Calculating the Estimated ROI of Your Automation Project

It is easy to see that automation is on the rise in the post-pandemic era, and operational changes are occurring right before our eyes. From automating PPE manufacturing to using robotics to handle and package products, companies of all sizes are realizing the benefits industrial automation can provide. However, what often can be challenging is trying to justify what the prospective ROI will be when investing in automated equipment, especially since costs can vary significantly by need and specification.

Before making the investment, most production and operations managers will need to provide sufficient evidence to company leadership and stakeholders that automated machinery would be a profitable venture throughout the lifecycle of the equipment. Below, we outlined some of the many ways industrial automation can benefit your business’s bottom line and how to calculate a positive return on your investment.

Investing in robotic automation provided a postive return on investment for our client.

The Value of Industrial Automation

Before calculating the ROI of your potential automation project, it’s important to consider all the ways automation can add considerable value to your company’s bottom line. One significant metric to note is that processes can be completed about 20 to 110 percent faster when robots are integrated. With tasks being completed faster, it’s no wonder PricewaterhouseCoopers found that robotic automation can reduce global workforce costs by up to $2 trillion. These savings come largely from the fact that programming and maintenance costs are lower than training and maintaining operators.

Additionally, investing in automated solutions can also help manufacturers:

  • Improve production output to further increase revenue.
  • Improve accuracy to avoid costly product recalls.
  • Improve employee morale, as robots can take on duties that are dangerous, repetitive, mundane, or error-prone at scale and provide peace-of-mind that there are predictable and high-quality processes.
  • Seamlessly weave automatic compliance check-ups into the workflow, which means improved compliance with industry standards and regulations.

Calculating the ROI of Your Automation Project

Even after considering the benefits of automation, the upfront costs of equipment may still leave your leadership in need of further convincing. Persuading stakeholders that automation is a competitive advantage will likely involve much more than simply listing the perks. You will need to start by calculating the estimated ROI of your automation project.

To do so, you can use a simple ROI calculation formula, which takes the labor savings subtracted from the automated system’s total cost. For this calculation, you will want to gather the following data:

  • Total system cost: This is calculated by determining the robot’s cost, which is about a third of the total system cost and multiplying that by three. Once you have that number, multiply it by the number of robots you expect to need for the total system cost. You may also want to consider multiplying by four or five to account for additional one-time costs associated with installation, such as backup power units, mounting hardware, connectors, cables, or other auxiliary equipment needed to operate these systems.
  • Robot utilization: Determine how many shifts per day each robot will operate.
  • Current labor costs without a robotics system: Calculate the annual labor costs by estimating the number of operators whose tasks will be replaced by the robot. This total will determine the labor savings of purchasing the automated system.
  • Anticipated labor costs with a robotics system: Decide how many operators you will need to operate, service, and maintain the system and then calculate 25 percent of that labor cost. Subtract that by your current labor costs.

Let’s break this down in a real-world example. Say you want to purchase one $50,000 robot that will be in service three shifts per day at one operator per shift:

  • Total system cost: $150,000 ($50,000 robot cost x 3)
  • Current labor costs without robotics system = $300,000 (1 operators per shift x 3 shifts = 3 operators x $100,000/operator)
  • Anticipated labor costs with robotics system: $75,000 (Current labor cost of $300,000 x 25%)
  • Labor savings: $225,000 (Current labor costs of $300,000 less the $75,000 anticipated labor for the robotic system)
  • ROI: $75,000 in the first year ($225,000 – $150,000)

At that rate of $75,000 ROI per year, you can expect to drive returns two years after purchasing the system. Although you will still want to consider the variable costs, such as maintenance, licensing, management, materials, and supplies, this doesn’t consider the significant savings that you can anticipate will be gained from reduced recalls, improved employee morale and safety, and increased product quality and consistency. Even as you scale and automate more processes, the savings will continue to overtake the initial costs. With a comprehensive understanding of the anticipated ROI of robotic automation, you should be able to justify the investment to company stakeholders effectively.

Experts in Automated Robotic Systems

SDC knows how to solve even the most challenging of problems for your business. Our commitment to solving some of the toughest automation problems with creativity and critical thinking means that you can expect top-of-the-line solutions for your automation needs. With our experienced team of professionals, along with our proven and proprietary methods, we will work with you to create a custom automated solution that will yield long-lasting benefits for your company.

Contact SDC today to start exploring the benefits automation can have on your manufacturing processes. In the meantime, feel free to check out some of our past projects to see examples of how our solutions have provided a positive return on investment for our clients.