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How to Reliably Calculate Return on Investment for Robotic Process Automation
November 3, 2021
0 min read
Robotic process automation (RPA) is meant to achieve greater efficiency in business operations. But how do you adequately measure the automation to determine whether it’s producing results commensurate with its investment? As Peter Drucker said, “If you can’t measure it, you can’t improve it.” Hence, the need for business managers to reliably calculate the return on investment (ROI) on their robotic process automation.
RPA brings a lot of value to your business but calculating ROI is needed to justify whether those benefits are worth the investment made to achieve them. Even when you’re satisfied with what you’re getting from your RPA, good business management still dictates that you ascertain whether it’s still possible to squeeze out maximum benefits.
However, estimating the ROI for robotic process automation has often been a challenge. This is because RPA’s gains and costs aren’t always straightforward and clear.
In this article, we provide insight into how to calculate return on investment (ROI) for RPA.
Identify the best candidates for RPA implementation
Before you can effectively calculate, you must adequately identify.
This should be self-evident, but the initial step in calculating RPA is to ensure you correctly identify the processes that can be successfully automated in the first place. There’s no use trying to fit a square peg into a round hole by trying to automate operations that don’t easily lend themselves to minimal human intervention.
These factors and questions will help you decide whether a process is ideal and measurable for RPA:
- Is the process or task rule-based?: RPA integration is suited for clearly defined, rule-based tasks.
- Is the task labor-intensive and time-consuming?: Mundane tasks benefit the most from RPA and usually produce higher ROI.
- Does the task provide readable data?: RPA works best on data that’s digitized and recognizable, though optical character recognition technology (OCR) and AI elements now help RPA recognize images and scanned documents.
- Is the data standardized and structured?: Well-defined, categorizable, and structural data works best for RPA.
These questions will help you decide if your organization is ready for RPA. Understanding the type of tasks RPA is well-suited for will subsequently help you to tackle the next phase: identifying what you want to get out of the tasks using RPA.
Establish clearly defined automation goals
To avoid implementing RPA just for the sake of it, it’s important to have a clear sense of direction and vision as to what you want to accomplish through automated operations.
- Identify the goals your business wants to accomplish from RPA.
- Identify the process you need to automate (highlighted in our first section).
- Identify the outcomes you’re expecting from RPA.
- Ask whether the outcomes fit into your overall strategy.
- Outline the scope of automation you desire through RPA.
Set up success metrics and key performance indicators (KPIs)
After an organization has outlined its scope for automation projects, the next step is to determine the outcomes they desire from RPA. This is done by choosing the tangible metrics and KPIs you want to realize from RPA.
Here are some of the quantitative KPIs to target:
- Labor cost savings: RPA can reduce labor costs by as much as 40%, so this is a worthwhile metric.
- Time savings: Robotic agents drastically reduce processing times by eliminating operational inefficiencies and errors.
- Eliminating or reducing human errors: RPA has the ability to remove costly human errors that can damage the bottom line. Accounts payable automation is a great example of RPA reducing human error to increase ROI.
- Speed of the RPA implementation: Implementation should be a breeze, with a quick turnaround along with the ability to scale from a few to an unlimited number of robots instantaneously.
While there’s obviously a financial and business case for seeking automation, there are also other factors to consider. The intangible, human part of the equation includes employee morale and the cost of maintaining vendor relationships.
How to calculate ROI for robotic process automation projects
The most ideal method to evaluate the benefits of RPA is to compare it with cost savings from not implementing automation. This is equivalent to the tedious hours spent performing processes manually, along with the cost of manual labor required to do so.
In calculating the ROI, you might also have to factor in the actual cost of implementing the RPA.
With these general considerations, some sources calculate the basic ROI on RPA like this:
Cost of RPA automation – (hours spent on performing the process manually * cost of manual labor)
The “cost of RPA automation” in the above equation is easier to determine when the RPA is delivered as a cloud-based, software-as-a-service (SaaS) since an organization has transparency on billing costs.
Generally speaking, businesses need to acknowledge that the cost and price of RPA aren’t currently insignificant. According to Deloitte, a single software robot costs between $5,000 to $15,000 on a one-time acquisition fee.
Other measures incorporated into ROI calculations for automation include FTE (full-time equivalent). FTE represents the working hours for a single employee across a given period of time, for example, a month or even a year.
Subsequently, the cost of manually operating a process with FTE is compared and contrasted with the cost of using RPA. However, FTE is best for calculating direct cost savings, which don’t take other factors into account.
Other hidden costs of RPA that need to be considered include hiring experts, training staff, project management implementation, running the automation process, and other infrastructure costs.
Let Thoughtful help you get the best ROI for RPA
Automation is never a one-size-fits-all proposition, especially in terms of costs. There aren’t any cookie-cutter metrics or ironclad ways to calculate its ROI. However, experience shows that effectively calculating RPA benefits is based on identifying important KPIs.
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