# The Formula for Rationalizing Automation

### How to Calculate the Return on Investment for Factory Automation Projects

The factory of the future is automated. This may seem like a bold statement, but it is one that is becoming increasingly true as technology advances. Businesses are starting to see the value in automating their factories and are beginning to invest in factory automation projects. But how do you know if a factory automation project is worth the investment?

There are a few factors to consider when calculating the return on investment for factory automation projects. The first is the cost of the project. This includes the cost of the robots, as well as the cost of installation and integration. The second factor is the time frame. How long will it take for the robots to pay for themselves? The third factor is the process. What processes are you looking to automate? And finally, the fourth factor is the ROI itself. What are your expectations for the return on investment?

Once you have considered all of these factors, you can begin to calculate the return on investment for factory automation projects. To do this, you will need to consider two things: the cost of the project and the time frame. The cost of the project is fairly straightforward. It is the total cost of the robots, as well as the installation and integration costs.

Total Cost of Equipment/Robots + Installation + Integration = Investment

The time frame is a bit more complex. To calculate the time frame, you will need to consider how long it will take for the robots to pay for themselves. This is generally done by looking at the production cycle time.

Time Frame = Production Cycle Time * Number of Units Produced * Savings Per Unit

And so, the simple formula for you to consider is relatively straight forward:

Investment / Time frame = ROI

Let’s use an example to break this down:

A factory is looking to automate its welding process. The cost of the project is \$100,000. The production cycle time is two minutes, and the factory currently produces 200 units per day, at a labor cost of \$1.20 per unit. The automated solution will increase production by a factor of 8, increasing the output from 200 units per day to 1600 units per day, and lowering the cost per unit to \$0.15.

This means that for every minute that the robots are in operation, the factory is making an additional \$1.05 per unit, at 8X the output.

Therefore, the new total daily output will go from 200 to 1600 units, assuming an 8 hour workday. We can then understand the number of units needed to return on the project cost by looking at the below formula:

Investment / (Current Unit Cost – Projected Unit Cost) = ROI (Units)

\$100,000 / (\$1.20 – \$0.15) = 95,238

But how long will it take? Look below at the formula on how to calculate the time horizon for the project to return:

Investment / (Daily Output * ROI in Units) = ROI (Production Days)

\$100,000 / (1600 * \$1.05) = 59.5 Production Days

Now, this is just one example of how to calculate the return on investment for factory automation projects. Every project is different, and so it is important to consider all of the factors before making a decision. But by understanding the basics of how to calculate the return on investment, you will be well on your way to making a decision that is right for your factory.

If you have any questions about calculating the return on investment for factory automation projects, or if you would like to learn more about our custom integration services, please book a free discovery call. We would be happy to help you find the solution that is right for your factory.