Understanding return on investment, identifying and quantifying value – learn how to work these important exercises in determining ROI value on RPA implementation.
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Understanding ROI for Business Process Automation (BPA)
Integrating new technology involves considerable research, effort and investment. To justify this outlay, the next step is building a solid business case that demonstrates value and return on investment (ROI). Usually, calculating ROI is done with a simple equation of “benefit” divided by “cost.”
ROI = Benefit ÷ Cost X 100%
However, when it comes to ROI for business process automation—including technologies like robotic process automation (RPA) and intelligent automation (IA)—the factors that make up the formula become much more complex. There are two big reasons why.
- Process automation is an enterprise-wide strategy. The typical benefit ÷ cost formula assumes software with definable functions, clear costs and measurable financial benefits. Intelligent automation is not about improving a single business function, though. Rather, it’s using the technology transformatively across the entire portfolio of business processes, intentionally optimizing every aspect of every process with automation. RPA, IA and other process automation initiatives are enterprise solutions that can be applied throughout the organization. They should be evaluated based on the benefits they bring the entire company, not just the functional touchpoints.
- Not all benefits are financial. Business process automation delivers many non-financial benefits that simply can’t be captured in a basic calculation. These include huge wins, like improved accuracy, newfound flexibility, better compliance, employee happiness, faster productivity and much more. Plus, in some cases, benefits take time to mature and measure, and may not be fully realized for many months post-deployment. Consequently, these qualitative benefits are less definable than cost-reduction tactics—but they are still equally important and should be part of every ROI discussion.
Understanding ROI for process automation is a matter of first acknowledging complexities, and then taking a nuanced approach that will identify both immediate and long-term improvements, as well as new opportunities facilitated by automation.
Rewriting the Equation
The traditional approach to ROI metrics simply does not tell the whole story of business process automation. For a more accurate understanding of ROI for automation technology, you have to rebuild the equation. That starts with understanding three fundamental concepts.
- ROI for Automation is Complex. There are a lot of things to consider and analyze, including unknowns, like the unanticipated value and opportunities process automation creates. For example, an original goal for a bot might be to save time and employee hours on a particularly tedious data entry task. But once implemented, that automation can also end up being responsible for a new and improved customer experience, because employees now have more time to dedicate to core service tasks. It’s not just about improving existing processes; it’s creating new opportunities altogether, and recognizing that these opportunities would not have been possible with other methods.
- Total Cost of Ownership. As an alternative to traditional ROI metrics, a concept called total cost of ownership (TCO) emerged, designed to help businesses understand both direct and indirect costs of a product or system’s lifecycle. It includes all costs related to the purchase, implementation, and management of the technology, including things like new hires to manage software, ongoing maintenance costs, and necessary upgrades throughout the product lifecycle, hence the name total cost of ownership.
TCO = Purchase Costs + Implementation Costs + Management Costs
- Total Value of Ownership (TVO).A newer concept, coined total value of ownership (TVO), applies this idea not to costs but to delivered value. The term was popularized by Leslie Willcocks, John Hindle and Mary Lacity, co-authors of Becoming Strategic With Robotic Process Automation. Their calculation includes costs, combined benefits, and strategic returns from new opportunities made possible by automation, offering a smarter way to analyze ROI.
TVO = Total Benefits - TCO
With this foundational understanding of how process automation affects your business, you can begin to build metrics for ROI calculations. First, recognize that different processes will require a different approach to analysis, some being simple and straightforward, others impacting the entire organization, going well beyond their functional silos. Next, using the concepts of TCO and TVO, rewrite the ROI equation with more comprehensive metrics.
A Customizable ROI Formula for Robotic Process Automation (RPA)
It’s important to understand that the exact metrics used to gauge ROI will vary from business to business and even process to process within the same company. Still, all metrics will typically fall into one of two categories: short term metrics or long term metrics.
Short term metrics will be able to capture the immediate benefits of intelligent automation, like increased production speed, while long term metrics will identify the sustained impacts, like improved customer experience due to faster production and better service from freed-up staff. Analyzing ROI through both lenses is critical to understanding the full scope of its reach.
Short Term ROI Metrics
Short term metrics will be easily defined and measured. They might include reduced operating costs thanks to a supplemental digital workforce that doesn’t need breaks or paid vacation. They might also include other financial gains like improved production speed and order processing. Regardless of the specific metric, these factors will be easy to identify and measurable shortly after deployment.
