Justifying the CMM

(Coordinate Measuring Machine)

Brown & Sharpe CMM products are available at the following Precision Centers.
An in-depth look at the unique cost-cutting
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Elgin, IL Ludwigsburg, Germany Ebina-shi, Japan advantage of Coordinate Measuring Machine
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Tel: 46 8 601 2620 shaping the future of measurement
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Brown & Sharpe Coordinate Measuring Systems include a 12 month warranty for hardware and software supported by a world wide network of authorized service centers.
Due to continuing product development, Brown & Sharpe reserves the right to change product specifications and price without notice.
North Kingstown, RI 02852-1700
© 2001 Brown & Sharpe Inc. All Rights Reserved. Printed in U.S.A. 80-80059-4 12/01
Coordinate Measuring Machines (CMMs) C O O R D I N AT E M E A S U R I N G M A C H I N E E VA L U AT I O N S H E E T
Measuring Range BROWN & SHARPE Competitor #1 Competitor #2
When manufacturing firms spend money on new equipment, their top priority is increasing production. That’s why each year X Axis
many manufacturers add coordinate measuring machines to their production equipment inventory. Y Axis
Z Axis
Over the past four decades, CMMs have proven to be key pieces of equipment in many manufacturing applications. Total Cubic Inches
They slash inspection costs and greatly improve inspection capabilities and quality by measuring parts directly from the original Work Capacity
CAD database. They are also an excellent tool for reverse engineering, and can increase output from existing manufacturing X Axis
equipment and personnel. Y Axis
High speed production to high standards of precision make it difficult for many quality control functions to handle the demand Z Axis
for increased inspection throughput. Machined parts are becoming increasingly complex, with more measurement features Total Cubic Inches
and tighter tolerances. Precision hand tools, surface plate and height gage techniques are too slow, and therefore too costly, Accuracy Volumetric uncertainty per ISO 10360-2
and often too inaccurate, to support advanced manufacturing processes. Finding the necessary space for more surface plates, Volumetric uncertainty over 10 inches
plus skilled inspectors to use them, is not easy, and is a costly and cumbersome way to solve a complex problem requiring Volumetric uncertainty over 20 inches
fast turnaround. Volumetric uncertainty over 30 inches
Repeatability - Probing uncertainty per ISO 10360-2
The dramatic time savings achieved using CMMs rather than traditional surface plate techniques, and the opportunities that Software Ease of Use
these machines provide for better utilization of manpower and equipment, are detailed on the following pages. Feature Recognition
Interactive Graphics
Operator Mode
CAPTURING TIME E L I M I N AT I N G M U LT I P L E S E T U P S Machine Ease of Use
Single Joystick for X Y & Z
The most dramatic advantage of the CMM is the increased inspection Complex parts increase the inspection time for the operator using Change feature measurements w/o need to go to computer
efficiency when compared with traditional surface plate/precision hand precision hand measuring tools. Since height gages and similar Clearance Point and Clear Hit controlled from Joystick
tool techniques. inspection tools only measure along a single axis at any one time, at Service
least two setups are needed to locate details on the face of a Number of service engineers stationed in Area
For example, measuring the location of a single hole using a surface
workpiece. Even more setups may be needed, depending on the Average response time for down machine
plate and a height gage can involve:
nature of the details. When multiple sides of a part are checked, the Cost for annual calibration
• Squaring the face of the part to be measured with the surface setup must be changed each time the part is rotated. Software Capability
plate Direct CAD Interface (Catia, Unigraphics,Pro-E,Ideas,ACIS)
By contrast, the CMM can measure multiple faces of a part without
Easily links to MS Word, Excel and PowerPoint
• Indicating the top and bottom of the hole with the height gage disturbing the setup. Continuous digital readouts of the position of the Off Line looks the same as On Line Programming
probe stylus, in the X, Y, and Z axes simultaneously, is automatically Durability
• Comparing the measurements to a reference provided. Readings can be obtained as quickly as the operator can Frictionless Air Bearings
• Recording the readings move the probe from detail to detail. Mean time between Failure
Average number of service calls per machine per year
• Calculating their difference to find the location of the hole Faster measurements with fewer setups reduce inspection time to as
Manufacturer Reputation
centerline little as one-tenth of the time required using hand tool techniques.
