Simple Way to Calculate the ROI of Automated Machine Services

At Automated Machine Systems, we’re excited to introduce a powerful tool that will transform the way you evaluate your automated machine services – the Automation ROI Calculator. With evolving technologies and shifting financial needs, calculating the Return on Investment (ROI) for automation projects can be a challenging task for even the most experienced business leaders. 

The challenge lies in not only quantifying the true benefits of project options but also in understanding the complexities of reading the financial landscape. In this blog post, we’ll explore the intricacies of ROI, why it can be difficult to use for project evaluation, and introduce alternative methods that can offer a more comprehensive view of the financial viability of automation projects.

The Challenge of Calculating ROI

ROI, or return on investment, has been a cornerstone of financial decision-making for business leaders. It involves comparing capital investment costs to projected operational cost savings over time to determine how long it will take to recoup an investment. 

However, despite its popularity, ROI can be challenging to apply, especially for automated machine services projects that offer numerous benefits that aren’t easily quantifiable in simple payback terms.

Furthermore, ROI often falls short when it comes to confirming expected payback after a project has been implemented. Many business leaders expect immediate cost reductions after a project goes live, only to find their financial statements not reflecting these savings, or worse, showing cost increases. ROI doesn’t provide a clear enough perspective on a project’s financial impact even after completion, making it less reliable for project inception.

Alternative Project Financial Evaluation Methods

So, what are the alternatives to ROI for evaluating automated machine services and manufacturing projects? At Automated Machine Systems, we go beyond traditional ROI calculations and introduce a set of tools that provide a more comprehensive view of the financial viability of your projects.

Utilization: 

We often describe utilization as “the value you gain from an investment based on how much you use it.” This concept focuses on how the automation investment’s per-unit net gain scales based on its actual usage. It emphasizes that a project offering a 4 percent savings per unit used 24 hours a day can be more beneficial than one with a 5 percent savings per unit used only 12 hours a day, assuming product rates are equal.

OEE (Overall Equipment Efficiency):

OEE measures how many “good” units a system (say, a precision fastening system) can produce compared to total units, accounting for rejects and stoppages. This aspect of financial evaluation provides a way to compare projects based on their relative performance, allowing you to identify projects with high OEE potential that ROI might overlook.

NPV (Net Present Value): 

NPV is a standard capital finance calculation used to compare projects based on their cash flows. It considers future savings and expenses in today’s dollars, accounting for interest rates, inflation, and ongoing cost threats. NPV allows you to assess projects over their entire lifespan and compare their net lifetime return to the initial investment in today’s equivalent dollars, providing a more comprehensive view of their financial viability.

Reallocation: 

In cases where operating margins are already established and there’s little room for financing, reallocation analysis helps “find the money” in existing operating expenses. It can uncover indirect cost reductions, such as labor overhead, insurance premiums, energy consumption, and tax credits, which contribute to the overall financial viability of automation projects.

These alternative methods offer a more holistic view of your projects’ financial impact, helping you make informed decisions that lead to long-term success and profitability.

And if you want to choose the right automation partner, we’ve got a handy free guide with your name on it.

Investing in Automated Machine Services

Whether you’re ready to invest in a fully automated system or just starting your journey into machining services, we’re here to help. Our experts are ready to work with you to assess your unique needs and tailor a solution that ensures a positive ROI for your business. 

Contact us or book a virtual meeting with one of our professionals to get started on your automation journey. At Automated Machine Systems, we’re committed to helping you achieve success in the world of automation. 

Let’s pave the way for a brighter, more efficient future.