FREE ENGINEERING TOOL · BUSINESS CASE
Automation ROI & Payback Calculator
Automation ROI compares the money an investment saves each year with what it costs to buy and run. Enter the initial investment, annual labour, scrap and downtime savings, running costs, analysis period and discount rate to estimate net annual benefit, payback period, ROI over the period and net present value.
HOW IT IS CALCULATED
The formulas
- Net annual benefit = labour savings + scrap savings + downtime savings − annual running cost
- Simple payback (months) = initial investment ÷ net annual benefit × 12
- ROI = (net annual benefit × years − initial investment) ÷ initial investment
- NPV = −initial investment + Σ net annual benefit ÷ (1 + discount rate)^year, for each year in the period
Worked example
With the default values (50,000 investment, 18,000 + 6,000 + 8,000 annual savings, 4,000 running cost, 5 years, 10% discount rate) net annual benefit is 28,000, simple payback is about 21.4 months, ROI over five years is 180% and NPV is about 56,142.
USING THE RESULT
What to do with the estimate
Use conservative savings, include realistic running and support costs, and test the result with a range of assumptions rather than a single number. Data from monitoring and OEE tracking gives a firmer baseline for downtime and scrap than estimates do.
COMMON QUESTIONS
Frequently asked questions
How is automation payback calculated?
Simple payback divides the initial investment by the net annual benefit, which is annual savings minus annual running costs. The result is the time taken for accumulated savings to recover the investment.
What is NPV and why does it matter?
Net present value discounts future annual benefits back to today’s money using a discount rate. A positive NPV means the investment returns more than the discount rate requires.
What savings should I include?
Include measurable benefits such as labour hours saved, reduced scrap and rework, and the value of production time recovered from reduced downtime. Exclude benefits you cannot measure or defend.
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