Is automation cost-effective for your business?

Automation is increasingly entering the workplace, promising great things for businesses. Just how cost-effective is automation for your business today?

Four columns of robotic arms in a white factory work on conveyor belts

Worldwide sales of industrial robots are increasing. The International Federation of Robotics (IFR) estimated total sales of 248,000 units in 2015, which was a 12% growth over 2014. IFR also estimates that 2.3 million units of automation technology will be deployed in factories by 2018, compared with only 1 million units in 2009. As more businesses utilize automation to improve productivity, organizations are asking themselves if now is the right time to invest.

Is automation cost-effective?

Assessing the full costs of automation is not an easy task — it is not simply a case of “A costs less than B, therefore A is better.” For example, the annual costs of automation could exceed an employee’s salary, but this does not necessarily mean a poor investment — higher productivity levels can negate the extra costs.

There are some key questions that must be asked when assessing cost-effectiveness.

1. How much does an employee cost each year?
This will include all costs associated with employees and not just wages, e.g., taxes, training, expenses and holidays.

2. How much does the technology cost, and how long will it last?
Understanding how much the technology will cost and how many years it could last will provide an average annual cost over its lifetime. The cost of potential upgrades to extend the technology’s working life should also be considered.

3. How much will technology maintenance cost each year?
It is vital to estimate how much maintenance the technology will require and if there will be any downtime costs for repairs. This will help form the total annual cost of automation.

4. How many of the employees’ tasks will automation take over?
Many roles are unlikely to be fully automated, which means there will still be employee inputs and costs. Will this be on a part-time or full-time basis?

5. How much more productive is the technology?
What is the productivity rate of automation compared with employees? In combination with annual costs, this can provide a cost-effectiveness analysis.

6. How much wastage does technology save or create?
What is the cost of wastage from automation when compared with employees?

Increasing incentives

Some business leaders see the potential financial incentive of minimal wage rises as a catalyst for speeding up the transition to automation. Yet, while low skilled jobs are more liable to be automated, their correspondingly low wages can make automation a costly investment. In terms of potential, automation could do 75% of the work of around three million low wage US workers who prepare and serve restaurant food.

Ultimately, it is most likely a waiting game. As automotive technology becomes cheaper and more advanced, so it will become more cost effective to automate jobs previously carried out by low wage workers.

Self-inflicted wound

Though organizations can greatly profit from automation, it could potentially threaten their long-term business sustainability. Extreme levels of automation may lead to heavy job losses and reduced job creation globally - a serious issue for economic growth.

Current research estimates 45% of work activities could already be automated by using currently demonstrated technology – which is around US$2 trillion in wages. If unemployment rates rocket due to automation, as some experts predict, people will have less money to spend and be unable to sustain consumption levels. The end result of this scenario could be a diminished customer base for businesses and reduced profits.

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