Market Share
Looking at it another way, 10 parts can be inspected on a CMM in the
Measuring the same hole with a basic Gage 2000 CMM involves: Number of machines in the field
same time as 1 part on a surface plate. Number of years Manufacturing CMM's
• Automatically aligning the part with the CMM (measure a plane, Table 1 compares the typical times required to make a variety of Machine Throughput
line and point). Datum's A, B, C. Approximate time, 30 seconds. common measurements by conventional measuring tools compared Maximum 3D Velocity inches/second
Maximum 3D Acceleration inches/second squared
• Touching the hole in four locations. Approximate time, 8 seconds. with CMM's ranging in sophistication from a simple, manually operated
Number of points per minute
model with user friendly Reflex software to a CMM with computer-
• Pressing the Print button to record the X location, Y location and Time study of customer part start to finnish
assisted manual control and direct computer-controlled (DCC) models.
diameter of the hole. Delivery
As the sophistication of the machine increases, inspection time is
Are machines built to forecast for fastest delivery
• 3 times the information in a fraction of the time. reduced. The operator can be relieved of such time consuming tasks as
Lowest Price
manually recording readings, checking the inspection sequence and Machine Cost
performing computations. An additional benefit of the more advanced Cost to adjusted to machine throughput
CMMs is their ability to measure arc lengths and profiles. These Breadth of Product Line
2 routines are literally impossible to perform using conventional Can this company satisfy our future potential measuring needs 11
inspection methods or even a manual CMM.
 ADDED ACCURACY AND REDUCING THE COST OF
J U S T I F I C AT I O N W O R K S H E E T R E P E ATA B I L I T Y MACHINING ERRORS
Please enter your amounts in the corresponding boxes. CMM's also offer a significant improvement in inspection accuracy as The CMM provides inspection information very quickly, making it
well as speed. With hand operated precision tool inspection methods, possible to respond to machining errors in time to stop the manufacture
REDUCED INSPECTION TIME: the inspector runs the risk of inaccuracy each time he references from a of scrap. With conventional inspection methods, off-line analysis of
different surface. Since complex parts can often be completely measurement data frequently takes more time than the actual
X X = X .45 =
inspected in a single setup on the CMM, the danger of inaccuracies measurement. By contrast, CMM's are available with varying degrees of
Hours to Inspect Part Internal Labor Rate Parts per Month Cost to Inspect Parts 45% Est. Increased Labor Savings with
In Process per Hour Efficiency per Month CMM per Month creeping in from setup changes is reduced or eliminated. calculating capability: these range from relatively inexpensive
microprocessor-based systems to complete direct computer controls
Repeatability of a CMM is, generally, 0.0001 inch or better. The
systems.
X X = X 1 = inherent accuracy of the machine makes for greater reproducibility of
Hours to Generate Internal Labor Rate Parts per Month Cost to Generate 100% Increased Labor Savings with measurements from part to part and from operator to operator. In addition to performing various calculations, these systems can
Inspection Report per Hour Reports Efficiency - Reports CMM per Month
are Automated provide numerous other timesaving advantages such as automatic
With precision hand tool inspection methods, there are many
compensation for misalignment and the use of statistical and data
X X = X .45 = opportunities for human error--in the actual measurement, in math
analysis techniques to reduce the number of measurements required. A
Hours to Internal Labor Rate Parts per Month Cost for Final 45% Est. Increased Labor Savings with mistakes, in transposing a number while recording measurements.
printout device can also be added which provides a permanent record
Final Inspect Part per Hour Inspection per Efficiency per Month CMM per Month Complex jobs calling for 100 percent inspection compound the
Month of measurements suitable for process control, or as documentation of
problem since they increase the opportunity for error, including those
REDUCED PRODUCTION MACHINE DOWNTIME: inspection results on jobs requiring verification.
which can be traced to inspector fatigue or boredom. CMM's with
automatic recording accessories, computing capabilities and other
automatic features eliminate human error to the extent that they reduce
I M P R O V E E F F I C I E N C Y,
X X = X .45 = ACCURACY WITH DIRECT
the tasks the operator must perform.
