Roundup: How to Best Calculate Robotics ROI | Robotics
With today’s industrial organizations focused, often obsessively, with efficiencies of robotics, less attention is paid on the use of capital. This can be unfortunate, as the efficient use of capital should be included in any discussion about organizational efficiencies and effectiveness.
With the pace of investments in robotics accelerating, knowing the value of a return-on-investment (ROI) and the qualifying value should be at the top of the list.
Factors to consider when evaluating robotics ROI
When considering ROI, companies must consider multiple factors. The general method of calculating ROI includes comparing potential gains as measured against potential costs. This is often expressed at a high level as
ROI = (Gain from Investment – Cost of Investment) / Cost of Investment)
The result is expressed as a percentage or ratio, which can then be easily compared against alternative or competing investment opportunities.
Calculating the different factors involved in the Cost of Investment is where things get tricky. In addition to initial equipment prices and installation costs, operating costs, and the effects on cash flow and profitability must also be taken into consideration.
Consequently, some key areas to consider when assessing robotics ROI include:
Fixed costs discussions should include such costs as the purchase of new robotics systems, the construction of new buildings or work areas, new or additional back-up power units, refurbishment of plant and fixtures, new conveyer systems, or similar investments.
- Identify initial purchase costs.
- Associated equipment, sensors, and network additions required to operate robotics systems.
- Engineering and installation costs.
- Construction or assembly of staging areas, segregated and protected areas, and robotics parts areas.
Variable costs typically include the costs of labor, energy, direct materials, production supplies, and associated costs needed to operate robotics production or assembly lines.
- Calculate labor costs for operating a traditional manufacturing or assembly line, as well projected labor costs for a post-robotics implementation. For the latter, consider the net labor costs that occur with fewer production/assembly line workers, but include the potential increase for robotics engineers and maintenance workers. For each analysis, direct costs, benefits, and overhead should be included.
- Energy costs to operate robots and associated systems.
- Calculating duty cycles of robots including such factors as cost per hour, cost per unit produced, cost per shift, etc. Also, factor in the number of shifts and/or days robots will be in operation.
- It’s also important to keep in mind the variability of the cost for maintenance and operations tasks over the expected equipment lifecycle in these calculations.
- Particularly with maintenance costs, there can be spikes when major preventive maintenance tasks would occur, as well as increases in corrective maintenance tasks as equipment ages. (For more information on maintenance and operations cost curves, see the Robotics Business Review report entitled “Is 24/7 Uptime a Worthy Goal for Industrial Robotics?”)
Cash Flow and Profitability Concerns
When conducting ROI analyses, organizations should keep in mind the difference between cash flow and profitability analyses. This can be important, since investments are typically made in cash or cash equivalents for capital assets, but ROIs offer factor-in-the-time-value-of-money, and ultimately, profitability analyses. This is why some firms prefer to include cash flow analyses as part of their ROI calculations.
Other Considerations and Some Rules of Thumb
- Rules-of-thumb for the cost of an industrial robot is sometimes estimated to be a third of total costs.
- Operator labor costs for robotics systems are estimated to be about 25% of legacy labor costs.
- Estimated total costs of robotics systems can be about 3x to 5x the cost of a basic robot, depending on implementation complexity and whether auxiliary equipment and expanded conveyer systems are required. Note: this assumes a fully burdened operator labor cost (including benefits and overhead) of $100,000 per year and a three-shift operation.
- With many organizations expecting a service life for robotics systems to be at least five to seven years, an ROI payoff of about two years is desired, which allows time for unforeseen costs and time for additional payback.
Links for select robotics ROI calculators
Several of today’s robot manufacturers and other industry partners offer advice and guidance to factors to consider when evaluating estimated payback times and return of investment expectations. Listed below are some of the firms that offer guidance and online ROI calculators.