Automation Payback Calculator
Will this automation pay for itself?
Enter the quote, your volumes and your costs. See the payback, what you stand to lose if it doesn't work, and how much a test before you buy is really worth. Your figures stay in your browser.
Private. Built on your numbers, not industry averages.
Enter the quote, your volumes and your costs. See the payback, what you stand to lose if it doesn't work, and how much a test before you buy is really worth. Your figures stay in your browser.
Private. Built on your numbers, not industry averages.
Check before you sign
Every quote shows what you gain if it works. Check what you lose if it doesn't.
Put in your own figures. Not sure of one? Give a low and a high. You'll see the payback, what the project is worth if it works and if it fails, and how much it's worth spending on a test before you commit.
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The formulas are set out below, so you can work them through by hand. Or send your figures to Arjun and he'll reply personally within one business day, Monday to Friday, India time.
What your numbers say
Buy now, test first, or don't buy?
Based only on your figures. Not an audit, and not advice on this investment.
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Example, not a client's numbers
Example: a robot cell where a test before buying is worth up to 30 per cent of the price.
A plant is weighing up a collaborative robot cell that costs INR 60 lakh. (One lakh is 100,000 rupees, so that is 6 million rupees.) On the plant's own figures, the cell is worth plus INR 90 lakh over its life, in today's money, if it works as planned. If it doesn't work, the plant expects to get INR 20 lakh back by moving or returning the equipment, and to lose INR 5 lakh in disruption while it comes out. So a failure is worth minus INR 45 lakh. The plant head thinks there is a 60 per cent chance it works.
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Step 1. Two outcomes
If the cell works it is worth plus INR 90 lakh. If it fails, minus INR 45 lakh.
The failure figure is the capital cost of INR 60 lakh, less INR 20 lakh recovered by redeploying or returning equipment, plus INR 5 lakh of disruption while the cell comes out.
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Step 2. Commit now
Committing now is worth INR 36 lakh, on average.
At the plant head's 60 per cent: 0.6 x 90, plus 0.4 x minus 45, which is 54 minus 18.
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Step 3. Know first
Knowing first makes it INR 54 lakh, so finding out is worth up to INR 18 lakh.
If the plant could learn whether the cell works before committing, it would commit only when it will, and the failure branch drops to zero. The gap between 54 and 36 is the ceiling on what any test before committing can be worth.
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Step 4. Break-even
The decision turns at 33 per cent. The estimate of 60 is 27 points clear of it.
Below 45 divided by (90 plus 45), committing loses money on average. At 60 per cent the answer does not turn on small changes in confidence. At 40 per cent it would.
| Step | Calculation | Result |
|---|---|---|
| Expected value if you buy now | 0.6 x 90 + 0.4 x (minus 45) = 54 minus 18 | 36 |
| Expected value if you knew in advance, and bought only when it would work | 0.6 x 90 + 0.4 x 0 | 54 |
| Most a test before buying can be worth | 54 minus 36 | 18 |
| Break-even chance of success | 45 divided by (90 + 45) | 33 per cent |
So what does the plant head do with this? First, INR 18 lakh is the ceiling on what any test before buying is worth here. A test that costs less, and would genuinely show whether the cell will work, is worth a look. A test that costs more isn't. Second, 60 per cent is about 27 points above the break-even of 33 per cent, so a little more or less confidence won't flip the decision. At 40 per cent, it would.
Methodology
Every formula is here. Hand it to your finance team.
Every amount is in the currency you choose. Nothing is converted.
- Annual net benefit if it works
- Hours of manual work removed x full cost of one hour of work, plus defects caught earlier x (cost of a defect that reaches the customer minus cost of a defect caught inside the plant), plus extra stock or overtime you no longer need, minus annual running cost.
- Simple payback
- Capital cost divided by annual net benefit. Shown only when the annual net benefit is above zero.
- Net present value if it works
- Minus capital cost, plus annual net benefit x annuity factor. The annuity factor is (1 minus (1 + r) to the power of minus L) divided by r, where r is the discount rate and L the life in years. When r is zero, the factor is L.
- Net present value if it fails
- Minus (capital cost minus salvage value), minus disruption cost.
- Expected value of committing now
- p x net present value if it works, plus (1 minus p) x net present value if it fails, where p is your probability that it works.
- Value of finding out first (called the expected value of perfect information in decision analysis)
- p x the larger of (net present value if it works, zero), plus (1 minus p) x the larger of (net present value if it fails, zero), minus the larger of (expected value of committing now, zero).
- Break-even probability
- Minus net present value if it fails, divided by (net present value if it works minus net present value if it fails). Shown only when the project gains if it works and loses if it fails.
- Fragility note
- Shown when your probability is within ten points of the break-even probability.
Where you give a low and a high value, the cautious case takes the high end of every cost and the low end of every benefit, the hopeful case does the opposite, and the central case uses the midpoints.
The value of finding out first is a ceiling, not a price. No real test tells you everything, so a real test is worth less than this figure. The sum comes from standard decision analysis, first set out by Ronald Howard in 1966 and taught on most courses about deciding under uncertainty.
Your figures are kept in this page's web address, so you can bookmark or share the result. Anyone with that link can see your numbers. Nothing reaches us unless you press "Discuss your result with a founder" and then send the contact form yourself, after seeing exactly what it includes.
What the estimate assumes
- The benefit is the same every year. Real benefits often build up over the first year, so counting full benefit from day one makes the result look better than it is.
- Each year's net benefit arrives at the end of that year and is discounted at your rate.
- Nothing is added for what the system is still worth at the end of a successful life.
- A failure is treated as happening at the start: you lose the capital cost minus what you get back, plus the disruption cost. A system that fails after a few years of partial benefit lands somewhere between the two.
- It either works or fails. Partial success isn't modelled, which is the main reason the result is a guide and not a forecast.
- The saving from catching defects earlier is the gap between what a defect costs once it's outside the plant and inside it. Don't count the same defects again in hours removed.
- Tax, depreciation, financing and inflation are left out. Your finance team's own model should include them before anyone decides.
- The chance of success is your number. The calculator doesn't check it against any benchmark, because there isn't one behind it.
Formula version automation-payback.v1.