by Andrew Milivojevich
Improvements in production equipment can fall under SR&ED claims
Many SR&ED (Scientific Research and Experimental Development) claims fall under experimental development. Discussions with Revenue Canada SR&ED officers suggest while the majority of SR&ED claims fall under experimental development they are often within the new “product” category. Technological progress in current production equipment is often overlooked. Significant advancements can be realized through systematic investigations that remove technical obstacles that affect productivity, eliminating the need for new equipment.
Investment in new production equipment is not without risk. A systematic protocol advocates knowledge creation through experiment and analysis with a goal to address technical obstacles that inhibit productivity. It should address three key questions:
1. How do we articulate operational problems in quantitative technical terms?
Describing operational problems in technical terms brings structure and objectivity to the problem. It defines, in quantitative terms, the technological base level and identifies the technical objective as a quantitative target. The technological base level is a statement in quantitative terms versus the current capability or performance of the system under investigation. It quantifies the central tendency and describes the uncertainty associated with such a system. It defines the limits of randomness and the degree of improvement required to statistically justify any improvement beyond random chance. The technical objective is a requirement or specification that describes a desired level of performance.
2.How to distinguish between routine and experimental development projects
Routine development assumes a direct line of sight solution to the technical objective. A direct line of sight solution relies on prior knowledge that suggests a path free of technical obstacles. In such a case, routine engineering is all that is needed to meet the technical objective hence the project is commensurate with routine development. In such a case, there is no SRED.
In other cases, there may be consensus that the technical objective can be achieved, however the path to achieve it may be numerous. As such, prior knowledge does not exist that would suggest a particular path to achieve the technical objective. This being the case, it is uncertain as to which path will meet the technical objective. In such circumstances, a systematic investigation is required to evaluate multiple scenarios, which is consistent with the definition SRED.
3.How do we conduct a systematic investigation?
When an investigation is systematic it implies there is a structured plan of study designed to address hypotheses that will prove or disprove cause and effect relationships. Often, engineers and scientists use as their basic approach to research, deterministic models to explain real phenomena. When an engineer or scientist conducts research and the observed data does not comply with a deterministic model how does the researcher explain or predict the physical system? Generally, we learn through a series of activities in which we make conjectures about the physical system under investigation, perform experiments to generate data and conduct analysis. This information is then used to establish new conjectures that lead to new experiments, and so on. When the data are subject to experimental error, use of statistical methods is the only objective approach to planning experiments and conducting analysis.
Here’s an example of how one company benefited. It put aside $750,000 to purchase equipment to improve productivity because its existing operation couldn’t meet the requirements of a contractual job. Yet the purchase would consume more resources, increasing manufacturing costs and result in a great loss since available capacity would be consumed to meeting existing demand.
Through effective technical mentorship, the company defined the problem in technical terms and realized it was commensurate with experimental development. A systematic investigation evaluated 16 potential routes to the technical objective. By the time the investigation came to its natural conclusion, the technical system under investigation realized a net increase of 522 per cent from current production levels along with an increase of 75 per cent above customer requirement. The excess capacity was later sold and the organization, through its experimental development activities, realized a healthy profit and SRED tax credit. SMT
Andrew Milivojevich is a contributing author to www.sred-iq.net. Membership to this R&D community is free.