Estimating return on investment (ROI) for robotic process automation has always been a struggle, as the costs and gains are not straightforward, and you have to account for things that don’t even seem countable. But when there’s a will, there’s a way. Let’s calculate ROI step by step together and look at some real-life examples.
We’ll start with automation planning and then move on to Value of Time Gains and ROI calculation. If you’ve already implemented RPA and just need the right formula, head straight to step 4.
Step 1: Define your automation goals
Before implementing robotic process automation (RPA), you need to formulate a clear vision of where you want to get when you’re done. Answer these questions:
1) Which business goals are you after?
2) Are they in line with your overall strategy?
3) Which processes do you need to automate?
4) What outcomes are you expecting?
Clear answers will help you choose an RPA tool, outline the scope, get buy-in from the stakeholders and lay the fundamentals of your automation plan. Otherwise, if you implement RPA just for the sake of implementing RPA, there is no need to calculate ROI for RPA.
Step 2: Outline the scope of automation tasks
Let’s imagine that you’ve decided to improve customer experience by boosting your team’s efficiency. RPA, as a tool, is worth considering, as it can free up your employees from monkey jobs and let them spend more time with customers. There are two approaches you can take:
- You can pilot RPA for a particular process (e.g., manual customer data entry) and calculate its ROI based on the employee hours saved. In this case, you’ll be able to estimate the RPA return on investment almost right away.
- You can pilot RPA for a set of processes related to a certain business function (e.g., booking and transaction management). In this case, you will need to calculate the RPA ROI over the long run.
Most likely, the first approach will sooner or later transform into the second one, as the number of stand-alone business cases is limited, and to keep optimizing you’ll need to merge them into one system with some higher-level KPIs.
After choosing your approach, you’ll need to pick the processes to automate. Note that not all tasks can be automated with RPA. Here are the requirements:
1. The tasks are rule-based
The business processes you are going to automate should be clearly defined and based on rules. If there’s a lot of human decision-making and exceptions to the rules, implementing RPA is not feasible.
2. The tasks are mundane and time-consuming
The more time a task takes, the higher the ROI you’ll get from RPA. In our experience, if it’s more than one hour of intense manual work per day, then an RPA solution is worth considering. If a task takes less time, you can still delegate it to bots, but the ROI for that RPA project will not be as impressive.
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. The good news is, most modern RPA platforms such as ElectroNeek can recognize images and scanned documents via optical character recognition technology (OCR) and AI elements.
4. The data is standardized and structured
The data processing can be automated if it has a structure and there are clearly defined categories or types that can be searched. For example, text and numbers that an RPA bot finds in particular fields can trigger specific actions: for example, payment due date exceeded → send an alert. If the data in the given field is in the wrong format, for example, audio or video, such processing cannot be executed.
Step 3: Set up success metrics and KPIs
Now that you’ve outlined the scope of your automation project, you need to determine the desired outcomes and make them tangible by choosing metrics and setting KPIs. Based on data from multiple surveys and reports (including Everest Group Report, PWC, and the London School of Economics), there are at least four quantitative outcomes of RPA implementation:
|Labor cost savings||Time savings||Reduction in human errors and related costs||Speed of RPA implementation|
|Statistically, an RPA solution works at ⅓ of the cost of the companies’ offshore resources and 1/10 of its onshore resources.||Using RPA bots can significantly reduce processing times, in some cases from weeks to seconds.||Implementing RPA can help weed out operational errors and reduce costs related to fixing them.||The average time it takes to automate a process using RPA is from several days to a couple of weeks.|
What should you aspire to in terms of calculating ROI for RPA? According to the surveys mentioned above, the ROI for RPA can be as much as 300%, but it depends on what approach you take in the very beginning: optimizing stand-alone business processes or rolling out a massive automation program. Here’s what Leslie Willcocks, a professor of technology, work, and globalization at the London School of Economics has to say about this:
“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 at: Success Stories of Implementing RPA
Besides the quantitative outcomes, several “soft” RPA benefits should be considered as well.
1. Customer experience
Reduced cycle time and improved SLA can influence internal/external customer satisfaction. One of the ways to measure the impact is to run a customer survey (e.g., NPS) before and after automation.
2. Employee morale
Manual task automation means less turnover due to burnout and more “quality time” for your employees that can contribute to the tasks that drive value. The impact can be measured by running employee satisfaction surveys (e.g., eNPS). You can also count the number of new strategic initiatives that appear after the RPA implementation.
3. Business agility
The RPA bots are adjustable and can run efficiently any time and on any schedule, even 24/7. This means more timely and efficient customer service and fewer missed revenue opportunities. To measure impact, you can count the number of sales leads generated and processed before and after the automation.
4. Elimination of downtime
Business continuity is vital. RPA allows companies to work with no downtime, eliminating human dependency. This metric can be measured by evaluating potential downtime impact, for example on traffic or sales, that can be avoided with RPA.
