Many organisations are turning to Process Automation (Robotic Process Automation, Digital Workmates – the terminology leads to the same place) in the pursuit of cost savings and process improvements. But beyond the claims from software vendors, what’s it really worth?
There have been a number of studies into the opportunity for process automation.
McKinsey & Company conducted extensive research in 2017 into the nature of work and where automation could be applied – their findings are very interesting:
- Far from losing our jobs to robots – they found that less than 5% of occupations could be fully automated
- From analysing the types of work undertaken in each occupation, they found a rule of thumb where 60% of occupations have at least 30% of activities that are technically “automatable” today
- In total, about 46% of time spent on work activities across occupations and industries could be automated with technology that exists today
Deloitte have highlighted expected cost savings and other benefits from process automation in their report ‘The Robots Are Coming‘. Their rule of thumb is simple: if a UK-based FTE carrying out an activity costs 100, an off-shore FTE will cost 35 and the cost of a robot carrying out the same activity will be 10. This is just the operational efficiency saving – they point out that the full benefits of process automation can be split across:
- Efficiency / Cost Reduction (from 100 to 10 as above)
- Quality / accuracy risk mitigation
- 24-hour service
- Flexibility / multi-tasking
- Management Information
Let’s have a stab based on these figures. Let’s assume back office ‘service support’ roles are firmly in McKinsey’s 60% of occupations with 30% of their activities being automatable. If we use Deloitte’s rule of thumb for calculating the cost of of running an automated process (10% of the on-shore FTE cost) … that’s somewhere north of a 20% saving in back office costs!
Beware Headcount savings
I learned early in my career that seasoned Finance Directors look deeper than just the business case before they’ll sanction an investment. They were more interested in how the claimed benefits would be realised. One particular Finance Director who had been presented with too many flakey cases based on head-count savings would insist on seeing the names and payroll numbers of the staff whose roles would be affected before accepting any FTE saving.
In larger operations it’s likely that there will be groups of people carrying out the same or similar tasks. Even if only part of their work (for example McKinseys’ 30%-46%) can be automated, by redeploying remaining activity an overall headcount saving is easily achieved.
In smaller operations it’s highly likely that savings may work out to whole FTEs – the same Finance Director would always point out that anything less than a whole FTE is zero, unless you can find capacity somewhere else. So whilst the activity cost of running the process has been transformed, if we’re not losing people then the benefits need to be found elsewhere.
Outcome Benefits of Process Automation
Another way of looking at this is though is in creating capacity. More can be done, or the same done faster – which creates benefits along the process.
For example, let’s consider an accounts payable process in an organisation in which it takes one person nearly all month to receive, log, verify and manage the authorisation of supplier invoices. The whole process could be automated at a fraction of the cost of human effort – but there will still be tasks that the employee is needed for, so it’s difficult to make a case purely on headcount saving.
However, the time freed up could be deployed to help the accounts receivable team. This additional capacity could result in a reduction in debtor days – a significant cash benefit to the business.
In addition, the junior team member could also take on other tasks across the small finance team – releasing a more senior team member to work on planning and budgeting. This, combined with the learning from automating the process, could help the senior team member to identify more areas where process automation could help the business – for example automating sales administration, creating additional capacity to win more business.
Ultimately, taking the plunge on a single process based on marginal head-count savings could open up significant savings and capacity increases across the business. The cost-saving on head-count alone may have been marginal – the overall return on investment would end up enormous.
Return on Investment
McKinsey cite the major benefit in 16 case-studies that they examined as between 30% and as much as 200% Return on Investment (ROI). This ties in with our experience – ROI based purely on cost-savings on initial processes can be marginal (30-40%), but the ROI of a programme grows as the scope expands – an overall 200% ROI across a series of processes might be conservative.
As we discuss in “What’s the Real Cost of Repetitive Back Office Tasks?“, in the longer term process automation will mean that humans will have more interesting work.
Previous waves of industrial and technological revolution have made jobs uninteresting and deskilled. Our experience and the evidence that we’ve witnessed is that it’s not whole jobs that will be lost, but parts of jobs – the boring parts – and work can be reassembled into different types of jobs that allow humans to use the skills that make them human. Their ability to innovate, make judgements, form relationships, etc.
CONCLUSION: IT’S WORTH THE EFFORT OF TAKING A LOOK
Of course, these ROI scenarios sound great, but are they realistic? Well, yes, but it entirely depends on the organisation. To achieve large scale headcount savings, the first question is whether you have adequate resources to invest in the project and do you have support from senior leadership?
It’s very possible to achieve savings and benefits quickly – at individual process level. Identifying candidate processes, delivering benefit quickly and learning about the possibilities has a number of benefits. It creates credibility, it builds knowledge, it releases resource to identify additional opportunities and it can scale fast.
Starting small, learning fast and delivering quickly makes it possible to scale faster – with no risk.
Find out more about our approach: Process Automation