Starting the Automation Journey Part 2: Calculating Process Automation ROI
In part 1 of this series, we showed you how to identify which of your business processes are most suitable for automation. If you haven’t already followed these steps, head over to part 1 to generate a list of potential candidates.
Automating every process on your list is likely unfeasible, so we’re sharing the methods we use to narrow down your options and reveal the one that will deliver the greatest ROI. This is a crucial step in your decision making process, because selecting the right candidate for automation has seen some businesses achieve ROI percentages that reach triple digits. This is especially true for those that employ Intelligent Process Automation, where the chain of automation can be significantly extended.
Using only basic project information and a little help from an automation partner, you can calculate this ROI yourself with reliable accuracy and inform your decision on which process to pursue on your automation journey.
Calculating an approximate ROI
We have briefly touched on how to analyze the value and benefits your automation project can return in our previous blog post, but here we’ll dive into the actual calculations used to reveal an approximate ROI.
For each stage of the calculations, we’ve included example figures that are fairly typical of an automation project. Simply substitute your own numbers into these calculations to reveal the potential ROI for each process identified in part one.
1) Take the number of Full Time Equivalent (FTE) hours taken annually to complete the existing process. This gives you an annual metric to start with.
Annual hours currently spent
For Example = 50 FTE (104,000 hours)
2) Using this FTE, work out how many hours the business spends on the existing process on a monthly basis.
Monthly hours currently spent
50 FTE (104,000) ÷ 12 = 4.2 FTE (8,667 hours)
3) Using the average hourly rate of the teams working on the process and the hours calculated in Steps 1 and 2, calculate how much money the existing process costs on a monthly and yearly basis.
Example hourly rate = €30
Current annual cost
€30 x 50 FTE (104,000 hours) = €3,120,000
Current monthly cost
€30 x 4.1 FTE (8,528 hours) = €260,010
4) With the annual and monthly costs calculated, work with an automation partner to estimate what percentage of the existing process could be automated using the latest technologies and techniques, the cost of implementation and the cost of maintenance:
Percentage of process automation
For example = 20%
Cost of implementation
For example = €150,000
Cost of maintenance
For example = €30,000 per annum (€2,500 per month)
5) Apply this percentage of process automation to the figures calculated in Steps 1-3 to reveal how much time and money this would save the business on an annual and monthly basis:
20% of 50 FTE (104,000 hours) and €3,120,000 = 20,800 hours and €624,000
20% of 4.1 FTE (8,528 hours) and €255,840 = 1,706 hours and €52,002
6) Now use these savings and the total investment cost (implementation and maintenance) to calculate how many months it would take to recoup the investment:
Cost of investment (€180,000) ÷ monthly savings of €52,002 = 3.5 months
7) Use this recuperation time to calculate savings/profit for the first year of automating the process:
12 months – recuperation time of 3.5 months = 8.5 months
Year one savings/profit
Monthly savings of €52,002 x 8.5 = €442,017
8) With these savings accounting for year one profit, you can this figure to calculate the ROI percentage using the cost of investment:
Year one ROI
Year one savings (€442,017 ) – Cost of investment (€180,000) ÷ Cost of investment (€180,000) = 1.46 or 146%
As you can see in the example above, you can calculate an estimated ROI of an automation project using only basic information. This gives you a good start for selecting which of the processes identified in part one has the potential to deliver the best return. Working closely with a specialist automation partner to discover how much of a process could be automated, as well as the cost of implementation, can help you take the accuracy of these calculations to the next level.
Are you ready to get started on your automation journey? Our Intelligent Process Automation ebook outlines the key benefits of intelligent automation and how to get started.
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