PLM – An Investment or a Sunk Cost?

This topic came up in the blogosphere recently, so here is my 2 cents worth.

I have a minor in accounting. In one of my courses, the professor emphasized that companies should look at their investments in the past as sunk costs.

The theory behind a sunk cost is that you have already spent the money so the amount should not be used in future financial decisions. However, in real PLM life, I have never seen this rule followed. Companies always say ‘We have an investment of some amount of dollars, so I am not going to just ignore it.’

Companies that have taken this approach will likely have PDM software and PLM software and possibly others. Rather than toss the PDM software and use the PLM software instead, they will spend a great deal of money integrating the two.

The decision alternatives look like this:

Option A – Keep the PDM software and integrate the two

This means you will spend money in several places: Maintenance on the PDM software; Seats for the PLM software; Maintenance on the PLM software; Integration work to pass information from one to the other; More programming time to keep the integration software working; More programming time for the occasional needed tweeks; and expertise for 2 different software packages.

Other complexities include: Determining what information gets passed from one to the other; Training on 2 different software packages; Separate administration resources; Working with 2 vendors and a systems integrator; Expertise to configure the software to fit your company’s needs; Expertise for the PLM software; etc.

Put dollars to all of these activities.

Option B – Purchase PLM software and toss the PDM software

With this approach, you will spend the money on: Seats of PLM software; Maintenance on the PLM software; Data migration – moving the data from the PDM software into the PLM software; Expertise to configure the software to fit your company’s needs; Expertise for the PLM software.

Other complexities include: Training for the PLM users; a PLM administration resource; working with a single vendor; etc.

Put dollars to all of these activities.

Investment or Sunk costs

Did you include the cost of the PDM software to either of these options, then you are not treating PDM as a sunk cost. Still, the results of this exercise may surprise you.

Contact me if you need some help…

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