Step 4: Estimate the Value of Time Gains
One of the common mistakes in calculating ROI for RPA projects is applying the formula where ROI is expressed as the difference between the cost of processes executed by employees and the costs of processes executed by bots. We’ll tell you a secret: that’s not ROI.
The matter is that, apart from direct time and labor cost savings, return on investment in RPA projects consists of some other significant components. That’s why it’s better to name this difference the Value of Time Gains (VTG).
Calculating VTG is the first essential step towards evaluating ROI. Here is the formula:
VTG = (EC – AC)/AC x 100%
EC = Costs of the processes executed by employees.
AC = Costs of the processes executed by bots.
EC, or Employee Costs: Costs of processes executed by employees
Payroll is the first thing that comes to mind when we think about employee-related costs. In reality, they include a bunch of direct and indirect expenses.
|Direct expenses||Indirect expenses||Miscellaneous expenses|
Paid sick leaves
Paid annual leaves
Workspace (IT infrastructure, phones, furniture, cookies, etc.)
|Employee perks, including health insurance|
Training and corporate events
Estimating all these expenses is what actually makes calculating ROI for RPA so difficult. That’s why the best practice is not to expect a precise figure, but to understand the possible range. By the way, such an estimation might have already been done by your HR or finance department.
If your employees spend all their time performing the task you want to automate, then that will represent the entire EC. However, in most cases, an employee performs the task you want to automate only part of the time. For instance, an accountant may spend 30% of their daily work hours on processing invoices, which is 0.3 FTE (full time equivalent). That’s why we’ll need the FTE rate as a coefficient to calculate EC accurately:
EC = (Direct + Indirect + Misc Expenses) x FTE Coefficient
AC, or Automation Costs: Costs of processes executed by bots
Automation related costs (RPA costs) are not straightforward either, and there are also direct and indirect expenses:
|Direct RPA expenses||Indirect RPA expenses|
Include license fees, which are a minor component of RPA automation costs.
Include vendor or in-house implementation costs at all stages, from workflow analysis to testing and deployment.
Include development costs on adjustments, updates, and fine-tuning business processes.
The cost of a virtual machine (VM) with an operating system and specific applications installed.
|VM electricity and IT-related maintenance costs|
The energy bill for running the VM, plus the cost of maintaining the IT infrastructure.
Similar to EC, the formula for calculating AC is as follows:
AC = (Direct + Indirect Expenses) x FTE Coefficient
Calculating VTG as a part of the ROI: Use case
Below, you can see a real-life use case of calculating VTG for an RPA project in the banking industry.
A bank clerk used to spend 15 minutes on processing loan applications: reviewing applicants’ documents and collecting data from scoring systems. The task was repeated about 20 times per day, and took 5 hours, or 0.6 FTE. An RPA vendor created a bot that performed loan application processing in 3 minutes, which was 5 times faster and equaled 0.12 FTE.
Here is the VTG calculation for the first and the second year of process automation:
Notes: Yearly employee-related costs include an average salary, tax and social security payments, and miscellaneous labor expenses. Automation-related costs include average software, service, and maintenance costs for a single-user package. Service costs are paid once upon implementation, so they are zero for the 2nd year.
VTG = (EC – AC)/AC x 100%
For the 1st year:
VTG = ((70,000 x 0.6 – 35,000 x 0.12)/35,000 x 0.12) X 100% = 900%
For the 2nd year:
VTG = ((70,000 x 0.6 – 25,000 x 0.12)/35,000 x 0.12) X 100% = 2,233%
Step 5: Calculate ROI for RPA
As we already mentioned, return on investment in RPA projects consists of a number of significant components. Going back to the qualitative benefits on step 3, apart from labor cost savings, there is also time savings and error elimination.
That’s why it makes sense to add two more components to the RPA ROI formula:
- Value of process acceleration
For instance, RPA implementation may reduce the customer onboarding process in banking from 7 to 2 days. Depending on the size of the business, it may bring hundreds of thousands dollars of profit.
- Value of error reduction
Robotic process automation may save several millions of dollars for companies with high volumes of manual processing or high error risk levels.
Taking into account these the components, the correct formula for RPA ROI would look as follows:
RPA ROI = [(VTG*AC + Value of process acceleration + Value of error reduction) – AC]/AC x 100%
If we go back to the calculation example above, the value of process acceleration could be the difference between the average number of loans approved before and after automation, multiplied by the average yearly loan fee. Let’s be conservative and say it’s $100,000 per year.
We can obtain the value of error reduction by taking the lost revenue incurred by a client not matching the loan criteria and terminating the contract in the first year. Let it be $20,000. Then the final ROI calculation will be:
ROI for your RPA project: How ElectroNeek can help
Calculating RPA ROI can seem like an impossible task, but if you carefully choose your criteria and plug in the numbers according to the correct formulas, it can be done. If you have doubts or questions, sign up for a free session with ElectroNeek’s automation experts. We’ll roll up our sleeves and look at your tasks together. On top of that, you’ll get access to our sophisticated RPA ROI calculator so you can make calculations on the fly.