Measuring the ROI of Approval Automation
Approval automation can significantly streamline business processes, but demonstrating its value to stakeholders requires a clear understanding of its return on investment (ROI). This article provides practical tips for measuring the ROI of approval automation initiatives, enabling you to showcase the tangible benefits of these solutions.
1. Identifying Key Performance Indicators (KPIs)
Before implementing approval automation, it's crucial to establish a baseline and identify the KPIs that will be used to measure success. These KPIs should align with your organisation's strategic goals and reflect the areas where automation is expected to have the greatest impact.
Common KPIs for Approval Automation
Approval Cycle Time: The time it takes to complete an approval process from initiation to final approval.
Process Completion Rate: The percentage of approval requests that are successfully completed without errors or delays.
Error Rate: The number of errors or exceptions that occur during the approval process.
Audit Trail Completeness: The extent to which the approval process is documented and auditable.
Employee Satisfaction: The level of satisfaction among employees involved in the approval process.
Cost per Approval: The total cost associated with processing a single approval request.
Setting Baseline Metrics
Before implementing approval automation, gather data on your current processes to establish a baseline for each KPI. This will provide a benchmark against which to measure the impact of automation. For example, track the average approval cycle time for purchase orders or expense reports before and after automation.
Avoiding Common Mistakes
Selecting Irrelevant KPIs: Choose KPIs that are directly related to the goals of your approval automation initiative.
Failing to Establish a Baseline: Without a baseline, it's impossible to accurately measure the impact of automation.
Ignoring Qualitative Data: While quantitative data is important, don't overlook qualitative data such as employee feedback.
2. Tracking Time Savings and Efficiency Gains
One of the primary benefits of approval automation is the reduction of manual effort and the acceleration of approval cycles. Tracking these time savings and efficiency gains is essential for demonstrating ROI.
Methods for Tracking Time Savings
Process Mining: Use process mining tools to analyse approval workflows and identify bottlenecks and inefficiencies.
Time Studies: Conduct time studies to measure the time spent on specific tasks before and after automation.
Employee Surveys: Survey employees to gather data on the time they spend on approval-related activities.
System Logs: Analyse system logs to track the time it takes to complete approval processes.
Quantifying Efficiency Gains
Translate time savings into quantifiable efficiency gains. For example, if automation reduces the average approval cycle time by 50%, calculate the number of hours saved per week or month. Then, multiply this by the hourly cost of labour to determine the cost savings.
Real-World Scenario
Imagine a company that automates its invoice approval process. Before automation, it took an average of 5 days to approve an invoice. After automation, the average approval time is reduced to 2 days. This represents a 60% reduction in approval cycle time. If the company processes 1000 invoices per month, and each invoice requires 2 hours of manual processing, automation saves 6000 hours per month. At an average hourly rate of $50, this translates to a cost saving of $300,000 per month.
Avoiding Common Mistakes
Overestimating Time Savings: Be realistic about the potential time savings from automation.
Failing to Account for Implementation Time: Don't forget to factor in the time required to implement and configure the automation solution.
Ignoring the Impact on Other Processes: Consider how automation affects other related processes.
3. Calculating Cost Reductions
Approval automation can lead to significant cost reductions by eliminating manual tasks, reducing errors, and improving compliance. Accurately calculating these cost reductions is crucial for demonstrating ROI.
Identifying Cost Reduction Areas
Labour Costs: Reduced manual effort leads to lower labour costs.
Paper Costs: Automation reduces the need for paper-based processes.
Storage Costs: Digital storage is typically less expensive than physical storage.
Error Correction Costs: Automation reduces errors, leading to lower error correction costs.
Compliance Costs: Improved compliance reduces the risk of fines and penalties.
Calculating Cost Savings
For each cost reduction area, calculate the savings achieved through automation. For example, if automation reduces paper consumption by 50%, calculate the cost savings based on the price of paper and printing supplies. Similarly, if automation reduces the error rate by 20%, calculate the cost savings based on the cost of correcting errors.
Example Calculation
Let's say a company spends $10,000 per month on paper and printing supplies. After implementing approval automation, paper consumption is reduced by 40%, resulting in a cost saving of $4,000 per month. Additionally, the company spends $5,000 per month on error correction. Automation reduces the error rate by 30%, resulting in a cost saving of $1,500 per month. The total cost saving is $5,500 per month.
Avoiding Common Mistakes
Ignoring Indirect Costs: Don't forget to factor in indirect costs such as the cost of managing paper-based processes.
Failing to Track Actual Costs: Track actual costs before and after automation to ensure accurate calculations.
Overlooking Hidden Costs: Be aware of any hidden costs associated with automation, such as the cost of training employees.
4. Measuring Compliance Improvements
Approval automation can significantly improve compliance by ensuring that all approvals are properly documented and auditable. Measuring these compliance improvements is essential for demonstrating ROI, especially in highly regulated industries.
Key Compliance Metrics
Audit Trail Completeness: The extent to which the approval process is documented and auditable.
Compliance Violation Rate: The number of compliance violations that occur during the approval process.
Audit Readiness: The ability to quickly and easily respond to audit requests.
Data Security: The level of security protecting sensitive data during the approval process.
Demonstrating Compliance Benefits
Show how automation improves compliance by providing a clear audit trail, reducing the risk of errors, and ensuring that all approvals are in accordance with company policies and regulatory requirements. For example, demonstrate how automation ensures that all invoices are approved by the appropriate individuals and that all supporting documentation is attached.
Benefits of Improved Compliance
Improved compliance can lead to several benefits, including reduced risk of fines and penalties, improved reputation, and increased customer trust. Quantify these benefits whenever possible. For example, if automation reduces the risk of a $100,000 fine by 50%, this represents a potential cost saving of $50,000.
Avoiding Common Mistakes
Failing to Define Compliance Requirements: Clearly define the compliance requirements that automation is intended to address.
Ignoring Audit Findings: Pay attention to audit findings and use them to improve the automation solution.
Overlooking Data Security: Ensure that the automation solution is secure and protects sensitive data.
Consider how our services can help improve compliance within your organisation.
5. Presenting ROI Data to Stakeholders
Once you have collected and analysed the data, it's important to present the ROI data to stakeholders in a clear and compelling manner. This will help to demonstrate the value of approval automation and secure ongoing support for these initiatives.
Effective Communication Strategies
Use Visual Aids: Use charts, graphs, and other visual aids to present the data in an easily understandable format.
Focus on Key Metrics: Highlight the KPIs that are most relevant to stakeholders.
Tell a Story: Use the data to tell a story about how approval automation has improved business processes and delivered tangible benefits.
Tailor the Message: Tailor the message to the specific interests and concerns of each stakeholder group.
Reporting Formats
Executive Summary: Provide a concise summary of the key findings and recommendations.
Detailed Report: Include a detailed report with all the data and analysis.
Interactive Dashboard: Create an interactive dashboard that allows stakeholders to explore the data in more detail.
Common Pitfalls to Avoid
Overcomplicating the Presentation: Keep the presentation simple and easy to understand.
Using Jargon: Avoid using technical jargon that stakeholders may not understand.
- Exaggerating the Results: Be honest and realistic about the benefits of approval automation.
By following these tips, you can effectively measure and communicate the ROI of approval automation, demonstrating its value to stakeholders and securing ongoing support for these initiatives. To learn more about Approvals and how we can help, visit our website or check out our frequently asked questions.