufacturers, and literally hundreds of column choices. The
equipment is expensive ($40,000 to $50,000 for a typical
entry-level system) and requires the use of high-purity
Acetonitrile, the most common solvent, costs about $350 for a
4-liter bottle (including shipping and other handling fees), or
a little less than $0.09/mL. If you are using this solvent at 1
mL/min. for eight hours a day, over the course of a year you
will use about 120 liters of this solvent and spend $10,500 on
purchase costs alone. Note that chemical disposal costs are an
additional expense that we won’t factor in at this point, but
they are often similar to the purchase cost and add to the
laboratory’s total costs of operation. Now, suppose that I told
you that you could save about 50 percent of those acetonitrile
(and other HPLC solvent) costs by changing to a different
column. Would you be interested?
Column manufacturers have made numerous improvements over the
past 15 years. In addition to new phases with better stability,
the suppliers have also been able to prepare identical columns
with smaller diameters and shorter lengths. A smaller diameter
means a smaller crosssectional area, and you need to push less
mobile phase through the system to get the same flow velocity
inside the column. As a result, you use less solvent.
A typical change might involve replacing a column with a 4.6 mm
diameter with one that has a 3.0 mm diameter. The smaller
column has about half the cross-sectional area of the original,
so you could reduce your flow rate by about 50 percent. Using
the above assumptions, your new solvent costs would be $5,250 a
year, for an annual savings of $5,250. If you have a relatively
modern instrument (less than 10 years old), you should be able
to implement these changes with little or no modification of
the equipment. Only a change in operating parameters is
Calculating your ROI - a simple
As is always the case, nothing is free in the lab, so we will
start by looking at making a simple change in column diameter
for an existing method in a typical lab. To incorporate this
change, it will require some additional time by a staff member
to install the column, verify performance and/or make
adjustments, evaluate real samples, and complete the
documentation for the revised procedure. We will also assume
that these activities require 40 hours of staff time and 40
hours of instrument time. Fully loaded costs for one staff
member and an instrument together might be $100 an hour, which
means the total internal cost is $4,000 to make this change.
Using these estimates and the cost savings above, we can
calculate the ROI as:
ROI = 100*(5,250 - 4,000)/4,000 = 31%.
This is a favorable result, and suggests that there is a
longterm financial benefit to making this change. Yes, you will
invest one staff member and one instrument for a week, but a
year later your financial performance for this process will
have been 30 percent better. Also, remember that we did not
factor in disposal costs. With the new method, your disposal
costs are also lower, which means another expense item is
reduced and the actual ROI would be greater. In subsequent
years your process continues to operate with this performance
improvement, without the associated costs, providing added
benefits from the investment.
Calculating your ROI - a more complex process change
Not every situation is so simple, so it is instructive to
consider a somewhat more complicated scenario. Imagine that we
have two instruments running a process similar to the one
described above. Just implementing the above changes could save
$10,500. However, suppose that you also want to minimize the
overall use of this solvent by optimizing startup,
equilibration, and other nonproductive usage activities,
resulting in a further 10 percent reduction in use. Such a
change will either increase overall capacity or reduce
instrument “on” time. That is, you want to reduce your total
use of acetonitrile by 60 percent, realizing a total savings of
$6,300 for each system, or $12,600 for both systems.
This optimization is going to require an outside expert,
because your staff does not have the time or expertise to do
this kind of evaluation. The expert will cost about $6,700 to
evaluate the process and recommend changes, assuming that the
changes are relatively straightforward. However, this is a
regulated lab (i.e., GMP-compliant), so additional staff time
will be needed to validate the new method and complete the
paperwork. This modification will require 20 hours of
instrument and staff time (at $100 an hour total) to collect
the data and another 40 hours of staff time (at $50 an hour) to
write the reports and process the paperwork. The total costs
are $10,700, and the ROI is:
ROI = 100*(12,600 - 10,700)/10,700 = 18%.
The ROI is not as favorable as the simple example, but this is
a more complex situation with more demanding requirements and
additional costs for the regulatory issues. Still, the number
is positive, and it does not include other savings such as
reduced disposal costs. These improvements continue into the
future, but without the substantial investment of the first
year, so the benefits are significantly larger.
HPLC is not the only place where significant savings can be
realized. Capillary gas chromatography operates under similar
rules. Helium is the most common carrier gas, but it is a
nonrenewable resource and the world’s known supplies are
running out. As expected, costs are already rising at a rapid
There are several different column diameters available from all
manufacturers, and the savings are just as dramatic as in HPLC.
If you reduce your column diameter from 0.32 mm to 0.25 mm,
your helium usage can decrease by about 40 percent. If you are
using 0.53 mm columns now, the reduction is almost 80 percent
when changing to a smaller column.
Although these examples are specific to chromatography-based
methods, it is important to note that this general approach can
be applied in many other instrument types and processes as
well. Improvements in efficiency and reduced operating costs
are almost always possible if you are willing to make the
investment. The ROI calculations can then be your guide to
deciding which investments are the best choices for your
Today’s laboratories are under stress from many directions, and
there is constant pressure to be more profitable. However, we
should not assume that the only way to be more profitable is to
simply reduce existing expenses. With continuing advances in
laboratory technologies, it is possible to improve both time
and expense costs by upgrading to more contemporary
technologies or even just training your staff how to use them.
You do not have to choose the most expensive, or even the most
recent, option, but you should evaluate the potential benefits
and costs by calculating ROI for the investment.
Calculating ROI for laboratory activities is not common today,
but mostly because many lab managers are not familiar with the
idea. They have been trained in the technical requirements of
the job, not the financial aspects. ROI is a common way to
evaluate any business activity, and this approach is recognized
as an appropriate tool even when applied to laboratory
Our intent is not to suggest that such a simple strategy is
appropriate for evaluating a complex multimillion-dollar
project. Rather, we want to show laboratory managers how to
look at their current systems and procedures and to give them a
relatively simple tool for estimating the value from making
improvements in the laboratory’s operations. Incorporating an
ROI calculation into your proposal is going to give your ideas
additional credibility because you are now speaking in the
language that business managers and CFOs understand.
Dr. Merlin K. L. Bicking is president and senior analytical
scientist of ACCTA, Inc., a company he founded in 1993. As a
consulting analytical chemist, he provides technical problem
solving and training to testing laboratories around the world.
He has authored more than 20 publications and given more than
50 presentations at local, national, and international meetings
in his 30 years of experience. Dr. Bicking holds a B.S. in
chemistry from the University of Wisconsin-River Falls and a
Ph.D. in organic-analytical chemistry from Iowa State
University. He can be reached at email@example.com.
Thanks to Mr. Robert Zarracina, The Advisory Group Ltd., for
helpful suggestions and comments.
By Merlin K. L. Bicking | ,