Idle Hours due to Internal Labor Rate Parts per Month Cost of Idle Labor 45% Est. Reduction Labor Savings with CAD INTERFACE
First Piece Inspection per Hour per Month in Idle Labor CMM per Month An operator can be trained to skillfully use a CMM in a fraction of the
per Month
time it takes an inspector to become skilled in precision hand tool Directly interfacing with a CAD system using a software function such
X X = X .45 = methods. Inspection routines for a specific part can be taught to as the PC-DMIS Direct CAD Interface (DCI), allows CAD data to be
CNC Machine Idle CNC Machine Cost Parts per Month Cost of CNC 45% Est. Reduction Production Machine unskilled help, often in less than a day. While the CMM can used without translation. This unique functionality actually uses the
Hours due to First per Hour Machine Idle Time in Machine Idle Time Efficiency Savings compensate for the shortage of skilled inspection people, the operator CAD system's native mathematical routines to obtain the requested
Piece Inspection per Month per Month per Month
ideally will possess the same skills of a top-grade layout inspector in information. DCI also uses the CAD system's native API to access the
REDUCED SCRAP & REWORK: order to fully utilize the capabilities of the machine, particularly when CAD database for displaying and interacting with the geometry. While
the job mix involves numerous complex parts. directly interfacing with a CAD system requires a CAD system's license,
it offers numerous benefits. These include:
X .35 = REDUCING FIXTURE COSTS
Cost of Monthly Scrap 35% Est. Reduction in * Accurate CAD data, free from translation errors and limitations.
Savings by Reducing
Scrap Rate Scrap with CMM With precision hand tool methods, complex parts involving numerous * Access to GD&T information in the future as CAD systems expose
dimensional checks frequently dictate the use of custom inspection this information with their native APIs.
Cost of Monthly Rework X .40 = fixtures to reduce inspection time. Such fixtures are costly, take time to
40% Est. Reduction in Savings by Reducing design and fabricate, require periodic maintenance or replacement, * Reduced programming time and improved program quality.
Rework Rate Rework with CMM become obsolete with a simple original part change, and take up Thanks to DCI, you can easily and accurately use data from various
valuable space when not in use. CAD systems directly in PC-DMIS, saving time and improving accuracy.
Because of their expense, inspection fixtures are impractical for one-of-
Total Savings Per
Month a-kind parts or small runs. Without such fixtures, the inspector must A D D VA L U E W I T H R E V E R S E
revert to conventional inspection tools to check each part, a ENGINEERING CAPABILITY
Payback in Months = Cost of CMM Desired ÷ time consuming and tedious undertaking. The alternative is not to
Total Savings per Month = As the CMM measures your part, an accurate graphical representation
Cost of CMM Total Savings per Payback in Months inspect at all.
of your part is drawn on the computer monitor. These points, lines,
Desired Month
Payback in Years = Payback in Months A CMM requires no fixtures and, therefore, incurs none of the costs planes, circles, cones, spheres, and cylinders, and if you wish curves
12 ÷ 12 = associated with them. It will measure any part that fits the machine work and surfaces, can be rendered into a three dimensional model of your
Payback in Months Payback in Years envelope, which means that the substantial penalty for design changes part. This model can then be exported in the IGES format. The IGES
associated with fixed gages has been eliminated. format can then be imported into your CAD or CAM system.
Many companies pay independent reverse engineering firms
10
thousands of dollars and have to wait many weeks to have 3
this information generated.
T R A C K I N G S AV I N G S
In general, cost savings generated by a CMM are attributable to these A MACHINED HOUSING WITH A STEPPED THROUGH BORE, A TABLE 3. COST COMPARISON:
areas: BOLTHOLE PATTERN AND AN ANGLE ON ONE SIDE. SURFACE PLATE / PRECISION HAND TOOLS METHOD VS A DCC CMM
* Inspection cost savings. Details requiring inspection include: FOR 100 PERCENT INSPECTION OF HYPOTHETICAL PART ILLUSTRATED IN FIG. 1

* Reduced downtime on production machines with reduced scrap. * Diameters A, B, C.

