Great Ideas + Business Sense = Successful STEM career

A very important quality needed to succeed in a Stem Career is business sense. You might have an elegant solution to a problem, but it might actually have hidden costs that you failed to consider.

Here is an example from the world of Computer Hardware. You have designed a power supply for a computer that provides 98% efficiency (the ratio of output power to input power). However, it costs twice the BOM (Bill of material) cost as an off-the-shelf power supply which is 95% efficient. How do you decide which power supply you should use in your product. The answer needs something called TCO analysis (TCO stands for total cost of ownership). In simple terms, you are considering how much you will end up paying for the product over its life.

Example Analysis - what you know:

  • Power needed by computer : 500W
  • Lifetime of computer : 3 yrs
  • Cost of power : $3 for 1W over a year
  • Cost of 98% efficient supply = $50
  • Cost of 95% efficient supply = $25

Total cost of your decision will compare the difference in parts cost, to the cost of power over the life of the computer:

Input power consumed by 98% efficient supply = 500/0.98 = 510 W

Input power consumed by 95% efficient supply = 500/0.95 = 526 W

Cost of extra power with the lower efficiency supply = 16W * $3/yr * 3yrs = $144

Cost difference between the power supplies = $25

High efficiency supply wins by = $144 - $25 = $121

It is pretty clear that even though your highly efficient supply is twice as expensive, it will actually save you a lot of money over the life of the product. Obviously, if the efficiency difference was smaller, or power was free, you would arrive at a different answer. Since your would-be company makes millions of computers, you just saved them hundreds of millions of dollars by applying some simple Algebra. You can also write a script or just use an excel spreadsheet to compute results for a variety of parameters that can affect the total cost of your product.

Here are some examples parameters for a more sophisticated analysis to compute the real TCO. Can you think of more?

  • If it cost $100K to develop the new design into a working prototype, would it still be worth it?
  • What if it took 1 year to develop this supply and competitors got the product into the market much sooner.
  • What if your design was less reliable than the off-the-shelf supply and could lead to a higher failure rate (and field returns)

Want to learn more? Read this excellent paper to get insights on how Google uses total cost of ownership to build their data centers.