Return On Investment (ROI) to Total Value of Ownership (TVO)

With the ever growing expansion of automation and artificial intelligence in the IT sector, a profusive amount of questions have been heard from uncountable automation candidates. One of the most common questions that has come up is: How should you measure your Automation Program? Here in Nova we understand the importance of clarity upon answering this question, and our team strive to educate each and every one of our prospective clients by giving them the tools for their automation to succeed.

Return On Investment (ROI)

In order to begin understanding the success of Automation, one must first understand the definitions behind it. We will begin by diving into Return On Investment (ROI).

Forbes has previously defined Return On Investment (ROI) as:

"Return on Investment (ROI) is a metric used to understand the profitability of an investment. ROI compares how much you paid for an investment to how much you earned to evaluate its efficiency." Forbes (2021)

A simplified formula to calculate return on investment, is to divide the net profit by the cost of the investment and multiply that by 100.

ROI = (Net Profit / Cost of Investment) x 100

In the Automation space this often refers to the number of hours saved by the BOTs multiplied by the average Employee hourly rate that would take to perform the automated tasks divided by the Total Cost of Ownership.

ROI = (BOT Saved Hours * Avg. Employee Hr. rate)/ Total Cost of Ownership

---

Total Value of Ownership (or Opportunity)

Gartner defines TVO as a metrics-based approach to measuring business performance, and includes the important factors of risk, time and conversion effectiveness (an assessment of an organization's ability to convert projected value into actual business benefit). Determining a business case from a small set of agreed-upon business metrics is key to this approach. Metrics and measurement systems are a vehicle for communication between different entities, and using agreed-upon metrics ensures "language alignment" between major stakeholders in an IT investment decision (generally, the IS organization, business owners and finance functions). It is also important to note that these metrics must be rooted in the business, not in IT, as the business and finance stakeholders determine investment criteria for all types of investments, and must bear much of the responsibility for exploiting the technology correctly to deliver the projected business benefit."

Knowledge Capital Partners, has developed a new measurement framework for service automation investments. With this concept, the objective is to ensure that business cases for service automation are driven by:

• Total costs (both explicit and hidden costs)

• Multiple expected business benefits, and the strategic returns from future business and technical options made possible by automation (hidden value).

How to measure your Automation program Success?

Our Nova US Experts recognize value on both units of measurement; while ROI is a quantifiable and simple measurement, TVO includes ROI and other benefits that could potentially drive transformation, enterprise strategic decisions and Customer/Employee experience improvement.

In our experience, we recommend focusing on ROI as a starting point. It can be more beneficial during the initial two phases of proving and establishment of your Automation Program. These steps are critical to getting the stakeholder's buy-in, budget and to demonstrate the potential benefits of Automation.

Further on in the expansion and scaling phases, it is recommended for the CoE team, RPA champions and Stakeholders to determine goals, objectives and define TVO success criteria. Upon this implementation, one can be lead towards the path of discovering all potential benefits and creating a better experience for customers and employees.

Nova US experts.

info@novaus.io