Achieving ROI on Automation. 5 Components.
Automation projects continue to be in fashion. There are different flavours now. Not just Robotic Process Automation (RPA). BusinessPA, RoboticPA, IntelligentPA, CognitivePA among others. Everyone is talking about it, many say they have bought the t-shirt, and every IT services provider is offering it for the Fear of Missing Out.
Many organizations are wary of taking a bold step ahead because they do not know when will their investment break-even or how they should determine ROI on an automation implementation. This not very visible ROI, in many organizations, prevents them from getting executive leadership approval.
Keeping cognitive computing, or true AI aside for a minute, here are the five major components of ROI for an organization. All of these you should easily be able to quantify before and after, and the gains in the after situation.
Financial Analysis
You know the basic ROI calculation is:
ROI = (Gain from Investment – Cost of Investment) / Cost of Investment
The CFO won’t approve the investment until this base number looks right, and which is why I put it first in the list. If you happen to create an asset (as you do the automation) and have an Automation Center of Excellence, you could choose to determine the Capitalization of the earnings that the CoE generates or influences.
In essence, the following four components will roll up to the regular ROI computation.
Business Process Proficiency
It helps to automate a line, or work that many of the employees do and repeat in a standard industrialized fashion. You need to look for improvement in the product which comes out at the other end. Will there be less number of errors, and will lesser amount of time / resources be spent for re-work?
Cycle Time
Will the process, say processing of purchase orders, run faster after automation? Will the bottleneck get removed and will the flow rate improve? If yes, then you need to calculate out the benefit of running a faster process with less errors (and thus less rework), and more rapid production. Cycle time should impact customer sentiment positively too.
Labour Reduction
If the process speed improves, ideally the number of people required to run the process for the same number of units produced, should be less. The organization can choose to either drop the number of people on the line, or just use the raised production capacity. The latter becomes a revenue pusher. The former, you will notice, might not work out too well because of the low labour cost in India, and the absurd licensing mechanisms used by the automation product companies.
Customer Delight
Finally, if automation is done right, with quicker cycle time and lesser number of errors, the resulting improvement in customer satisfaction should enable gaining ground in terms of the customer’s share of wallet.
The idea, essentially, is to run the process faster, cheaper and better.
If you have already started your automation journey, what is your ROI looking like? Or are you working on specific point solutions instead of a larger plan? We would love to hear from you. Visit the 3nayan web site or write in.
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