Process Automation ROI [A Comprehensive Guide]

Many of us have been dreaming of having the ability to give up on repetitive and tedious tasks and focus on what matters. Sounds great, right? That’s what business process automation (BPA) is all about. It lets business owners boost their team efficiency, cut down on costs, and maximize revenue. For employees, it means less time spent on boring stuff and more on productive activities.

BPA denotes setting up the system in a company to substitute manual labour with automation. And it’s not about replacing people and leaving them jobless. Instead, it’s about leveraging human capabilities to the fullest extent rather than wasting their energy on sorting emails, processing orders, or updating records. That’s what a robot can do. But it can’t create innovative things or come up with new ideas like a person.

Apart from introducing automation, you also need to identify whether it’s worth it. That’s where measuring business process automation ROI comes into play. ROI stands for return on investment, i.e., how much money or time the company saves because of automation. It can be completing tasks faster, reducing errors, and freeing up employees to do more valuable work. In this article, we’ll focus on calculating this metric, real-world examples, and tips on improving it. 

What is Business Process Automation?

So, BPA looks easy. You integrate technology to perform certain tasks. It saves time, allowing you to allocate resources to drive growth and innovation. What does it look like in real life?

Picture this: an online store gets thousands of customer inquiries daily. A great portion of them revolve around questions about business hours, returns policies, and order statuses. A customer support team can get overwhelmed with all these requests and overlook sales opportunities. The solution is to leverage process automation, for example, in the form of an AI-powered chatbot. It can resolve standard issues, allowing customer service reps to focus on more complex issues. Apart from bringing benefits to your company, it also enhances client satisfaction. It’s a win-win for business growth.

Or consider a manufacturing firm where human error is a common occurrence in the inventory management process. Machine learning (ML) can predict inventory needs more accurately, which reduces waste and costs. 

Process automation unites several forms, such as:

• Robotic process automation (RPA). It imitates and incorporates human actions into digital systems through the user interface. RPA robots carry out a variety of repetitive tasks by interpreting, eliciting responses, and interacting with other systems.
• Intelligent process automation (IPA). It combines robotic process automation with machine learning (ML) and artificial intelligence (AI). This approach enables the system to perform repetitive, high-volume duties that needed human intervention in the past.

As for business applications, you can introduce process automation in the following sectors:

• Finance and accounting (for invoice processing, approval workflows, and reporting using analytics tools like Tableau for predictive analytics);
• Human resources (for employee onboarding and routine HR tasks);
• Supply chain management (for demand prediction, inventory management, and logistics optimization).

A fresh look at ROI in automation and its variants

Process automation ROI is a fundamental term, but it takes on new dimensions and nuances in the context of BPA. Traditional ROI calculations are often insufficient for capturing the full spectrum of benefits. That’s where we need to introduce other key concepts: 

• Total benefits of ownership (TBO)
• Total resources gained (TRG);
• Total value of ownership (TVO);
• Total cost of ownership (TCO).

ROI is a financial return on investment metric that traditionally focuses only on the bottom line. You can calculate it by comparing the annual benefits from automation against the total annual costs. Here is the automation ROI formula:

ROI = (Financial Gains from Automation − Cost of Automation) / Cost of Automation X 100%

a. Total benefits of ownership 

Total benefit ownership introduces qualitative advantages of automation, such as:

• improved customer experiences;
• technological advancements;
• enhanced employee satisfaction.

It’s harder to measure them, but they provide a more comprehensive view of automation perks beyond the numbers.

b. Total resources gained

Total resources gained are an indicator of automation’s human element. It gauges the degree to which process automation liberates worker potential. Employees can refocus their attention on more strategic, high-value tasks by automating repetitive chores. TRG helps understand how these human resources are reallocated after automation.

c. Total value of ownership

The total value of ownership goes a step further. It includes all of the benefits that automation offers your company: financial, qualitative, and strategic. They’re both tangible and intangible, for example:

• enhanced customer satisfaction;
• employee well-being;
• brand reputation.