Surface Plate / Precision Hand Tools Method
* Increased inspection and manufacturing capacity. * Concentricity of B and C to A. Total Time Cost
Inspection Time/part (50 parts) ($10/hr.) Type of Gage
* Improved quality by measuring parts directly from the original * Diameter and location of the bolt hole pattern Z. The angle face N Bore Size A 3 min/part 2.5 hr. $25.00 Dial Bore Gage
CAD database. makes with surface M.
Bore Size B 3 min/part 2.5 hr. $25.00 Dial Bore Gage
* Reverse engineering unknown parts and uploading data to CAD * Shoulder depths of A and C. Bore Size C 3 min/part 2.5 hr. $25.00 Dial Bore Gage
database.
100% inspection is required of the part, which is produced in lots of 50. Concentricity B to A 30 min/part 25 hr $ 250.00 Surface Plates & Transfer Gage
To illustrate the inspection cost saving potential of a CMM over Concentricity C to A 2 min/part 1.67 hr. incl.above Same Set-up as above
precision hand tool methods, consider the hypothetical part shown in Bolt Hole Diameter 12 min/part 10 hr. $100.00 Dial Calipers
Figure 1 below. Comparisons of the times required to inspect the part using
Bolt Hole Location 18 min/part 15 hr. $150.00 Dial Calipers
conventional inspection methods (precision hand tool and bore gages)
vs. both manual and DCC CMM's, are provided in Tables 2 and 3. Time Angle Between N & M 15 min/part 12.5 hr. $ 125.00 Surface Plate/Transfer/Sine Plate
to inspect the various details using precision hand tools, and to record Depth of Shoulder A 2 min/part 1.67 hr. $16.70 Dial Depth Gage
the results, adds up to 1.67 hours per part or 83.33 hours per lot. Depth of Shoulder C 2 min/part 1.67 hr. $16.70 Dial Depth Gage
Assuming a labor cost of $10.00 per hour, inspection cost is, therefore,
Sub Total 90 min/part 75 hrs. $750.00
$16.67 per part, or $833.30 per lot. At the present rate of inspection,
and assuming 1,728 productive hours per man-year, one inspector can Recording Data
(Optional) 1 min/part 8.33 hrs. $83.30
check 20.74 lots per year (1,728 inspection hours per year) divided by
Total 1.67 hr./part 83.33 hrs. $ 833.30 or $16.67/part
83.33 inspection hours per lot). Since annual production of the part is
150 lots, 100 percent inspection of the parts requires 7.2 inspector-
years (150 lots divided by 20.74 lots/year/man) at an annual cost Direct Computer Control (DCC) CMM Mistral or Global
of $149,760. Total Time Cost
TOP VIEW Inspection Time/part (50 parts) ($10/hr.) Type of Probe
With a CMM, however, total inspection time drops to only 5 minutes
per part, or 4.42 hours per lot. At the same $10 per hour labor rate, Bore Size A .05 min. .04 hr. $.40 Touch Probe
inspection cost is $.88 per part, or $44.20 per lot. Bore Size B .05 min. .04 hr. $.40 Touch Probe

Assuming the same 1,728 productive hours per inspector per year, the Bore Size C .05 min. .04 hr. $.40 Touch Probe
full year's production of 150 lots can be inspected in less than one half Concentricity B to A incl. - - Touch Probe
inspector-year (663 hours divided by 1,728 hours/inspector/year equal Concentricity C to A incl. - - Touch Probe
0.38 inspector-years), at a cost of $7,904. In this example, performing
Bolt Hole Diameter .25 min. .21 hr. $2.10 Touch Probe
the part inspection on a CMM yields annual savings of $141,856.
