9.2 Measuring automation impact on efficiency and productivity

Automation can significantly boost efficiency and productivity in business processes. By measuring key metrics like operational efficiency ratios and output per employee, companies can quantify the impact of automation on their performance.

Time and cost savings are crucial benefits of automation. Tracking process velocity and comparing pre and post-automation durations helps measure time reductions, while analyzing labor costs and error rates reveals cost savings achieved through automation.

Efficiency and Productivity Metrics

Measuring Operational Efficiency

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• Efficiency metrics quantify how well an organization utilizes its resources to produce outputs
• Operational efficiency ratio compares operating expenses to net sales revenue
  • A lower ratio indicates better efficiency as the company spends less to generate each dollar of sales
• Capacity utilization measures the extent to which an organization's resources are being used productively
  • Calculated as the actual output divided by the maximum potential output
  • Helps identify underutilized resources (machines, labor) that could be optimized

Evaluating Employee Productivity

• Productivity metrics assess the output generated per unit of input, such as labor or capital
• Output per employee measures the average amount of output each worker produces
  • Calculated by dividing total output by the number of employees
  • Useful for comparing productivity across different teams or departments
• Labor productivity index tracks changes in labor productivity over time
  • Compares the output per labor hour in a given period to a base period
  • Helps monitor improvements or declines in worker efficiency (2021 vs. 2020)

Time and Cost Savings

Quantifying Time Reductions

• Time savings refer to the reduction in time required to complete a process after implementing automation
• Process velocity measures the speed at which a process is completed from start to finish
  • Calculated by dividing the number of process instances by the total processing time
  • Faster velocities indicate more efficient processes (loan approvals per day)
• Comparing pre and post-automation process durations helps quantify the time savings achieved

Measuring Cost Reductions

• Cost savings represent the reduction in expenses resulting from automation
• Common sources of cost savings include:
  • Reduced labor costs due to fewer manual tasks
  • Lower error rates and rework costs
  • Decreased material waste and inventory carrying costs
• Calculating the difference between pre and post-automation costs helps measure the financial impact
  • Factor in both one-time implementation costs and ongoing operating expenses
• Cost savings can be expressed as a percentage or absolute dollar amount (25% reduction, $50,000 annual savings)