TVO = ROI + TBO + TRG

d. Total cost of ownership

Total cost of ownership is an alternative to traditional ROI metrics. It’s designed to help buyers and owners determine a product or system’s direct and indirect costs. When referring to process automation, TCO encompasses the following:

• The initial investment in the automation tools or software
• Setup
• Support
• Employee training
• Upkeep
• Any updates required over the system’s lifetime
• The cost of hiring new employees to integrate the system, etc

TCO = Acquisition Costs + Implementation Costs + Operational Costs + Maintenance Costs + Upgrade Costs

As such, it provides a fuller picture of the investment required beyond the upfront cost. It’s essential, as you need to consider how much you should pay to balance expenses with the ROI.

e. A real-world example

Now, let’s marry the theory with a practical situation. Imagine a company with automated customer service operations:

• Traditional ROI would revolve around a reduction in workforce costs and increased number of queries handled.
• TBO would measure improved response accuracy, faster resolution times, and reduced employee stress.
• TRG would illustrate that customer service reps now have more time for complex queries and building client relationships, adding immense value to the business.
• TVO would zero in on higher customer satisfaction, leading to increased client loyalty and brand strength;
• TCO would cover purchasing, licensing, and integrating the system into the existing IT infrastructure.

f. The significance of ROI in process automation

ROI is a critical metric, showing whether your initial investment pays off. It demonstrates the short-term benefits like cost savings, increased productivity, and error reduction. But that’s not all, as ROI also reflects the long-term benefits of automation, for instance:

• Sustained cost savings;
• Improved operational efficiency;
• The ability to scale operations without proportionally increasing costs.

So, if you want to see whether automation is delivering value and validate the decision to introduce it, measure business process automation ROI.

g. Steps to Calculate ROI in Process Automation

Begin by calculating the TCO. Don’t leave any purchase, implementation, or ongoing management costs of the automation technology behind. Then, shift the focus to the value the automation delivers, that is, determine the TVO. Identify metrics relevant to both the short-term (cost savings and efficiency gains) and long-term (customer satisfaction, employee engagement, and innovation opportunities) impacts of automation.

Incorporate qualitative advantages into the calculation, such as:

• increased customer happiness;
• staff morale;
• enhanced compliance.

Keep in mind that every automation project is different and can call for a unique approach to calculating ROI. And don’t stop after one evaluation. ROI may change with time due to the evolving nature of the project. So, monitor and adjust the metrics to reassess the ROI.

h. Measuring the ROI with an Automation ROI Calculator

The basic ROI formula is a simple calculation of benefits divided by costs. But you don’t have to measure it manually. You can use the Automation ROI Calculator, a tool provided by various companies. You’ll need to insert your data to immediately check the annual savings per workflow.

6 Strategies to Maximize ROI in Automation

1. Identify Soft and Hard ROI Metrics

• Soft ROI. It’s harder to measure because it focuses on less quantifiable outcomes like improved team collaboration, employee satisfaction and dedication, and enhanced brand reputation. Surveys and net promoter score tools help gauge these returns. Yet, you can’t always be sure that they stem from introducing automation into the company or from other strategies. That’s where you need to determine the hard ROI.
  
  
• Hard ROI. This metric is quantifiable and includes time saved per task, overall process cost savings, rate of workflow completion, labor reduction, etc. These parameters are tangible and arise from the software usage. Take time saved per task as an example. If you used to resolve an issue in 10 minutes, which takes only 2 minutes now, the reduction could be 800 minutes (or over 13 hours) saved daily for 100 daily inquiries.

2. Calculate the Current Annual Workflow Cost

Prior to automating, determine how long each manual operation takes to finish. This entails calculating the speed of manual task completion included in the process. How many minutes does the employee(s) in charge of carrying out each business process spend? By answering this question, you can calculate how much it costs you in staff wages.

Don’t forget to include each employee’s specific pay grade in the workflow, ensuring it fully accounts for taxes, vacation pay, benefits, etc.

Annual Manual Workflow Cost = Number of Employees X Average Annual Salary per Employee X Percentage of Time Spent on the Process

3. Determine Time Savings with Automation

Calculate the amount of time that automation will save you doing tedious work. Estimate the cost savings for each employee as a result of this reduction​​.

Use the same formula as in the preceding step. Add the price of buying and setting up the workflow automation software. Include any additional expenses for educating your staff on the new automation technology. The updated version would be:

Current Annual Workflow Cost = Annual Workflow Cost + Total Software and Implementation Costs.

