In today’s world, where efficiency and resource optimization are crucial, business process automation (BPM) projects have become a priority for many organizations. Implementing technological solutions can not only improve operational efficiency but also generate significant returns on investment (ROI) through cost savings and increased profits.
However, calculating this ROI is essential to prioritize different stages of the project, the famous “where to start,” and to justify the investment to internal stakeholders. In this article, I will focus on the importance of calculating the ROI of these projects, the benefits it offers, and provide suggestions on how to do it effectively.
Importance of ROI in Automation Projects
Calculating the ROI of a business process automation project is essential for several reasons:
- Investment Justification: Demonstrating the economic value of the project helps gain the support of stakeholders within the company or external ones if third-party funding is being sought.
- Process Prioritization: Helps prioritize the order in which different processes in each sector of the company will be implemented. Often, the process that generates the most problems is addressed first. However, by performing this exercise, we might discover that economically it is not the most critical. This doesn’t mean we should change it, but having this information is important for making informed decisions.
- Success Measurement: Establish clear metrics to evaluate the performance and success of the project post-implementation.
Advantages of Calculating ROI
- Financial Transparency: Provides a clear view of costs and benefits, facilitating informed decision-making.
- Resource Optimization: Helps identify areas where costs can be reduced or efficiency improved.
- Detection of Profit Increase Opportunities: Allows identifying areas where greater profit could be generated by increasing productivity, for example, by selling more products or services where there is unmet demand.
- Continuous Process Improvement: Facilitates continuous performance evaluation, allowing timely adjustments and improvements.
Suggestions for Calculating ROI
To calculate it, as a first step, we must collect certain data:
Data on How Processes Are Currently Executed:
- Process Stages and Execution: Detailed breakdown of each stage of the processes and the frequency with which each one is executed.
- Involved Roles: Who participates and how long it takes them to complete the task.
Identification of Costs and Losses:
- Operational Costs: Time of staff involved in performing manual tasks, considering current processes. Also, consider the costs associated with rework and error mitigation that arise from performing tasks manually.
- Losses from Deviations: Money lost each month due to unforeseen deviations, fraud, or other anomalous situations that will be resolved with process automation.
- Additional Operating Costs: Recurring expenses for storage, document management, and paperwork.
- Non-Compliance Costs: Manual data and document management can result in compliance errors and regulatory penalties.
Current Gains:
- Gains from Each Process: It is important to know if each process candidate for automation generates profits and to what extent.
- Investment in Process Automation Software: Investment amount required in software licenses and services (if applicable).
Calculation Methodology
Once all the mentioned data is available, you will be able to estimate your current, potential costs and gains. In detail, you will have the following information:
- Current Process Cost.
- Future Cost with Automation.
- Hours Spent Executing the Process Currently.
- Hours Spent with the Automated Process.
- Future Gain with the Automated Process and Its Increase.
Key Indicators to Evaluate ROI
Once the information is available, I recommend calculating the following indicators to have a clear overview of the investment’s profitability and make an informed decision:
- Net Investment Benefit: Calculate the benefit given the cost savings, increased profits, and the investment.
- Return on Investment.
- Payback Period: Calculate how many months it will take to recover the initial investment.
How to Approach It Internally?
- Create a Solid Business Case: Present a detailed ROI analysis to the management team, highlighting the financial and operational benefits.
- Involve Key Stakeholders: Ensure the support of all involved areas, such as finance, IT, and operations.
- Transparent Communication: Maintain clear and continuous communication about the project’s objectives, benefits, and progress.
- Change Management Plan: Develop a plan that includes training and support to ensure a smooth transition to automation.
Opportunity Costs and Intangible Benefits
It is also important to understand and convey the opportunity costs and benefits that are difficult to monetize but are key within organizations. Some of these are:
- Improved Decision-Making: Availability of real-time data that facilitates more informed and faster decisions.
- Reduction of Data Errors: Manual data entry is prone to errors, which can result in incorrect information and wrong decisions.
- Loss of Business Opportunities: Inefficiency in processes can lead to slow market responses, losing opportunities to more agile competitors.
- Increase the average revenue per transaction / attract better clients: For example, by executing faster, you can attract higher-quality clients or those who invest more.
- Limited Innovation: Employees occupied with manual tasks have less time to innovate and improve processes.
- Customer Dissatisfaction: Slow response times and inconsistent quality can negatively affect customer satisfaction.
- Staff Burnout: Performing repetitive and unrewarding tasks can lead to burnout and demotivation of employees, increasing turnover.
Conclusion
Calculating the return on investment in automation projects is not only a good financial practice but crucial for demonstrating the project’s value, convincing stakeholders, and ensuring long-term success. By following these steps and strategically approaching the project, organizations can maximize benefits and ensure successful implementation.