Bolt Hole Location Included above Included above
Angle Between N & M .1 min. .08 hr. $.80 Touch Probe
Depth of Shoulder A .025 min. .02 hr. $.20 Touch Probe
SIDE VIEW
Depth of Shoulder C .025 min. .02 hr. $.20 Touch Probe
Fig. 1. Hypothetical part, incorporating many typical machined details,
is used as the basis for cost comparisons of Precision Hand Tool Set-Up (Alignment) .3 min. .25 hrs. $2.50 Touch Probe
inspection versus CMM inspection. Sub Total .85 min. .71 hrs. $7.10
Recording Data incl. incl. Incl.
Total .85 min/part 1.41 hrs. $14.10 or $.28/part

4 9
 STREAMLINING FIRST PART
V E R I F I C AT I O N
TABLE 2. COST COMPARISON: The dramatic savings in inspection time, and therefore cost, is not the The time saving assumes added significance, however, since assuming
SURFACE PLATE / PRECISION HAND TOOLS METHOD VS A MANUAL CMM whole story. An increasing number of manufacturing facilities are using the same $35 per hour downtime penalty for the CNC production
FOR 100 PERCENT INSPECTION OF HYPOTHETICAL PART ILLUSTRATED IN FIG. 1 CNC machine tools in cells and flexible transfer lines to improve machine, downtime costs for initial inspection are only $5.95. An
productivity. Conventional practice calls for thorough inspection of first additional $10.40 for inspection of an additional 13 parts during
parts to verify programming accuracy. Until the part is verified, the production brings total inspection and downtime costs using the CMM
Surface Plate / Precision Hand Tools Method CNC machine tools, with their high hourly rates, remain idle. The to $18.11 per lot. Multiplying this by 150 lots per year results in a total
Total Time Cost
Inspection Time/part (50 parts) ($10/hr.) Type of Gage alternative is to start running production parts before the first part is annual cost of $2,716--a $52,393 savings over precision
approved, and risk the possibility of producing 100% scrap. hand tool inspection.
Bore Size A 3 min/part 2.5 hr. $25.00 Dial Bore Gage
Bore Size B 3 min/part 2.5 hr. $25.00 Dial Bore Gage The CMM greatly reduces the time required for first part verification When total part cost is reduced, the job becomes more profitable.
and enables programmed machine tools to get into production faster, Faster inspection means expanded inspection capacity and greater
Bore Size C 3 min/part 2.5 hr. $25.00 Dial Bore Gage
converting costly idle time to profitable production time. utilization of production machines. The extra capacity makes it possible
Concentricity B to A 30 min/part 25 hr $ 250.00 Surface Plates & Transfer Gage
for a company to seek additional business or to bring more work in
Concentricity C to A 2 min/part 1.67 hr. incl.above Same Set-up as above Total savings, therefore, come from inspection time savings plus
house, without an increase in manpower or production equipment. All
reduced downtime on production machines. With increased CMM
Bolt Hole Diameter 12 min/part 10 hr. $100.00 Dial Calipers of these factors should be considered when weighing the purchase of
speed and shop hardening, manufacturers are placing CMMs directly
Bolt Hole Location 18 min/part 15 hr. $150.00 Dial Calipers a CMM.
in the manufacturing process to perform flexible in-process gaging. If
Angle Between N & M 15 min/part 12.5 hr. $ 125.00 Surface Plate/Transfer/Sine Plate the department manager decides to run parts with first part verification
and in addition, in-process gaging, the savings will come from reduced
THE BOTTOM LINE
Depth of Shoulder A 2 min/part 1.67 hr. $16.70 Dial Depth Gage
inspection costs and lower scrap costs since machining errors are As the above examples illustrate, a CMM goes a long way toward
Depth of Shoulder C 2 min/part 1.67 hr. $16.70 Dial Depth Gage
caught and corrected almost immediately. reducing inspection costs. But are the savings sufficient to justify the
Sub Total 90 min/part 75 hrs. $750.00
purchase of such a machine? Does the investment provide a
Recording Data The savings realized by reducing production machine idle time is
reasonable return? Or would it pay more to invest in a new CNC lathe
(Optional) 1 min/part 8.33 hrs. $83.30 reflected in the following comparison of CMM and precision hand tool
or machining center?
