Wednesday, November 17, 2021
When considering new Automation it is common to go through a Return on Investment ROI calculation to decide if the Automation cost is worth it. This generally involves basic items such as labour savings, increased performance/output. However, there are a surprising number of hidden costs and benefits that can significantly impact the decision.
Most companies are aware there are add on costs associated with Labour but few know the true cost. In a recent study by MIT Sloan School of Management the cost is 1.25 to 1.40 times the base salary. But is that really it? It may be that yes the labour costs that much but this must also factor in time on the job. Anyhow, let’s consider some other items and scenarios.
Obviously if the person isn’t there in many cases they still have to be paid. Then, is the resource critical to production or output ie if that person is off sick or injured will it impact others – often this is the case on production lines. Then if the person has to be backfilled what is not done by the person that gets the infill role or worse what impact does it have to start hiring temporary staff or worse permanent staff foe example is training required?
It’s very topical right now but do the current algorithms consider disease control and ramifications such as quarantines, testings, physical distancing outbreaks etc. Above are just some of the curveballs, the word art included with this article covers a whole host of issues that should be factored into the true cost of labour.
Insurances costs related to labour are directly geared to the number of staff members so this should be a cost saving in the calculation.
How time or how many meetings are required to resolve HR type issues communicate new policies discuss performance etc
What about the quality cost of the work that a person produces? All humans make mistakes that’s what makes us human. What does a mistake cost? Could it be just that a product gets rejected and that’s all - so waste and inefficiency, or is it that the defective product is sold and causes reputational and brand damage – what would that cost? Of course Automation does not make mistakes and is very repeatable if done right.
There is no doubt that Automation can outperform humans even across one shift they can perform actions faster without breaks, but they can also go for 24 hours 7 days a week! This should be factored into the cost – for example could that mean that the producer can meet demand with less factories, less space, less days a week?
ROI calculations calculate how long it is before the initial cost is covered, but is this the right way to look at it? Surely, there should be some consideration to the years and years of operation after that. Industrial Robots typically last over 12 years many 20 plus years yet, most companies look for an ROI within 2 - 3 years. Does that mean we should also add the savings from the above hidden items together with inflation factor for 10 years – how easy would that make the decision!
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Written by David Askew, Chief Executive Officer at Fast Automation Pty Ltd.
Based in Australia, Fast Automation has over twenty years of experience in the automation industry and has performed thousands of world-first, mission critical automation projects.
Fast Automation are highly passionate about helping clients do more for less and do it for longer, better, safer and faster. Leading the industry for new and innovative technologies, Fast Automation are currently integrators of a range of automation systems.
Beyond automation, Fast Automation is a believer of giving back to the community and is a proud supporter of The Kid's Cancer Project among other causes.< Back to post list