Automation & Operations3 min read
How to Calculate Automation ROI
Before automating anything, it is worth knowing what the manual version costs. Four numbers you already know are enough to find out.
KLYRO TeamPublished
"It only takes five minutes" is the most expensive sentence in a business. Five minutes, forty times a week, is over 170 hours a year.
Working out the real cost of a repetitive task is simple arithmetic. You need four numbers, and you already know all of them.
The four numbers
- How often it happens. Per day, week or month, whichever you can answer honestly. Estimating weekly is usually easier than estimating annually.
- How long it takes. Include the interruption, not just the typing. Switching into a task and back out again is part of its cost.
- What an hour costs. Salary plus employer costs, divided by working hours. If that is awkward, use a rate you would pay somebody else to do it.
- How much could realistically be automated. Almost never 100%. Something usually still needs checking, and exceptions still need a person.
How the sums work
There is nothing clever happening here, which is the point. Every figure is arithmetic on what you entered, and the assumptions are printed beside the results rather than buried.
hours per year = frequency per year × minutes each ÷ 60
cost per year = hours per year × cost per hour
hours saved = hours per year × automated share
saving per year = hours saved × cost per hour
payback (months) = implementation cost ÷ (saving per year ÷ 12)How to read the result
The saving figure is the headline, but the hours figure is usually the more useful one. Money saved on salaried staff is not money that comes back; it is time that goes somewhere else. Whether that is worth doing depends on what the somewhere else is.
The payback period is the number to check against your appetite. Anything that pays for itself inside a year is generally easy to justify. Anything past two years needs a reason beyond the arithmetic.
Common mistakes
- Counting only the typing. The real cost of a small repetitive task is the interruption around it.
- Assuming full automation. Exceptions are the expensive part, and there are always exceptions.
- Using a headline salary as the hourly cost. It understates it. Employer contributions, holiday and equipment are all part of an hour.
- Automating the wrong task. The one that annoys people most is not always the one that costs most. Do the arithmetic on both.
- Presenting the estimate as a fact. It is a model built from four estimates. Say so, and it will be trusted more, not less.
Questions
- What counts as a good payback period?
- Under twelve months is usually easy to approve. Beyond two years, the case normally has to rest on something other than cost — reliability, capacity or removing a single point of failure.
- Should I include my own time?
- Yes, at whatever your time is genuinely worth. Leaving the owner's hours out of the model is how businesses end up with a founder doing data entry.
- Are these figures a guarantee?
- No. They are arithmetic on estimates you supplied, and the calculator publishes its assumptions beside the results for exactly that reason.