Calculating ROI of Industrial Automation: Why Traditional ROI Calculations Are Not the Most Accurate

Traditionally, calculating the return on investment (ROI) of implementing industrial automation systems is pretty straightforward: calculate labor costs, calculate cost of implementing an automation system and then find the difference between the two.

While these are crucial components in an ROI calculation, there are many other variables that should be included in order to gain a more well-rounded prediction of industrial automation ROI. This is the difference between a traditional ROI calculation and a newer, more broad-view way of calculating ROI.

Traditional calculations only take into account the surface level factors and are missing crucial higher-level variables that also are influential in ROI predictions when considering an automation system.

Traditional ROI: Replacement Focused

The traditional way of predicting ROI focuses primarily on the calculations of replacing workers with automation. It’s a fairly straightforward calculation comparing the costs of labor to the overall costs of the automation system that will be implemented.

Traditional ROI Calculations Formula

These calculations provide a nice baseline number to estimate ROI of automation, but true ROI predictions are not as simple as calculating what replacing workers with automation will save a business.

New ROI: Growth Focused

To predict true ROI and the real value of implementing automation accurately, it’s important to look at the bigger picture and understand how the entire value stream of the processes and manufacturing line will be improved. A growth focused ROI incorporates more variables that should be considered when calculating ROI of implementing automation systems.

Some additional variables to consider are:

Traditional ROI vs New ROI

Throughput

A larger amount of product will pass through an automated system so an accurate ROI prediction will account for an increased throughput.

The RIA robotic system value calculator automatically estimates a 27% productivity gain. Zeta Group Engineering, for example, has seen customers increase their throughput between 25-50%.

With this larger throughput, it will become less likely that businesses will have to turn away potential customers because of a lack of capability to handle larger project requirements, leading to more revenue.

Quality

The predictable repeatability of automated processes means the quality of the work will be more accurate. This decreases the number of mistakes and loss of product through scraps that come out of the manufacturing process.

Hiring and Retention Costs

Hiring and retention have many factors that can be considered in ROI predictions.

A few examples are:

Worker Turnover

A high turnover rate for dirty, repetitive, non-ergonomic jobs leads to a need for increased hiring tactics and more training.

According to the National Manufacturers Q3 Survey, the second highest current business challenge of respondents was attracting and retaining quality workforce.

This constant need to search for workers leads to unnecessary costs that can be mitigated with the implementation of automation. This then allows those who are in charge of hiring and recruiting to focus their efforts on greater value-added tasks.

Upcoming Shortage of Workers

According to a study by Deloitte and The Manufacturing Institute, there will be an estimated 2.4 million positions unfilled between 2018 and 2028.

Opportunity Cost

Not having enough workers to run a line can potentially mean the whole line has to be shut down until the gaps in the workforce can be filled. This leads to loss of revenue from lack of manufacturing capabilities.

Safety and Ergonomics

Taking the dull, dirty, and dangerous work and shifting it into automation allows workers to move to safer and more rewarding jobs. This reduced risk of work accidents saves on the amount of safety gear that is needed as well as reduces potential fees and settlements that occur from work related injuries. Additionally, there is less worker downtime due to injury which allows production to continue without lost time of production.

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