“When should organizations start thinking about how to measure their RPA ROI?” Gary Conway, Automation Anywhere’s chief marketing officer, used this question to kick-off a webinar he and I recently conducted. The answer? As soon as you’ve completed your trial or proof of concept, and start building the business case to scale your program.
This timing is critical. The transformational change that your Robotics Process Automation (RPA) and other digital labor initiatives enables will be compared against traditional IT and process enhancement programs. But the Return on Investment (ROI) it can deliver is unconventional. To create a successful RPA business case, you should set the stage by developing a consistent way to measure ROI:
- Define a common language, e.g., ensure that everyone agrees on what the term ‘process’ means.
- Establish the benefit(s) you’re seeking, such as additional processing capacity, enhanced customer experience, greater revenue, or improved efficiency.
- Understand nuanced cost implications, e.g., how to best manage center of excellence-based cost allocations, or business continuity in the event your bots experience an outage.
Robotics Business Case Assessment Framework
An RPA business case has five key elements: Enterprise startup, training the bot, bot maintenance, enterprise maintenance and maintenance assumptions. When building out the total cost of ownership (TCO) components, companies tend to focus on training the bot and bot maintenance, while giving enterprise startup and enterprise maintenance expenses little consideration. But doing so paints only a partial picture of TCO.
For example, the industry has largely agreed on the center of excellence (COE) approach to RPA. But some group within the enterprise has to pay for that COE in some way. If that cost isn’t factored into the TCO, you’ll end up with a faulty business case that doesn’t coincide with your proposed ROI model. In order to correctly capture the full TCO, you should look at all four elements with equal importance.
Business benefit assumptions vary by enterprise based on what the program is intended to achieve. But whether hard or soft benefits, they typically fall into two major buckets: time automated and cost of time automated.
Factors impacting the business case
There are multiple levers that influence how successful an RPA program is in delivering ROI. In many cases, failing to address them in your business case will likely result in a top program that loses money.
Key influencers include:
Scale: You can maximize cost and price efficiencies by negotiating volume license discounts with your vendor, and gain support efficiency by leveraging bot volume economies of scale.
Infrastructure sophistication: Usage of cloud-based platforms, and the ability to quickly provision entitlements and new infrastructure, can help shave weeks off your time-to-market.
Deployment framework: As deploying bots is very different than deploying a traditional IT project, documentation requirements, approval processes, etc., should all be factored into your cost basis.
Build costs: Some organizations build their own RPA program, others use their vendor, and still others employ a hybrid approach. A trend we’re seeing in the RPA market is use of gain share models. In a typical gain share arrangement, the client pays when it is satisfied with the vendor’s work. With an RPA deployment, there are numerous ways in which gain share can be structured.
Vendor product: If you select a product that requires a high skill set or a vendor that lacks a large ecosystem outside the vendor itself, you might end up paying high maintenance costs.
Business continuity: You should to factor in how manual resources will be deployed and paid for in case a bot fails.
Benefits influencers include:
Capacity: You’ll achieve better cost/minute capacity savings by automating work in high cost areas.
Process reengineering: Although RPA processes often look different than human capital processes, you can use your enterprise’s process reengineering tools to maximize the value of the RPA processes. Of course, process reengineering costs time and money, so you should account for this in your TCO.
Bot utilization: While a human typically has the capacity to work 40 hours a week, a bot can do so 24 x 7. You’ll gain cost benefits if you can schedule one bot to perform, for example, 10 tasks or processes, rather than paying for licenses and support for individual bots to perform each one.
Intangibles: These include improved risks and controls, and an enhanced customer experience.
Creating a framework to calculate ROI isn't a nice-to-have theoretical exercise. This is the way you build consensus and support for the program across your organization. It also offers you a guide so you know if your program is working. But you have to build it based on a realistic assessment of how RPA adds value.
To learn more about how to build and influence your RPA business case, please watch Automation Anywhere’s/PwC’s BotInsights webinar, “Driving ROI as you Scale Your Robotics Program” and read our White Paper, “Payback time: Improving ROI from digital labor in financial services.”
Disclaimer:
This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.
FAQs
"The first step of the RPA and IA journey, is to create a strong business case. The business case should include specific process-candidates for automation followed by all the required metrics (volumes, cases per day, average manual handling time, peaks, forecast volumes, exception rates, etc.).
How does RPA increase ROI? ›
The Institute for RPA estimates that RPA solutions can deliver an immediate savings of 25% to 40% in labor costs alone. Additionally, McKinsey Digital has found that automating business processes with RPA can result in an ROI of between 30 and 200 percent in the first year.
How do you calculate the ROI of your RPA deployment and measure RPA success? ›
You calculate ROI by subtracting the initial value of your investment from the final value of the investment. This is called the net return. You then divide the net return by the cost of the investment and multiply by 100. Voila!
