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These days, digital transformation is a major buzzword (or buzz phrase maybe), across almost every industry. It feels extremely intuitive, especially to those whose jobs involve paper-based, siloed or generally scattered processes, that there is significant value to be gained by organizing, improving and making these processes accessible via the phones, tablets and PCs we use every day. Digitalizing the way we work has proven to be an effective and cost-efficient path to improved safety, productivity and quality. Every organization could benefit from easier access to information, as well as better ways to quickly extract the data they need from the ever-increasing accumulation of data their facilities are generating.  

In today’s employment climate, most companies are also looking for tools that can help direct and assist a less experienced workforce. Although priorities and challenges are often quite different across various industries and facilities – one common thread we have seen is that the task of demonstrating ROI to upper management can be tricky for project champions. This is because, although intuitively obvious, quantifying potential cost savings for digitalizing a particular process may not be. When quantifying the benefits of a potential project we can usually look in three areas: 

• Cost savings: will the project save your staff time, help you reduce a fixed cost (such as insurance) or spend less while maintaining or improving quality?  
• Productivity: will the project help you build more widgets, produce more power or generate more gallons of fuel? 
• Risk avoidance: will the project help you keep your people safer, avoid unplanned downtime or ensure you meet compliance commitments (to avoid fines)? 

In this post, we will exemplify a remarkably simple approach for calculating cost savings for a potential digitalization project. 

First, we will choose an example process to evaluate. How about the shift handover process? Most industrial facilities have some form of this process, so it should be fairly familiar. For this walkthrough, we will call the site Fido (because why not?). We will then make some assumptions to use in our example:  

• We are evaluating a new shift handover digitalization project for the operations staff.  
• Fido is an industrial facility that operates 24/7, 365 days/year, using two 12-hour shifts. 
• Fido needs 50 operators on each shift to run the plant. On average, those operators have an hourly cost of $50 USD.  Note that in this example Fido would definitely have more than 50 operators on staff but we are only interested in the 50 that are working (and doing handovers) on any particular calendar day. 

That should be enough to get us started. So, what are the next steps?  

To calculate the cost savings for implementing a digital system for shift handovers at Fido, we can follow these steps: 

1. Determine the current cost of Fido’s existing method of conducting shift handovers. This is key, because we will need the current costs to compare to the new, digitalized method. The current costs evaluation should also help us understand the “cost of doing nothing,” which is always a potential result.

a. Make an educated guess of how long (in hours) an average Fido operator spends compiling handover notes and discussing handover with their relief.  

• In reviewing the handover process we see that the outgoing operator, the person who is approaching the end of the shift, has more tasks to do for handover than the incoming operator, who just comes in to work and receives the handover.  
• Based on this, we’ll assume the outgoing operator spends an average of 1.5 hours over the shift to create a handover document, hold the actual handover meeting, prepare and email the report to management. The inbound operator only needs half an hour for the meeting itself. So, during a single shift (in our example), an operator will participate in two handovers, one at the beginning of their shift and one at the end. The total time spent per day is two hours for our operator (~17% of their 12-hour shift). 

 b. Now we will multiply that time (two hours) by the number of operators (50), then multiply by the average hourly wage ($50) to get the cost per operator per shift. 

•  Handover cost per operator = 50 operators x $50/hour x 2 hour/day = $5,000/shift 

Note: for this process (shift handover), we could also consider other use cases to identify related costs. The cost of locating a piece of information from an old handover (for an investigation or audit), for example. There are almost certainly other cases as well, however: 

1. You may not need them to make your decision.  
2. Not including additional cases is conservative because they will typically generate more calculated savings for the proposed new solution. 

2. Next, we will estimate the time savings we would expect from using our new, digitalized system.   This will depend on the specific features of the proposed new system and how it reduces the time required to conduct shift handovers.  
 
a. For example, if our evaluation shows that the digital system will reduce or eliminate the cutting and pasting now required to create a handover report, lower the meeting time by five minutes as the handover is more organized and legible, and that the new system automatically emails the report to management - we might judge that the time required for handovers is reduced by 30%. Based on our earlier estimate of time spent for handovers using Fido’s current approach (averaging two hours per operator per shift), this would result in time savings of 36 minutes per shift, or 72 minutes per day.

Time savings per operator for the day shift   = 2 hours * 60 minutes x 30% = 36 minutes 

Time savings per operator for the night shift = 2 hours * 60 minutes x 30% = 36 minutes 

So, the total time savings per day for this operator position is...               72 minutes.  

3. Now we can calculate Fido’s potential cost savings from the time saved. To do this we will multiply the time savings per operator per day (72 minutes) by the number of operator positions (50) to get the total time savings per day. Then we can multiply the time savings per day by the hourly cost per operator ($50) to get the daily cost savings. 

Total time savings per day = 72 minutes x 50 operators = 3,600 minutes/day (about 2 and a half days) 

Cost savings per day = 3,600 minutes/day x 1 hour/60 minutes x $50/hour = $3,000/day 

4. Finally, we can calculate the annual cost savings by multiplying the cost savings per day by the number of operating days per year. For our example, the facility operates 365 days per year, so we will use 365 as our value.  

Annual cost savings = cost savings per day x operating days per year = $3,000/day x 365 days/year = $1,095,000/year. 

Therefore, in our example, it certainly seems like digitalizing the shift handover process generates some significant cost savings. To determine Fido’s actual return on investment (ROI) we will need to factor in the projected cost of the project and consider factors such as how long it will take to implement and how much benefit Fido will expect to derive in years one, two and so on. If there is interest, we will dig into some of these aspects in a later installment.   

To make the decision on whether to go forward with the shift handover digitalization, Fido will need to compare the ROI they calculate for this potential project versus other projects that could also be implemented. They will review their existing commitments and resources to make sure that they have the budget and resource availability, etc., to give the project a high likelihood of success.  

Finally, they should also consider the ‘intangibles’ that may apply to their specific company or facility, especially in terms of their organization’s appetite and readiness to embrace this type of change.  

Thanks for taking the time to join in, we hope that the discussion was useful. Please contact us, let us know about any math errors (totally possible) or just chime in – we would love to hear of any novel approaches' readers may have come across on how digitalizing processes can save time or otherwise generate cost savings.  Thanks!