Tips for calculating a solid business case for automation

Creating a solid business case is essential to ensure that an automation project will deliver measurable benefits. A well-calculated business case should give clear insight into the potential gains and costs of automation. The following are key factors you should consider when calculating a business case, with a focus on time saved as an example.

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Key factors to consider

In most cases, building a business case boils down to evaluating three main elements: goods, hours, and profit. When trying to calculate the business case for automation, look into both hard and soft gains or losses, as they can be equally important in determining the overall impact.

Let’s break this down with an example focused on time savings, a common measurable outcome of automation.

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Calculating a business case based on time saved

1. Identify tasks for automation: Start by determining which repetitive tasks can be automated. These are typically tasks that require minimal decision-making but consume significant amounts of time.

2. Estimate percentage of time saved: Determine how much of the current manual work can be saved by automation. This is often a percentage of the time spent on each task. Keep in mind that several employees may be involved in each task.

3. Frequency of the process: Consider how often this process occurs. Is it done daily, weekly, or monthly?

4. Time spent on the process: Calculate the amount of time employees spend on this process. Then multiply that by the cost per hour for each employee involved. If you don’t have exact numbers, use conservative estimates to avoid overpromising on benefits.

5. Employee cost per hour: Multiply the time saved by the hourly cost of the employees currently performing the task. This will give you a clearer idea of the financial impact of the time savings.

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Example calculation for time savings:
Task: Quotation creation
Current time spent: 20 minutes per quote
Number of quotes per year: 1,500
Estimated time saved with automation: 100%
Employee cost: €60 per hour

Calculation:
20 minutes per quote = 1/3 hour
1,500 quotes x 1/3 hour = 500 hours saved
500 hours x €60 per hour = €30,000 saved per year

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Hard gains and losses

Hard gains and losses refer to measurable outcomes such as increased sales or reduced costs. These are relatively straightforward to calculate.

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Example: sales increase

If automation allows you to sell more (e.g., by freeing up time to focus on customers), you’ll need to assess the following:

• Average deal size: Know the average value of each deal.

• Current number of deals: How many deals are closed per year?

• Expected increase in deals: Automation could lead to more deals, or help avoid churn. Estimate how many additional deals you expect to secure.

Example calculation for sales increase:
Average deal size: €10,000
Current deals per year: 200
Expected increase: 5% (10 more deals)

Calculation:
10 more deals x €10,000 = €100,000 additional revenue per year

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Example: stock management

Automation can also reduce costs by improving demand planning or reducing the loss of stock value.

• When does stock lose value? Consider shelf life or obsolescence.

• Stock holding costs: How much does it cost to store inventory?

• Lost value over time: Estimate how much value your stock loses if not sold.

Example calculation for stock savings:
Stock holding cost: €5,000 per month
Automation reduces stock holding time by 2 months

Calculation:
€5,000 x 2 months = €10,000 saved in holding costs

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Soft gains and losses

Soft gains refer to benefits that are not as easily quantifiable but still significant. These include factors such as compliance and customer satisfaction. Conversely, soft losses refer to losses that are also difficult to quantify directly but have lasting negative impacts, like missed opportunities or declines in customer trust.

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Example: compliance

Non-compliance can result in fines or damage to your reputation. Automation can help ensure compliance with regulations, such as the Corporate Sustainability Reporting Directive (CSRD), by tracking and reporting accurate data.

Example calculation for compliance savings:
Potential non-compliance fine: €50,000
Estimated risk of non-compliance: 10%

Calculation:
€50,000 x 10% = €5,000 risk reduction

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Hypothetical business case: quotation tool

Let’s look at a company that sells through dealers and wants to automate the quotation process. The company currently spends time manually creating quotes for dealers, but with automation, dealers can generate their own quotes using pre-set pricing and personalized discounts.

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Hard gains

• Current process: 20 minutes per quote

• Number of quotes per year: 1,500

• Employee cost: €60 per hour

Time savings calculation:
1,500 quotes * 20 minutes (1/3 hour) = 500 hours saved
500 hours * €60/hour = €30,000 saved per year

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Soft gains

• Error-prone manual work: Automation ensures correct prices are used, avoiding costly errors.

• Error rate: 5% of quotes contain errors

• Impact of errors: 10% of average deal size (€10,000)

Error savings calculation:
5% of 1,500 quotes = 75 errors
10% of €10,000 = €1,000 lost per error
75 errors x €1,000 = €75,000 saved per year

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• Increased accessibility: With a 24/7 tool, dealers can generate quotes anytime, potentially increasing sales.

• Increase in deals: 1% increase per year

• Value of an average dealer: €100,000

Additional sales calculation:
1% increase x €100,000 = €1,000 additional revenue per dealer

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Additional costs to consider

When calculating your business case, don’t forget the costs associated with the time commitment from your own team. Even if you hire an external developer to create the automation solution, your employees will still need to allocate time to the project.

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Conclusion

Building a business case for automation helps you clearly evaluate the potential financial gains and costs. By focusing on hard and soft gains, as well as considering the time savings from automation, you can make well-informed decisions. Keep in mind that delays in implementing automation also result in missed opportunities—so act quickly to capture these benefits.