Total 1.67 hr./part 83.33 hrs. $ 833.30 or $16.67/part inspection costs for the machined housing used in the first cost
comparison. In this comparison, first part inspection (in this case, the Prudent financial management of a company requires reliable answers
first two parts will be checked) is used to verify the CNC program, and to these questions. Most firms have at least one financial expert on
Manual CMM Gage 2000 or Mistral inspection of an additional 13 parts per lot is performed while the job is whom they can rely for in-depth investment studies. Outside sources
Total Time Cost running. This example assumes a downtime cost for the CNC machine can also provide this service.
Inspection Time/part (50 parts) ($10/hr.) Type of Probe of $35 per hour.
Manufacturing executives, whether they be company managers who
Bore Size A .4 min. .33 hr. $3.30 Touch Probe
In the first comparison, inspection time by the precision hand tool must make a decision based on the recommendation of the capital
Bore Size B .4 min. .33 hr. $3.30 Touch Probe
method was 1.67 hours per part. Inspection of two parts required for budget committee, or owner-operators whose "buy decisions" are
Bore Size C .4 min. .33 hr. $3.30 Touch Probe tape verification will, therefore, take 3.34 hours at an inspection cost of frequently seat-of-the-pants judgments, should be aware that there are
Concentricity B to A incl. - - Touch Probe $33.40. The cost of holding the CNC machine out of production during several methods for evaluating an investment. These methods enable
Concentricity C to A incl. - - Touch Probe initial inspection is $116.90. management to size up an investment opportunity and compare the
returns of several, often unrelated, investment opportunities. One or
Bolt Hole Diameter 1 min. .83 hr. $8.30 Touch Probe In-process inspection costs for an additional 13 parts per lot add
more of the methods described below can be used to evaluate the
Bolt Hole Location Included above Included above another $217.10 ($16.67 times 13 parts), bringing total inspection costs
purchase of a CMM.
to $367.40 per lot using the precision hand tool method. Multiplying
Angle Between N & M .8 min. .67 hr. $6.70 Touch Probe
this by the 150 lots produced annually yields a total annual cost to the
Depth of Shoulder A .25 min. .21 hr. $2.10 Touch Probe company in inspection and machine downtime of $55,110.
T H E PAY B A C K M E T H O D
Depth of Shoulder C .25 min. .25 hr. $2.50 Touch Probe One of the simplest and most frequently used methods of justifying an
For the CMM, however, inspection time per part is only 0.08 hours.
Set-Up (Alignment) 1.5 min. 1.25 hrs. $2.50 Touch Probe investment is the Payback Method. This involves computing the length
Therefore, initial verification of the two parts on the CMM takes only of time required for the investment to return its purchase price through
Sub Total 5.0 min. 4.42 hrs. $44.20
0.17 hours at an inspection cost of $1.76 for both parts. cost savings or increased profits. Total cost of the unit is divided by
Recording Data incl. incl. Incl.
annual savings or profits to calculate the payback period. The shorter
Total 5.0 min/part 4.42 hrs. $44.20 or $.88/part the payback period, the more attractive the investment.

8 5
For example: $15,000 = 60% TABLE 1. COMPARISON OF TYPICAL MEASUREMENT TIMES (MINUTES)
After a careful analysis of its inspection procedures, a metalworking $25,000
CONVENTIONAL VERSUS CMM METHODOLOGY.
firm has determined that it can save $15,000 annually through reduced A version of this method called the Return on Average Investment
inspection costs by purchasing a CMM. If the initial cost of the CMM is method divides an average annual savings or profits by average book
$25,000, payback for the machine is value to compute a rate of return which takes depreciation into Manual CMM DCC CMM DCC CMM DCC CMM
$25,000 = 1.66 years consideration. Surface Plate Gage 2000 Global Global Horizontal
$15,000 Operation Method Computer Assist Status Image Arm
In this method, depreciated values of the machine for each year of the
Since the time required to recover the initial investment is the sole Sizing
depreciation period are summed, then averaged. Average annual
criterion, the CMM would be a more desirable investment than a Hole (3 pts) 3 0.17 0.05 0.04 0.2
savings or profits are then divided by this amount to calculate the rate
$100,000 CNC production machine, which results in increased profits
of return. Boss 2 0.2 0.05 0.04 0.2
and depreciation expense. A CMM usually has a payback period of
less than 2 years. Thus, for a CMM costing $25,000, average investment cost equals Length 2 0.2 0.05 0.04 0.2
$12,500 ($25,000.00 + $12,500.00 + $0 = $37,500.00 divided by 3).
