By KYN AI Advisory Team — AI implementation specialists, Singapore
Automation return on investment is annual benefit minus annual cost, divided by annual cost. Annual benefit has two parts: hours saved multiplied by the loaded hourly rate, and errors avoided multiplied by the cost of one error. Annual cost has three: the build fee spread over the period you will use it, the monthly retainer, and per-unit running cost. This article gives the formula, a worked example with illustrative numbers, and the four mistakes that inflate a result.
What is the formula?
Use these inputs.
| Input | Symbol | Where it comes from | |---|---|---| | Hours spent on the task per month | H | A two-week time log, not a guess | | Share of those hours removed | S | The steps the system will do, as a fraction | | Loaded hourly rate | R | Monthly cost of the person divided by working hours | | Errors per month | E | Your corrections log | | Share of errors avoided | A | A test on real documents | | Cost of one error | C | Time to fix plus any cash or goodwill lost | | Build fee | B | The quote | | Months of use you will count | M | 12 or 24, stated up front | | Monthly retainer | T | The quote | | Running cost per month | U | Per-unit cost times monthly volume |
Then:
- Monthly benefit = (H x S x R) + (E x A x C)
- Monthly cost = (B / M) + T + U
- ROI = (monthly benefit - monthly cost) / monthly cost
- Payback in months = B / (monthly benefit - T - U)
Write the inputs down before you calculate. If you calculate first and then adjust the inputs, you get the answer you wanted.
How do you work out the loaded hourly rate?
The loaded rate is what an hour of the person's time costs you, not what they are paid per hour on paper. Take the monthly cost of the person: base pay, employer CPF, bonuses and benefits. Divide by the hours they actually work in a month, which is lower than contract hours after leave and meetings.
For Singapore citizens and permanent residents aged 55 and below earning above $750 a month, CPF Board gives the employer rate as 17% from 1 January 2026. That applies up to the Ordinary Wage ceiling, which is $8,000 a month in 2026. Add it to base pay before you divide.
If the person is salaried, hours saved only produce cash if you use them: for other work, for avoiding a hire, or for cutting overtime. State which one.
Worked example with illustrative numbers
These numbers are invented to show the arithmetic. They are not a KYN result.
A finance assistant spends 60 hours a month matching bills and chasing missing documents.
- H = 60 hours.
- S = 0.7. The system will do the matching and the chasing. A person still approves.
- R = 30 per hour (loaded).
- E = 8 errors a month.
- A = 0.5. A test on past documents showed half would be caught.
- C = 100 per error, counting fix time and one late-payment fee on average.
Monthly benefit = (60 x 0.7 x 30) + (8 x 0.5 x 100) = 1,260 + 400 = 1,660.
Suppose B = 30,000, M = 24, T = 800 and U = 50.
Monthly cost = (30,000 / 24) + 800 + 50 = 1,250 + 850 = 2,100.
ROI = (1,660 - 2,100) / 2,100 = -21%. This case does not pay back over 24 months at these inputs.
Now change one input honestly. Suppose the task has grown to 120 hours a month, so the benefit rises to (120 x 0.7 x 30) + 400 = 2,920. ROI = (2,920 - 2,100) / 2,100 = 39%. Payback = 30,000 / (2,920 - 850) = 14.5 months.
The lesson: volume decides. The same system loses at 60 hours and wins at 120. A calculator is useful because it shows where the break-even sits, so you know how much volume you need.
What is the break-even volume?
Rearrange the formula. Break-even hours per month = monthly cost divided by (S x R), ignoring the error term.
From the example: 2,100 / (0.7 x 30) = 100 hours a month. Below 100 hours of the task, the system costs more than the time it saves, unless the error term makes up the gap.
Run this before you request a quote. If your task takes 20 hours a month, no build pays back on time alone, and a small tool or a better process is the right answer. If it takes 200, the case is strong.
Which mistakes inflate the result?
- Counting hours without a use. A saved hour that nobody uses is not a saving. Write down what the freed hour becomes.
- Setting S too high. A system rarely removes 100% of a task. Exceptions, approvals and reviews remain. Measure S on a real sample.
- Counting error cost twice. If the cost of an error includes the time to fix it, do not also count that time in H.
- Ignoring the review. A person who approves 100 items a day spends time on it. Subtract it from S.
- Using list price for the person. The loaded rate includes CPF and benefits. The reverse mistake also happens: using the loaded rate for time that is spare capacity.
- Leaving out change cost. Rules change. A retainer exists for that reason. Include it, as the formula does.
What does error cost include?
Error cost is wider than the time to correct a mistake. List:
- time to find and fix;
- cash lost: a duplicate payment, a late fee, a missed discount;
- re-work downstream, such as a corrected invoice and a customer call;
- goodwill, which you may not be able to put a number on. If you cannot, leave it out and say so.
Take late-fee amounts from the agency's own penalty page for the tax or filing concerned, and record the date you checked. Do not reuse a figure from a blog post, including this one.
How should you present the result to a partner or board?
Show three numbers and the inputs behind them: ROI at your base case, ROI if benefit is 30% lower than expected, and break-even hours. If the downside case is still positive, the decision is easy. If the base case is only just positive, say so, and ask whether the non-cash gains, such as a faster close, justify it. See also the hidden cost of buying AI tools your business does not need.
Where KYN fits
We run this calculation in the 14-day review, using a time log from your team and your corrections log, before we quote. If the break-even volume is above your volume, we say so. For reference, per-unit costs in KYN's live systems are small: about S$0.02 per outreach email, S$0.01 per reply sorted, S$0.03 per benefits comparison, S$0.05 per daily report. These depend on model and text length.
A full build ships in under 90 days. Pricing is a one-off build fee and a monthly retainer of at least twelve months, quoted after the review. See pricing and operations.
Frequently asked questions
How do I calculate ROI on automation?
Monthly benefit is hours saved times loaded hourly rate plus errors avoided times cost per error. Monthly cost is build fee spread over months of use plus retainer and running cost. ROI is the difference divided by cost.
What is a good payback period?
We do not set a standard. Choose a period before you calculate, such as 12 or 24 months, and compare it with the other uses of the same money.
What if the time saved is small?
Then time alone will not justify a build. Look at error cost and at speed, or fix the process with a lighter tool.
Checked 30 October 2026.
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