Build cautious, central and favourable scenarios. Keep the value of released capacity separate from cash benefits.
Key points
A benefit-to-cost ratio of 2 corresponds to an ROI of 100%, not 200%.
Payback depends on the timing of cash flows.
Valuing hours at an hourly cost does not turn them into cash savings.
Define the baseline and the benefits
Describe what would happen without the project: scope, period, volume, quality and resources. An AI assessment can help establish this baseline.
Benefit | Measure | Evidence needed |
|---|---|---|
Released capacity | Net usable hours and an indicative value | How the time will be reused |
Spending avoided | Payments genuinely eliminated | Invoices, avoidable overtime or other costs |
Additional activity | Additional contribution margin | Demand, capacity and delivery costs |
Better quality | Errors, rework or complaints reduced | A documented economic link if expressed in money |
Do not count both the same released hours and all the margin generated by reusing them without accounting for the overlap.
Include the full costs
Initial costs include data preparation, integration, testing, training and internal time. Recurring costs include licences, model usage, maintenance, review, corrections and support. Consider exit costs too. Distinguish the full resource cost from additional cash expenditure. If review time has already been deducted from time saved, do not charge it again.
Calculate usable capacity
Monthly hours released = eligible cases × actual usage rate × net minutes saved per case ÷ 60.
If your case count already includes only cases handled with the tool, do not apply the usage rate again. Multiplying hours by an hourly cost gives an indicative capacity value. Check that the time can actually be reused: scattered minutes may not create usable capacity.
Count spending avoided or additional margin as financial benefits only when the link is documented. Forecast first, then check the outcome.
Calculate ROI and payback
ROI over the period = (benefits − costs) ÷ costs × 100. Costs must be positive. State whether the benefits represent valued capacity or financial benefits.
Payback is the point when cumulative net cash flows cover the initial investment. Dividing initial investment by annual net benefit works only with immediate, constant benefits after running costs. Use monthly cash flows when adoption ramps up. See OpenStax’s explanation of the payback period.
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A worked example
This is a fictional teaching example, not a client return. An assistant summarises customer requests and prepares proposal drafts. Assume 200 eligible cases a month, an initial full cost of €5,000 for integration, data and training, and recurring costs of €250 a month for licences and maintenance. Review has already been deducted from net time saved. Time is valued at €35 an hour.
Scenario | Usage | Net minutes saved per case | Hours per month | Monthly capacity value |
|---|---|---|---|---|
Cautious | 50% | 6 | 10 | €350 |
Central | 70% | 9 | 21 | €735 |
Favourable | 85% | 12 | 34 | €1,190 |
In the central scenario: 200 × 70% × 9 ÷ 60 = 21 hours, valued at 21 × €35 = €735 a month.
Allow for the ramp-up
Over 18 months, assume no benefit in month 1, half the steady monthly benefit in months 2 and 3, then 15 full months. This gives 16 equivalent months at the target rate. The usage rate is already included; do not apply it twice.
The €5,000 initial cost is incurred in month 1, with €250 recurring cost in each of the 18 months. Figures are nominal, undiscounted and exclude tax and financing effects. Full resource costs and actual payment dates may differ.
Period | Capacity value, central scenario | Costs | Cumulative balance |
|---|---|---|---|
Months 1–3 | €735 | €5,750 | −€5,015 |
Months 4–6 | €2,205 | €750 | −€3,560 |
Months 7–9 | €2,205 | €750 | −€2,105 |
Months 10–12 | €2,205 | €750 | −€650 |
Months 13–15 | €2,205 | €750 | €805 |
Months 16–18 | €2,205 | €750 | €2,260 |
This balance compares valued capacity with costs. It is not a bank balance.
18-month scenario | Capacity value | Costs | Net value as a share of costs |
|---|---|---|---|
Cautious | €5,600 | €9,500 | −41.1% |
Central | €11,760 | €9,500 | +23.8% |
Favourable | €19,040 | €9,500 | +100.4% |
With these assumptions, valued capacity exceeds cumulative costs in month 14 in the central scenario and month 8 in the favourable scenario. It does not do so within 18 months in the cautious scenario. These are capacity-value break-even points, not financial payback dates.
Financial payback requires evidence of spending avoided or additional margin. Unused capacity is not a cash benefit. Costs are held constant here to isolate usage and time saved; a real assessment also varies integration, usage charges and support assumptions.
Measure and revise
Compare time and quality before and after, recording volumes and actual use. Account for complexity, seasonality and changes in the team. Track hours released, their actual reuse and financial effects separately. Bring the findings into the AI roadmap.
When deciding whether to continue, compare future costs and benefits with the alternatives. Money already spent is not a reason to continue. The full project report should still include it.
Frequently asked questions
Is time saved a cash saving?
Is time saved a cash saving?
Only when it leads to spending that is genuinely avoided. Otherwise it represents capacity that may be reused. Additional margin from that capacity needs its own evidence.
What time horizon should we use?
What time horizon should we use?
Choose a period for which adoption, costs and benefits can be estimated credibly. Use the same horizon for all scenarios and include the ramp-up. Longer forecasts need more explicit uncertainty.
Should internal time be included?
Should internal time be included?
Include it when assessing full resource costs. Show additional cash expenditure separately so decision-makers can see both the workload and the funding required.
What is the difference between ROI and payback?
What is the difference between ROI and payback?
ROI compares net benefits with costs over a stated period. Payback identifies when accumulated net cash flows cover the investment. A capacity valuation alone establishes neither cash savings nor financial payback.
What if quality improves without reducing costs?
What if quality improves without reducing costs?
Measure the quality improvement separately. Translate it into a financial benefit only when you can document the link, for example through fewer paid corrections or retained margin. A useful non-financial benefit need not be forced into a monetary total.
Sources
The assumptions and calculations are a reproducible Spentia teaching example. They do not describe a client engagement or promise a return.