Sample Short Term ROI Metrics
- Personnel costs
- Production speed/time to market
- Invoice processing time
- Days sales outstanding (DSO)
- Costs associated with errors
- Proof of delivery (POD) processing time
Long Term ROI Metrics
Long term metrics are harder to quantify and take more time to track than their short term counterparts, but it is this longview that provides the ultimate insight into ROI. These factors are qualitative in nature, requiring longer periods of time to measure and a more nuanced interpretation of change. These metrics might include things like employee and customer sentiment, compliance auditability, quality of work, and new opportunities gained, applying a TVO-like approach.
Sample Long Term ROI Metrics
- Employee job satisfaction
- Customer service
- Customer experience
- Speed of process
- Production consistency
- Production quality
With these metrics in hand, you can now build your own equations. When the new TCO and TVO calculations prove to cost less and add more value respectively, you have a foundational case that process automation is a quantifiably smart business investment.
Building a Timeline
Like the ROI calculation, the timeline for implementing automation will be unique and case-specific to every individual business. At EPSoft® Technologies, we recognize the importance of this custom approach and leverage Process Discovery and Intelligence tools to help build the best timeline. Every business process will look different, but here’s a breakdown of what you might expect.
90 Days or Less: ROI on Low-Hanging Fruit
These quick wins, identified by Process Intelligence, often look like relief of “symptoms,” — fixing evident problems in the workflow that were costly and burdensome by automating specific tasks. Expect to see the returns from these types of automation within the first 90 days, and sometimes even sooner.
3 months to 12 months: ROI on Scaled Automation
These gains will take longer to realize compared to the low-hanging fruit, but will still be measurable within the first year of deployment. These automation initiatives will scale beyond tasks to include complex automation, and what we call “automation of automation.”
1 year to 3 years: ROI on End-to-End Automation
It’s a marathon, not a sprint—and that’s okay. These long term returns will take more time to realize because they will be the results of longer-term strategies. These strategies will aim to invest in human capital as much as possible, by improving every aspect of every process with smart business automation that leverages RPA and AI.
Sample Returns for Intelligent Process Automation (IPA)
Hopefully by now it’s clear that calculating ROI for process automation isn’t as simple as BENEFIT ÷ COST. Rather, it’s an exercise in strategic analysis, understanding the quantitative and qualitative benefits, as well as the perpetual returns and intangible gains. In summary, an accurate ROI analysis will include short term and long term metrics, things that can be directly measured, as well as things that can’t be measured and must be otherwise quantified. It should also include the consideration for new opportunities made possible by the investment.
Let’s look at some real world examples.
To support a rapidly growing volume of professional clients, a dental service organization needed to upgrade their data center. Using EPSoft’s Intelligent Automation Platform, they developed an automated production simulation instance to replicate user activity and flow with RPA. With EPSoft’s help, they implemented a stress test to the system with 500 user instances, using a bot that runs 50 times daily. (Without bots, this would require 500 simultaneous user logins.) Simulation run time was reduced from 10+ minutes to < 5 minutes (and sometimes as few as 1); risk and latencies were reduced between clinics and the data center; and the organization freed up considerable man hours, allowing employees to focus on analysis and high-value work.
Leveraging EPSoft’s Intelligent Automation Platform, a NetSuite Solution Provider was able to complete critical release note analysis for NetSuite users with RPA. Prior to automation, the analysis took 40 hours per customer to complete. With RPA, it took 40 seconds. It not only dramatically increased productivity, it also expanded the company’s customer acquisition strategy, allowing it to distinguish itself in the marketplace with unique support and service. With new efficiencies, consultants now had extra time to focus on upselling, resulting in a significant increase to share of wallet for existing customers.
Our client, a US-based solar tracking solution provider, was experiencing operational challenges because of a manual proof of delivery (POD) process. Using the EPSoft Intelligent Automation Platform, the company did a deep process analysis and identified key areas where automation would reduce costs and improve process speed. Within three weeks, three RPA bots were fully deployed. The company eliminated $40k in monthly costs, increased quarterly revenue by 65%, improved time to revenue by 15 days and uncovered $16M in uninvoiced billings.
As you can see, the potential returns for process automation are nothing short of impressive. But it’s important to remember that the ROI formula will look different for every business and even for different processes within the same organization. Value can be hidden, and it is not always easily measured, but it’s a critical piece of the puzzle. For an accurate understanding of return on investment, identifying and quantifying value must be part of the exercise.
Whether piloting a program to build a case for process automation, or trying to anticipate the potential returns for automation that is already underway, proving the value is not hard, as long as you know what to look for.
Get Started with Robotic Process Automation (RPA)
Ready to dive in? If you need help building out your own ROI metrics, the team at EPSoft Technologies can provide clarity and guidance for where you are today, as well as for the journey ahead. We’re here to help! Get in touch any time.