When considering automation, it’s crucial to recognize not only the apparent savings but also the less visible benefits that can significantly impact your financial analysis.
Initial Considerations
The decision to automate typically begins with a straightforward calculation. Most people calculate how much time and money will be saved by replacing a manual process with an automated one. However, it’s important to dig deeper to uncover the full spectrum of savings that automation can offer.
Step-by-Step Calculation
- Frequency of the Task: Start by determining how often the task occurs. Is it performed multiple times a day, weekly, or only occasionally? Understanding the frequency helps in assessing its impact on your operations.
- Annual Frequency Calculation: Convert the frequency into an annual figure. For example, a task done five times a day over 220 workdays results in 1,100 annual occurrences.
- Time Investment: Calculate the time currently spent on the task (Tb) and how much time would be required after automation (Ta).
- Cost of Labor: Analyze the cost of labor before and after automation. This involves noting the hourly rate for the current employee performing the task (Rb) and the rate for potentially less skilled, thus cheaper, labor post-automation (Ra).
- Cost Savings Formula: The formula to determine total savings is:
TotalΒ Savings=(πΓππΓπ π)β(πΓππΓπ π)
Where X is the number of times the task is performed annually.
Practical Example
Consider automating a task that you do weekly, reducing the time required from 15 minutes to 5 minutes.
If automation allows a less expensive employee to perform the task, you could reduce the hourly cost from $125 to $50. Using our formula, this results in annual savings of $1,400.
This insight means you could justify spending up to $7,000 on automation solutions if you aim for a break-even point within five years.
Conclusion
The key to effective automation is not just in reducing the time a task takes but also in optimizing the cost of labor involved in the task post-automation.
By calculating both obvious and hidden savings, businesses can make informed decisions that significantly reduce costs and improve efficiency. Always consider these broader financial impacts when deciding to automate business processes.