What is the average ROI for RPA? ›
Appropriately done, RPA can yield a substantial ROI; according to Automation Anywhere's August 2021 Now & Next report, the average business enjoys an ROI of 250% within six to nine months of initialization.
What are the 4 key elements that a business case should contain? ›
Summary
- The problem and business need - why you are putting forward your Business Case.
- Benefits and risks of the options - solutions to the problem.
- Return on investment - what the overall gain will be to the business.
- Final recommendation - based on the information presented.
The following four steps will show you how to write a business case.
- Step 1: Identify the Business Problem. Projects aren't created for projects' sake. ...
- Step 2: Identify the Alternative Solutions. ...
- Step 3: Recommend a Preferred Solution. ...
- Step 4: Describe the Implementation Approach.
The most commonly accepted method of calculating test automation ROI is the formula below: ROI = Savings ÷ Investment. Where Savings Denotes : The amount gained by substituting manual tests with automated tests.It is the difference between the cost of running manual tests with the automated tests.
How do you calculate ROI in Automation Anywhere? ›
The ROI is a cumulative dollar amount from running tasks.
- To access the ROI calculator as a report, go to Tools > Report Designer.
- To configure currency, in the Enterprise Client main menu, access Tools > Options > ROI settings.
3. How to calculate marketing ROI
- Subtracts your investment total from your revenue total.
- Divides this number by the investment total.
- Multiplies this number by 100 to discover your ROI percentage.
Return on investment is typically calculated by taking the actual or estimated income from a project and subtracting the actual or estimated costs. That number is the total profit that a project has generated, or is expected to generate. That number is then divided by the costs.
ROI is calculated by subtracting the initial cost of the investment from its final value, then dividing this new number by the cost of the investment, and finally, multiplying it by 100.
What is a good ROI for a business project? ›
Frequently Asked Questions (FAQ) about project ROI
Typically a range of 5% to 10% is viewed as a good target return.
Is 80% ROI good? ›
Return on Investment (ROI)
This calculation works for any period, but there is a risk in evaluating long-term investment returns with ROI—an ROI of 80% sounds impressive for a five-year investment but less impressive for a 35-year investment.
What is a good ROI benchmark? ›
The rule of thumb for marketing ROI is typically a 5:1 ratio, with exceptional ROI being considered at around a 10:1 ratio. Anything below a 2:1 ratio is considered not profitable, as the costs to produce and distribute goods/services often mean organizations will break even with their spend and returns.
How do you write a business case example? ›
How to write a business case
- Be brief and convey only the essentials.
- Make it interesting, clear, and concise.
- Eliminate conjecture and minimize jargon.
- Describe your vision of the future.
- Demonstrate the value and benefits the project brings to the business.
- Ensure consistent style and readability.
Five Elements to Include in a Compelling Business Case
- A Scenario Analysis. ...
- Clearly Define and Link Each Benefit "Cause" to an "Effect"
5 For large procurement projects, DoF generally advocates developing the business case through three stages: strategic outline case (SOC) outline business case (OBC) full business case (FBC)
Which is a key step in building a business case? ›
Determining the business needs is an important first step in the process of developing a solid business case. Accomplish this by assessing needs, identifying stakeholders and identifying scope.
What is a business case example? ›
Business Case Examples
It includes an executive summary, financial information, analysis, and risks. It could be used for a business case in any industry. This quick overview is a great option to send to key stakeholders before meeting to discuss the project further.
What are the 5 cases of a business case? ›
The business case development process follows the Five Case Model:
- The Strategic Case.
- The Socio-Economic Case.
- The Commercial Case.
- The Financial Case.
- The Management Case.
ROI = [ ( Revenue – Expense ) / Expense ] x 100%
For example, if you spent $10,000 and made $15,000, your ROI would be 50%.
What are the two types of ROI? ›
Return on Influence.
What is a good ROI formula? ›
The most common is net income divided by the total cost of the investment, or ROI = Net income / Cost of investment x 100.
What does a 25% ROI mean? ›
You can calculate ROI on a particular investment by dividing your net profit by your initial cost and multiplying by 100. So, if you bought 50 shares of a stock at $20 per share, you invested $1,000. Then, later you sell your 50 shares for $25 per share, earning $1,250. Your ROI is (1250-1000)/1000 = 0.25 or 25%.
How do you calculate ROI for digital transformation? ›
With this in mind, here are steps on the guide that help you can measure digital transformation ROI.
- Step 1: Identify initiatives.
- Step 2: Review business objectives.
- Step 3: Define investment goals.
- Step 4: Identify value metrics.
- Step 5: Determine time frames.
- Propagating a good data strategy.
- Invest in analytics.
The business benefits of test automation
- Faster delivery. One of the largest unaccounted costs in software development is the fixing of defects. ...
- Find more regressions. ...
- A more testable product. ...
- Shift left. ...
- Less painful regression. ...
- Keep learning.
