How to Calculate ROI in RPA Projects: Economics of Business Automation

How to Calculate ROI in RPA Projects: Economics of Business Automation

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Our world speaks numbers. In the times of growing digital competition for operational excellence, this statement becomes even more relevant.

The calculation of return on investment is the ultimate measure of success, especially when it comes to automation initiatives that directly impact various areas of business continuity – from reduced cash cycle to customer satisfaction level.

It is a prevailing view that calculating ROI in RPA projects is a complicated idea. However, nothing worthwhile comes easily, and if you strive to make informed strategic decisions based on figures, you need to be able to calculate ROI in your automation projects.

In this article, we will help you unravel the issues surrounding the topic guiding you on where to start the automation and what outcomes to expect from it, reavealing the factors forming ROI in RPA projects and provide you with the real use case of ROI calculation in an RPA project.


Measuring ROI in RPA: Where to start? 

‘You cannot measure ROI in RPA’: debunking the myth

1st step to ROI Calculation: Value of Time Gains

Calculation of VTG as part of ROI: Use case

Calculation of ROI: What should be considered

ROI in RPA: How ElectroNeek can help


Measuring ROI in RPA: Where to start? 

Bots’ superpower cannot be neglected. However, to estimate RPA productivity, you need to have a clear vision of where to start.

It means that your enterprise needs a robust automation plan that fits into your overall business strategy.

Learn More on Where to Start

Hence before implementing it, you need to rethink your strategy with regards to the goals that you strive to achieve using RPA. 

For instance, your business goal is an enhanced customer experience. Then your automation strategy should be focused on the areas/tasks that serve that goal. To achieve it, you also need to define R&Rs in the implementation process and set up the tangible KPIs.

Of the steps mentioned above, one of the most essential is defining the proper automation tasks. 

There is no secret – not all tasks can be automated since Robotic Process Automation is the technology that imitates human activities and handles repetitive and mundane tasks.

Before taking a deep dive into the ROI calculation, let us understand which processes can actually be automated.

Here is a checklist of requirements that need to be met in case RPA solutions are being considered. In fact, they will also help obtain a clear understanding of whether the investments in your particular case are worthwhile.

1. The tasks are rule-based

Are the processes you are going to automate clearly defined and rule-based?

In case there is much human decision making and exceptions in them, they would not be easily automated, or you should consider re-modelling them. 

2. The tasks are time-consuming and labor-intensive

Consider calculating the amount of time your team members spend on labor-intensive, repetitive tasks. In case the tasks take more than 1 hour then they should be automated. In case they are less, they still can be automated; however, the ROI would not be so tangible.

3. The data is readable 

Though RPA is a non-invasive technology that runs on almost all applications, databases, and even handwritten texts, the processed data should be recognizable and digitized. For instance, the images which have not been recognized via an OCR tool cannot be automated.

4. The data is structurally organized

The data can be automated in case it has a structure, i.e., there are clearly defined categories or types of data that can be searched. For instance, some data (text, terms, figures) that a bot finds in the given fields during data processing can call on some actions in the system. In case the data is unstructured (e.g., it is audio or video files), such processing cannot be executed.

Exception: some platforms, such as ElectroNeek, are capable of executing automation even to unstructured data. It relates to standardized documents with variable layouts (for instance, invoices).

Confident that you have processes to be automated? Learn how much your business can make and save with Robotic Process Automation(RPA)

‘You cannot measure ROI in RPA’: debunking the myth

You have probably heard this statement whenever you have considered Robotic Process Automation in your company.

Well, there is really no ROI in RPA, in case you did not implement it. 

But if you have, there are a vast number of metrics that can be measured within ROI calculation.

Starting small: Quantitative outcomes of RPA

According to PWC report on Digitisation, Robotic Process Automation can be named “The Fourth Industrial Revolution”. Obviously, it is since the outcomes of the automation are so meaningful that in some cases, it could revolutionize the whole company operating system.

Based on the data of multiple surveys and reports (including Everest Group Report, PWC, London School of Economics), there are at least 5 quantitative outcomes of automation to the enterprise.

  • Cost-saving

Statistically, an RPA tool works at ⅓ of the cost of the companies’ offshore resources and 1/10 of its onshore resources

  • Time

Using bots can significantly reduce the processing time. In some cases – from weeks to seconds

  • Accuracy

Robotic Process Automation can reduce the operational error rate to literally 0

  • Longevity and flexibility

The bots are adjustable and can run efficiently any time and on any schedule, even 24/7 

  • Speed of Implementation

The average time of automating a process using RPA is from several days to a couple of weeks

Finally, according to the surveys mentioned above, an average return on investments for companies that decided on Robotic Process Automation is 300%. 

The quote by Leslie Willcocks, a professor of technology, work, and globalization at the London School of Economics’ department of management, could bolster the stated above:

“The major benefit we found in the 16 case studies we undertook is a return on investment that varies between 30 and as much as 200 percent in the first year. But it’s wrong to look just at the short-term financial gains—particularly if those are simply a result of labor savings. That approach does not do justice to the power of the software because there are multiple business benefits”.

More on: Success Stories of Implementing RPA

Taking a deeper dive: Qualitative metrics matter

Besides the quantitative outcomes, such as reduced cycle time or costs, several ‘soft’ benefits should be considered as well:

  • Service quality and customer satisfaction

It may seem difficult to measure this metric, but it is not. One of the ways is to make a customer survey before and after automation and compare the dynamics in customer satisfaction rates

  • Reduction of human errors

To measure this metric, you should have statistics on the number of errors within a specific period before automation and after it. The number of errors and the costs for their fixing before and after automation would form a difference.

