Automate or hire: how to think about the break-even point

Short answer: compare the total cost of each option over the same period, considering workload, variation, quality and risk. Repetitive, predictable, high-volume tasks tend to favor automation; variable tasks that require judgment and relationships tend to favor people. Often the best answer is a combination.

What helps before you start

• A clear description of the task and how much work it involves.
• Cost estimates for each option.
• A sense of the expected growth in volume.

Steps

1. Describe the task. What is the input, what needs to be done and what is the expected result?
2. Measure volume and variation. How many times a month? Is each case similar to the others or very different?
3. Calculate the cost of hiring. Salary or fees, payroll costs, benefits, training and management.
4. Calculate the cost of automating. Development or purchase, setup, subscription, maintenance and supervision.
5. Find the break-even point. From what monthly volume does one option become cheaper than the other? Automation usually has a higher fixed cost and a lower cost per unit.
6. Consider risk and quality. Automatic errors can multiply quickly. People can be absent or leave.
7. Think hybrid. Automate the repetitive part and leave exceptions and decisions to people.
8. Reassess over time. Volumes and tools change.

An example

An online store received, on average, 60 orders a month and processed invoices manually in about 10 minutes each. With growth to 600 orders, the work would go from 10 to 100 hours a month. Hiring someone just for this would be expensive; automating the issuing would cost a fixed amount and a few hours of maintenance. The store automated it and kept one person reviewing out-of-pattern cases. This is an illustrative example.

Common mistakes

• Automating a task that is not yet well defined.
• Hiring for a problem a simple tool would solve.
• Forgetting maintenance: automations need care.
• Ignoring the human side: whoever does the task today should take part in the decision.

Next step

Choose a high-volume task in your routine and calculate both paths.