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Evaluate your ROI in Industrial Automation


ROI in Industrial Automation

This post was most recently updated on April 27th, 2022

Industrial automation is one of the top growth industries in North America. This highly-skilled field has a wide variety of opportunities for professionals to work. These jobs are in high demand and offer a significant salary for those who have the skills needed to do them. What’s more, automation offers many benefits, such as increased efficiency and reduced costs. But how can you go about determining whether your investment will pay off? 

Industrial automation is a process that allows for the intelligent control and increased efficiency of industrial manufacturing processes. It is an effort to improve workers’ comfort, productivity, and safety in a plant by applying mechanical systems as well as computer control. The cost of automation can vary from a few thousand dollars to $1 million or more, depending on its complexity. Industrial automation projects are often long-term investments, which means they provide long-term returns on investment (ROI). With ROI analysis, you will be able to make informed decisions on what project would be most beneficial to your company. But with so many variables involved, it is important to understand how to evaluate yourself through careful planning and execution. 

As with any investment, it’s significant to know what you’re getting for your money. The benefits range from improved productivity to reduced cost of ownership. To determine your ROI from industrial automation projects, look at some key factors mentioned in this article, including labor savings, efficiency level, and capital requirements.

Return on Investment

The return on investment (ROI) is one of the main indicators in evaluating your project’s success. The ROI measures the financial impact of an investment over a specific period, such as one year. In ROI calculations, you’re looking for a positive return that’s greater than the cost of the investment.

For example, an industrial automation project that costs $10 million and produces a $1 million increase in revenue will have a 10 percent ROI. This means that if you invested $10 million into this project, you would make back that amount plus an extra $1 million in profit. If you invest $10 million and your return is only $2 million, then your ROI would be 5 percent because you wouldn’t take back what you had budgeted to invest in the first place.

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To calculate your ROI from the industrial automation projects, remember to include all expenses associated with the project including labor savings, capital requirements, and efficiency level improvements. You can also compare this to similar investments by looking at how well it compares to other projects of similar size and complexity within its industry.

What is Industrial Automation?

Industrial automation is the process of installing and using machines, robots, and other types of automated systems to perform various manual tasks that would otherwise be done by humans. These technologies can help automate a variety of processes in manufacturing, construction, transportation, and more. Industrial automation has seen a drastic increase in recent years, with an estimated global revenue of $2.8 trillion by 2020.

Industrial automation is changing the manufacturing industry. Industry 4.0 in manufacturing refers to the use of a high-tech, digital world where robots and other automated systems replace human workers. However, it’s important to note that while robots are replacing humans in certain manufacturing jobs, human employees are still needed for critical tasks like quality control and production management.

It’s estimated that the global robotics market will exceed $44 billion by 2025, with 24 million industrial robots valued at $1 billion or more being sold each year. That number is expected to increase exponentially as technology improves and companies see the benefits of robotic automation in both labor and capital cost savings.

How To Evaluate your ROI in Industrial Automation

Even after evaluating the benefits of automation, the initial expenses of equipment may still leave your company in need of more persuasion. Convincing stakeholders of the competitive advantage of automation would most likely require more than just a list of benefits. You’ll need to figure out how much money your automation project will save you in the long run.

To accomplish so, you may utilize a basic ROI calculation method that subtracts the overall cost of the automated system from the labor savings. You’ll need the following information to complete this calculation:

  • The total cost of the system is estimated by multiplying the cost of the robot by three, which accounts for around a third of the total cost of the system. Add that figure to how many robots you think you’ll need to get your overall system cost. To account for extra expenses involved with the installation, such as backup power units, mounting hardware, connections, cables, or other auxiliary equipment needed to run these systems may require a multiple of four or five.
  • Calculate the number of shifts each robot will work each day.
  • Without a robotics system, what are your current labor costs? Use this information to estimate the amount of money you’ll spend on labor each year.
  • Using a robotics system, you may expect to save on labor expenditures. When you figure out how many operators you’ll need to run the system, subtract 25 percent of the total labor costs. Subtract your existing labor costs from that figure.
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Analyze your ROI

To analyze your ROI, you need to break down the costs and potential revenue of your project. This includes the cost of labor, capital, and maintenance. The labor savings can be determined by calculating the number of hours that would have been necessary with a human doing the work. You could also calculate the money saved per hour by using time studies or through surveys. The efficiency level is determined by how much more production could be done with automation than without it. Finally, you need to calculate how much investment is needed for automation to run smoothly without interruption.

Calculate your ROI for Industrial Automation

Calculating your ROI for an industrial automation project is very straightforward. Simply divide the total cost of the project by the total benefits achieved from the project. Using this formula, you can quickly calculate a number that represents your return on investment. For example, if you’re calculating labor costs and productivity, you would be calculating by dividing the total labor hours by the total labor cost savings. If you’re calculating for increased capital efficiency, you would be doing so by dividing the total investment amount by increased efficiency. This simple formula makes it easy to know what to expect from industrial automation projects in terms of ROI.

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Cost of Ownership

To calculate how much your business can save on operational costs, you need to take into account the cost of ownership. This includes labor, maintenance, and parts.

Labor savings are calculated by comparing the number of hours worked with the projected number of hours saved without automation. Maintenance savings are calculated by comparing the amount spent on maintenance before and after automation.

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The first step in calculating efficiency level is figuring out what percentage of work was done with automation vs without automation. The second step is determining how many machines or robots were used for the project, or if it was simply a single machine or robot that completed all tasks.

Capital requirements include both initial capital invested and long-term expenses like electricity, insurance, and upkeep for any machines installed.

Why Invest in Industrial Automation Projects?

Many companies don’t realize that industrial automation and its applications are an investment and not just a purchase. As such, it should be treated as a project to measure the ROI. 

Labor savings are often seen in the form of fewer employees needed to complete the same task.

Efficiency levels can be measured by the number of machines used per unit produced.

Capacity requirements for the machines or robots should be considered, including their cost to maintain over time.

Labor savings

Typically, one of the major benefits of industrial automation is labor savings. By cutting down on human input, you can increase your company’s productivity. Enhanced productivity means increased profit potential. This is an important point to consider when investing in industrial automation as it directly relates to ROI.

Efficiency level

The efficiency level of an industrial automation project is the amount of labor that can be removed from the process through automation. The benefits of increased efficiency can be seen in many areas.

Capital requirement

A major cost for any industrial automation project is the capital requirement. Industrial automation requires a significant investment in both time and money to implement. Be sure about your ROI before investing in an automated system.

Conclusion

Industrial automation is a growing industry that is on the cutting edge of technology. Companies that choose to automate their processes reap the benefits of reduced operating costs, increased efficiency, and improved production levels. However, all investments have a return on investment and, in this case, it is essential to evaluate the ROI of an industrial automation project.

Author bio

Rick Seidl is a digital marketing specialist with a bachelor’s degree in Digital Media and communications, based in Portland, Oregon. He carries a burning passion for digital marketing, social media, small business development, and establishing its presence in a digital world, and is currently quenching his thirst through writing about digital marketing and business strategies for SEO turnover.


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