4. Calculate Cost Savings Post-Implementation

Now, you can work out how much you save thanks to implementing intelligent automation. Take the annual cost of automated workflows and subtract it from the annual cost of human workflows.

For example, if your new procedures, including deployment, only cost $5,000 and your manual processes cost $8,000 to execute annually, you have saved $3,000. Here, you need to pay attention to these things:

• You may pay for your automation software annually, but the setup is usually one-time. You don’t have to pay for it each time. Exclude it from your long-term cost calculations.
• When calculating the total cost of automated operations over time, take note of the yearly expenditures associated with training new hires or employees.

5. Implement an ROI Calculation

Now you know your soft and hard ROI metrics. You’ve assessed current annual workflow costs, time savings from automation, and cost savings post-implementation. The final step in maximizing ROI in automation is to implement an ROI calculation.

Your annual savings, as determined in the previous section, are your net savings. Sum the initial investment in the automation technology (setup and purchase costs) and any recurring annual costs (like software subscriptions or maintenance).

Now, apply the ROI formula. Divide your net savings by the total cost of your investment and multiply by 100.

For instance, if your net annual savings were $3,000 and your total investment in the automation technology was $5,000, your ROI would be:

ROI = 3000 / 5000 X 100% = 60%

6. Apply ROI Calculation Across Workflows

Now, you can leverage this formula in all your workflows to estimate the total time and money saved annually. Track ROI on a year-on-year basis. This approach can speed up decision-making in the future by showing how technology influences business operations.

Quick Tips for Maximizing ROI

• Select the right processes (repetitive, time-consuming, and with the highest potential for cost savings and efficiency improvements).
• Continuously monitor and adjust processes for better effectiveness and alignment with company goals.
• Train employees to use the automation tools properly.
• Consider the software’s scalability capabilities. Your business needs may change with time, so you don’t want to undergo frequent major upgrades or system changes or migrate to another tool.
• Plan for the long term, thinking about how automation can help over time.

Real-World Examples and Case Studies

Let’s take a glance at some examples of how process automation leads to notable ROI improvements in businesses across various sectors.

The Dynamic ROI Equation in Automation

For a dynamic ROI calculation, you can use a customizable formula that adjusts to different types of process automation technologies:

def dynamic_roi_calculation(initial_cost, annual_operating_cost, annual_savings, years):

    total_cost = initial_cost + (annual_operating_cost * years)

    total_savings = annual_savings * years

    roi = (total_savings - total_cost) / total_cost * 100

    return roi

# Example for La Cité College's Student Registration Automation

roi_percentage = dynamic_roi_calculation(

    initial_cost=50000,  # Hypothetical initial setup cost

    annual_operating_cost=10000,  # Estimated annual operating cost

    annual_savings=60000,  # Estimated annual savings from the automation

    years=3  # Number of years considered for the calculation

)

print(f"ROI for Student Registration Automation: {roi_percentage}%")

Run the script in a Python environment in order to use it. This can be a Python notebook (such as Jupyter), a local development environment, or any platform supporting Python scripts. Businesses without access to Python can still use the script logic by adapting it to other platforms or even incorporating it into spreadsheet formulas in tools like Google Sheets and Microsoft Excel. 

This kind of script can be especially helpful in the following situations:

• internal financial analysis as part of specialized tools;
• reporting and presentation to stakeholders or management;
• integration with corporate tools for automatic calculation of the ROI based on real-time data inputs;
• educational and training purposes as a practical example of applying programming to solve real business problems;
• customization for different scenarios, as you can alter it to fit various types of automation projects.

Throughout this post, we’ve looked at the many aspects of determining ROI in process automation. Automation may significantly improve business processes, as demonstrated by real-world examples. We’ve seen the difference between soft and hard ROI indicators. We’ve also explored the short-term and long-term benefits of integrating automation tools into your company, such as:

• employee productivity;
• job satisfaction;
• business revenue;
• customer happiness, and so on.

The best part is that you can increase the process automation ROI with time. Assess and modify automation tactics, look for improvement opportunities, and educate staff on harnessing the software potential.

Are you interested in learning more about ROI calculations and process automation? Seek professional help and delve deeper into resources providing valuable insights. A successful automation journey requires not just the implementation of new technology but also the enhancement of the existing one.