Automation Anywhere follows a distributed architecture. It mainly has three components that work together to achieve tasks - Control Room, Bot Creator, and Bot Runner. It's a web-based management system, and automating tasks is accomplished using the control room.
How do you track ROI events? ›
To calculate event ROI, all you have to do is subtract the total cost of your conference or event from the total revenue generated from sales then divide it by the total cost of the event. After this, you'll notice the number is shown as a percentage.
What factors influence ROI? ›
There are at least three contributing factors: economies of scale, market power, and management quality.
What are the two ways of expressing ROI? ›
To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage or a ratio.
The traditional ROI formula for training is the program benefits (net profit) minus the training costs and then divided by the program costs. This indicates the dollar amount returned as a benefit for every dollar spent on a program. This can also be converted to a percentage by multiply by 100.
What is ROI example problems? ›
Example of ROI
If you sell the house for $350,000, you earn a profit of $100,000 (gain from investment minus the cost of investment). Divide that net profit ($100,000) by the cost of your total investment ($250,000) and then multiply by 100 to get your ROI—which equals 40 percent.
How do you explain ROI in an interview? ›
ROI is usually expressed as a percentage and is typically used for personal financial decisions, to compare a company's profitability or to compare the efficiency of different investments. The return on investment formula is: ROI = (Net Profit / Cost of Investment) x 100.
How do I make an ROI plan? ›
Calculating Simple ROI
You take the sales growth from that business or product line, subtract the marketing costs, and then divide by the marketing cost. So, if sales grew by $1,000 and the marketing campaign cost $100, then the simple ROI is 900%. (($1000-$100) / $100) = 900%.
What is acceptable ROI for small business? ›
While ROI is rarely used to value a business, it's helpful to understand what impact ROI may have on the value of a business and how returns can be impacted by multiple factors. Common multiples for most small businesses are two to four times SDE. This equates to a 25% to 50% ROI.
What is a 70% ROI? ›
So if your company invested $10,000 into marketing and you've calculated that the gross profit that campaign generated for the product is $17,000, your equation is (17,000-10,000)/10,000, or 7,000/10,000, or 0.7. Your ROI here is 70%.
Is 20% a good ROI? ›
A 20% return is possible, but it's a pretty significant return, so you either need to take risks on volatile investments or spend more time invested in safer investments.
Is it possible to get a 200% ROI? ›
An ROI of 200% means you've tripled your money!
What does 30% IRR mean? ›
What's an IRR of 30% Mean? An IRR of 30% means that the rate of return on an investment using projected discounted cash flows will equal the initial investment amount when the net present value (NPV) is zero. In this case, when the time value of money factors are applied to the cash flows, the resulting IRR is 30%.
What does 60% ROI mean? ›
If the net gain on an investment is $1200 and the investment cost is $2000, what is the ROI? 0.6 or 60%. The formula for calculating ROI is ROI = Net gain / Cost of investment . Using the values $1200 and $2000 in the formula we will get: ROI = $1200 / $2000 = 0.6 or 60%.
A calculation of the monetary value of an investment versus its cost. The ROI formula is: (profit minus cost) / cost. If you made $10,000 from a $1,000 effort, your return on investment (ROI) would be 0.9, or 90%.
Is it better to have a high or low ROI? ›
For investors, choosing a company with a good return on investment is important because a high ROI means that the firm is successful at using the investment to generate high returns. Investors will typically avoid an investment with a negative ROI, or if there are other investment opportunities with a positive ROI.
What are elements of the RPA business case? ›
An RPA business case has five key elements: Enterprise startup, training the bot, bot maintenance, enterprise maintenance and maintenance assumptions.
What makes a good RPA use case? ›
Here's why: RPA automates structured, rule-based, voluminous and repetitive digital tasks where human effort does not add business value. So, the best use cases to start with are those that are structured, rule-based, voluminous and repetitive, and where human effort does not add value.
How do you structure a business case? ›
How to write a business case
- Be brief and convey only the essentials.
- Make it interesting, clear, and concise.
- Eliminate conjecture and minimize jargon.
- Describe your vision of the future.
- Demonstrate the value and benefits the project brings to the business.
- Ensure consistent style and readability.
Therefore, you must partner with a reliable RPA service provider to create a business-focused and value-based RPA implementation strategy.
- Find assessment opportunities. ...
- Build a business case. ...
- Define an Automation Operating Model (AOM) ...
- Find an automation partner. ...
- Determine an automation roadmap.
Challenge in automating end to end use cases. Lack of required support from Business. Lack of proper team structure.
What are the main challenges faced during RPA implementation? ›
Infrastructure Issues. When implementing RPA, one of the biggest challenges that we face is infrastructural issues. Not only it is difficult to get everyone on board, but also it is complicated if your organization doesn't have an interconnected system that keeps on-premise or cloud infrastructure updated in real-time.