Frequently, only gross profits or savings are used to calculate payback; Thickness 2 0.25 0.05 0.04 0.2
such factors as depreciation on the machine and the amounts and And rate of return is therefore:
timing of the returns on the investment are ignored. However, payback Bolt Hole Diameter (8 holes) 12 1.5 0.5 0.4 1
$15,000 = 120%
calculations can be refined to include these factors. $12,500 Center Distance 4 0.34 0.1 0.08 0.4
Assuming a straight-line depreciation for the CMM of $12,500 annually
While the Payback and Rate of Return methods are easy to apply, each
for two years, payback then becomes:
has disadvantages when trying to assess the full impact of an Relationships
Initial Investment
investment in a CMM. The Payback method, for example, fails to take Angle Between Faces 15 0.33 0.13 0.1 0.3
Payback = Annual Savings + Depreciation
into account return accruing beyond the payback period; two
= $25,000 = 0.9 years investments with identical payback periods would appear to be equally Angle Between Bores 15 0.33 0.13 0.1 0.3
$15,000 + $12,500
attractive when gauged by this criterion, however, the first may return Roundness 15 0.33 0.13 0.1 0.3
Average interest on the un-depreciated value of the machine over the nothing beyond the computed payback period, while the second may
depreciation period for the machine can also be added to the continue to provide substantial annual returns. Similarly, rate of return is Perpendicularity 15 0.33 0.13 0.1 0.3
calculations: calculated on book profits rather than annual cash flows.
Flatness 2 0.66 0.33 0.025 0.66
Years Depreciation 10% Interest
1 $25,000.00 $2,500.00 P R E S E N T VA L U E M E T H O D Concentricity 15 0.34 0.1 0.08 0.34
2 $12,500.00 $1,250.00
Using the Present Value method, all cash flows are discounted to True Position 15 0.17 0.05 0.04 0.2
Average annual interest = $3,750.00 present value using a minimum acceptable rate of return. If the present Profile (112 pts) 30 62 2 0.5 (w/SP600 1 (w/SP600
2 Years = $1,875.00 value of future inflows equals or exceeds the initial investment, the Scanning Probe) Scanning Probe)
investment is acceptable; if not, the proposed investment is rejected.
Therefore: Payback =
For example, if the minimum acceptable internal rate of return on Set-up (Alignment) 2.5 1.5 0.3 0.24 1.5
Initial Investment ÷ (Annual Savings + Depreciation + Average Interest)
investment for a company is 25%, is an investment of $75,000 in a
= $25,000 = 0.85 years CMM which is projected to provide cash flows of $28,500 annually for
$15,000 + $12,500+ $1,875 the next five years justified? Using the formula for determining internal
rate of return:
RETURN ON INVESTMENT
$75,000 = $28,500 + $28,500 + $28,500 + $28,500 + $28,500
Another popular method for evaluating the attractiveness of an (1 + 0.25) (1 + 0.25)2 (1 + 0.25)3 (1 + 0.25)4 (1 + 0.25)5
investment is the Return on Investment method in which the average
= $22,800 + $18,240 + $14,592 + $11,674 + $ 9,339 = $76,645
annual savings or profits are divided by total initial investment to arrive
at a percentage or rate of return. Since at the company established minimum rate of return the present
value of after-tax cash inflows over the depreciated life of the machine
This rate of return can be compared with those of alternative
exceeds the initial outlay for the machine, the purchase of the CMM
investment opportunities to determine its relative worth. Thus, the rate
fully meets the firm's investment return requirements.
of return for the CMM described in the above example would be:
6 7