The ROI of Automation: Calculating the Value of Increased Productivity
In today’s fast-paced business landscape, keeping up is no longer an option - we must also excel to achieve our goals. It seems like the more software and technology we’ve adopted to grow our businesses and support key roles, the more we expect of ourselves and others.
One of the keys to finding balance and solving the challenges we face is not just which software platforms we use, but how we are using them. We already know automations can boost productivity and remove a majority of human error, but proving their Return on Investment is not always as easy to calculate, often making their implementation a secondary priority.
The Nuts and Bolts
Before diving into the specifics of calculating ROI, let's establish a clear understanding of automation's impact on productivity.
Automation involves the use of technology to perform tasks without human intervention. When implemented effectively, it can streamline workflows, eliminate repetitive tasks, reduce errors, and free up valuable human resources for more strategic and creative endeavors.
Setting KPIs Around Automations
To accurately measure your ROI, you must first make sure you are tracking your results based on Key Performance Indicators (KPIs) that apply to your strategic business goals.
While working with an automations consultant is still the most effective way of identifying the specific needs of your business, the following are the most common across all industries:
- Time Savings: Automation accelerates processes, reducing the time required to complete tasks. For instance, automating data entry or report generation can save hours of manual labor.
- Cost: Automation helps in cost reduction by streamlining processes and minimizing manual intervention, ultimately leading to financial savings.
- Error Reduction: Human errors are inevitable, but automation minimizes them. Fewer errors mean less time spent on fixing mistakes and more time on value-adding activities.
- Employee Happiness: By automating routine tasks, skilled employees can focus on higher-value work that requires critical thinking and creativity, contributing to increased overall productivity and happiness.
Calculating ROI
Once you’ve identified the KPIs for automations as they regard your business, you’ll need to compare the investment you have made to the actual benefits obtained.
The recommended length for this process depends largely on how long your current workflows take to complete, however, you can count on needing at least 3 months to a year to be able to gather significant data to do your ROI calculation.
The standard formula for ROI is ROI = Net Gain from Investment / Cost of Investment x 100. Although net gain may be evident in many cases, it’s not always a simple calculation when you’re determining, say, Employee Happiness or Time Savings, but there are certainly ways to calculate even the most qualifiable KPIs.
To illustrate the concept, let's examine a hypothetical scenario:
Scenario: Implementing Automation in Invoice Processing
Net Gain from Investment:
Time saved per invoice processing: 30 minutes
Number of invoices processed monthly: 500
Hourly labor cost: $20
Net Gain = (30 minutes × 500 invoices) × ($20/ 60 minutes) = $150,000
Cost of Investment:
Automation consulting cost: $6,000
ROI= (Cost of Investment/ Net Gain) × 100 = 2400.00%
In this case, the Net Gain of Investment far outweighed the Cost of Investment, resulting in a high ROI and a likelier probability that the company could achieve their projected KPIs.
TLDR: Investing in automations may not feel like a priority initially, especially when you have spent so much on the software you thought would solve your problems in the first place. However, and fortunately, automations are a simple way to optimize and enhance your existing software, generating even more ROI when you calculate and contrast your Net Gain compared to your Cost of Investment.
No two companies are alike and these calculations will vary depending on your specific needs. Working with a specialized automations consultant is the best way to identify the options for your unique needs. In just a few weeks, the MapMatix team will help you align your software and automations with your strategic business goals and find new opportunities to improve your business processes.
Grow, scale, and start looking forward to a happier team. Book an Automations Roadmap Consultation to find out more.
You may also like...
