Automation vs Labor Comparator
Compare automating against continuing with labor on total annual cost, including automation's annualized capital cost, not just operating cost.
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How this works
Automation almost always looks cheaper per unit than labor. But that per-unit comparison leaves out the capital it costs to buy the automation in the first place. This engine converts that capital cost into an annualized charge and adds it to automation's operating cost, then compares the true total against labor's total, so a low-volume case where the capital charge dominates does not get wrongly recommended toward automation.
Key terms
- Annualized capital cost: automation's upfront cost spread across its useful life as an equal yearly charge, using the capital recovery factor.
- Automation total annual cost: the annualized capital charge plus automation's per-unit operating cost times volume, the true cost to compare against labor.
Assumptions
- One uniform per-unit rate for labor and for automation operating cost
- Volume, and therefore the operating-cost comparison, stays constant across the useful life
Limitations
- One automation option against the labor status quo, not a multi-vendor search
- Does not model labor cost inflation or automation cost decline over the useful life
Sources
Capital recovery factor annualization, the same treatment Automation ROI Planner already uses for converting a one-time investment into a yearly charge.
Worked example
At 5,000 units/year, labor costs $3/unit ($15,000/year total) and automation's operating cost is only $1/unit ($5,000/year). A per-unit-only comparison picks automation every time. But the $500,000 automation, spread over a 10-year useful life, adds a $50,000/year annualized capital charge, automation's real total cost is $55,000/year, well above labor's $15,000/year. At 50,000 units/year the same automation's total cost is $100,000/year against labor's $150,000/year, automation wins once volume is high enough to earn back the capital.
Common use cases
- Deciding whether a specific process is high-enough volume to justify automating
- Checking a vendor's automation pitch against the labor it would replace
- Screening automation candidates before a full Automation ROI Planner payback analysis