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ROI – Labor efficiency December 18, 2007

Posted by Tariq Ahmed in Business Management.
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To follow up on “Making an ROI Worksheet”, let’s discuss projects that promise labor ROI by automating a manual process.

Every position has many manual processes that if automated, would make the employee more efficient. Identifying the manual process is half the battle.

Who will identify a manual process that should be automated via technology?
If employees are performing a position and 25% of their time is spent on a manual process, do they want to volunteer automation which could cut their hours, or # of employees in their department? Does their manager want to volunteer that their 10-man kingdom be reduced to 5? In both cases, the answer is no. Employees fear efficiency could cut their numbers and managers fear if their department is reduced, it may become a target to merge with another and threaten their position (along with budget, power, etc.)

If the employees themselves and their management won’t identify the process, then it falls to higher management or business analysts. If necessary, use outside consults who don’t have to deal with company politics.

The 2nd half of the battle is actualizing the labor ROI.

Presuming a manual process is somehow brought up for automation, the manager will claim the ROI will be a generic gain in “efficiency” or “speed”. As a manager or analyst, you must push the manager into providing a baseline. E.g. with 10 employees and the current process, we build 100 blasters per week. With the automation of X process, the results will be?

  • Increased production of 150 blasters per week
  • The department will take on additional duties from another department
  • Head count will be reduced from 10 to 7
  • We’ll be more efficient and…

If the department can actually produce more blasters and that helps the company, then that’s a fine and measurable ROI. The affected department may claim that they will take on additional work, which is taking work away from someone else, and so on until the efficiency is completely lost. The worse case scenario is the department continues to produce the same 100 blasters and works ‘slower’ than before.

If head-count reduction is the ROI of the project, try to get managerial sign-off before starting the project. Make sure the manager buys into the ROI and the next level of management is also on board. It also helps to discuss exactly how the head-count will be reduced?

Attrition (over what time period?)
A hiring freeze
Employee transfers to other positions (which employees, to what position and when?)
Layoffs
Etc.

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