  • Employee morale 

This one can be measured the same way as the customer satisfaction metric. Ask your employees to fill in the survey on the satisfaction of their workload and functions before and after implementing RPA. 

  • Business Agility

RPA can become the first step in adding flexibility to your digital transformation initiatives, as it frees up the human workforce and opens the road for further digital integrations. To measure it you can assign values to each new strategic initiative that appeared after initial successful automation.

  • Elimination of downtime risks

Continuity is one of the most vital aspects of success in any business. RPA allows companies to work with no downtime eliminating human dependency. This metric can be measured by comparing the value of previous or potential business impacts of downtime without RPA with the value of eliminating this risk with RPA.

1st step to ROI Calculation: Value of Time Gains

Now when you have a better understanding of the variety of outcomes that automation can bring to your company, it is time to get down to the main topic or, at least, get closer to it.

One of the common mistakes in calculating ROI in RPA projects is applying the formula where ROI is calculated as a difference between the costs of processes executed with employees and the costs of processes executed by bots. 

We will tell you a secret: it is not ROI.

What is it then? It would be correct to name the difference Value of Time Gains (VTG), since, apart from the costs related to the value of time saved by automation, return on investment in RPA projects consists of some other significant components, which we would reveal in greater detail further in this article.

Nonetheless, the calculation of Value of Time Gains would be the 1st essential step in understanding a full picture of ROI. 

Therefore, below you could see the formula of VTG in RPA projects.

VTG = (EC – AC)/AC x 100%

where EC = Costs of processes executed by employees

AC = Costs of processes executed by bots.

And before going deeper into VTG calculation let us define what EC and AC actually consist of.

EC = Costs of processes executed by employees (Employees Costs)

For some of us, employee-related costs are only payroll-based. But in reality, it includes a bunch of direct and indirect expenses.

Namely, the actual expenses for an average staff member are:

Direct expenses:

  • Payroll
  • Tax on salary, social security, etc.,
  • Paid sick leaves
  • Paid annual leaves

Indirect expenses:

  • Office rent
  • Utility bills
  • Workspace (IT infrastructure, phone, furniture, etc.)

Miscellaneous expenses:

  • Social bonuses and corporate events
  • Training, team buildings

How do we calculate EC?

Apart from labor costs listed above, we need to know the FTE rate, i,e. the coefficient of a daily employee workload. For instance, one employee can only partially be involved in repetitive tasks, spending on it only 30% of his/her work hours. In this case, his involvement would be 0,3 FTE.

Hence the formula for EC calculation would be:

Employee related costs (direct + indirect expenses) x FTE coefficient.

AC = Costs of processes executed by bots (Automation Costs)

Automation related costs (RPA costs) are not straightforward as well, and, what’s more, there are also direct and indirect expenses:

Direct expenses:

  • Software costs

It includes licenses fees which is a minor component of automation costs.

  • Service costs

It includes all the stages of implementation, from workflow analysis to testing and actual deployment. It can be assigned to a vendor or can be done in-house (paid once upon implementation).

  • Maintenance costs

Bots should be flexible to various business scenarios and changes. It requires RPA developers’ involvement, who would work on timely adjustments. 

Indirect expenses:

  • Virtual workspace

Ideally, it implies a VM with Operational System and specific applications installed.

  • VM electricity and IT-related maintenance costs

Similarly to EC, AC calculation formula is as follows:

RPA related costs (direct + indirect expenses) x FTE coefficient

Calculation of VTG as part of ROI: Use case

Now let us jump right into the practical aspect of the subject. Below you could see a real use case of calculating VTG in an automation project from the banking industry.

Challenge:
A medium bank specialist spends, on average, 15 minutes on a loan application processing, i.e., on processing applicants documents and data collection from scoring systems. Daily he repeats this task about 20 times, spending on average 5 hours (0,6 FTE).

Automation process:

An RPA vendor has created a bot that performs a loan application processing in 3 minutes, i.e., 5 times faster than an employee (0,12 FTE).

Below you could see the VTG calculation for the 1st and 2nd year of process automation.

Notes:

Employee related costs per year = an average yearly banking specialist payroll + tax and social security payments + miscellaneous labor expenses.

Automation related costs are based on average software, service, maintenance costs on the market for 1 user package. Service costs are paid once upon implementation; therefore, it equals 0 for the 2nd year.

VTG = (EC – AC)/AC) x 100%

i.e.:

For the 1st year:

VTG = (70 000 x 0,6 – 35 000 x 0,12) X 100% = 900%

For the 2nd year

VTG = (70 000 x 0,6 – 25 000 x 0,12) X 100% = 2233%

Calculation of ROI: What should be considered

As we mentioned earlier return on investment in RPA projects consists of a number of significant components, apart from value of time back to business.

Among such components are as follows:

Value of process acceleration

For instance, automated customer onboarding may reduce customer onboarding from 7 to 2 days. Dependant on the size of the business it may bring hundreds of thousands dollars of profit.

Value of minimized number of errors

For some businesses, an error may be a synonym to a disaster. Automation may reduce these errors and save several millions of dollars to companies with higher error risk levels.

It is evident: when it comes to RPA efficiency, you cannot rely only on a straight count of costs. There are a vast number of factors that cannot be ignored in order to evaluate a real ROI figures.

Therefore, considering the 2 factors above the correct formula for ROI calculation in RPA projects would look as follows:

ROI = [(VTG*AC + Benefits from process acceleration + Benefits from fewer errors) – AC]/AC x 100%

ROI in RPA: How ElectroNeek can help

We have walked you through the most hot-debated issues related to calculating ROI in RPA projects.

How to gain confidence in your automation future? 

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