15 Sep 2022
Blog

How To Allocate Application Of AI In Your 2023 Budget

You may cut costs and achieve long-term goals by including AI for document automation in your budget plan for 2023. This article shows you how.

For many companies, the last quarter of each year marks a busy time for budget planning. Sometimes it’s a ferocious battle between departments, where every team claims to need cash injection the most. However, part of the budget that is not allocated can be either transferred for future investment or vanish as the budget period ends. One way to avoid the loss of this year’s fund, or to prepare for a serious improvement for the upcoming year, is an investment in AI.

This article explains the application of AI for document processing as one of the improvements to consider in 2023. We will share the key metrics to calculate ROI from document automation and help you allocate this cost in the plan.

Application of AI automation in business

Artificial Intelligence supports a growing number of processes in modern business conduct. Companies like Intercom help their clients automate customer service tasks by deploying conversational AI – algorithms that simulate person-to-person communication. Google utilizes AI technologies to help users find relevant content. Artificial Intelligence helps in lead generation, demand forecasting, as well as process automation. And so on.

The applications of AI automation grow year to year, and even in the narrow field of document processing, progress is evident.

In general, automation involves streamlining simple and repetitive tasks performed manually. Combined with Artificial Intelligence, it also allows the automation of unpredictable and unplanned tasks. The newest advancements in AI provide an even more sophisticated way of solving various matters. While the future looks bright, the presence is already packed with solutions that support the workforce.

Our experts have recently shared their views on the developments of document automation if you are interested in this topic.

For the sake of this article, though, let’s focus on the concept of AI tools and their allocation in budget plans.

How to include investment in AI in your budget plan

Let’s start with a quick look at what makes up a business budget.

A business budget is a spending plan created for a company for a specific period in the future. It usually includes information on the current state of finances and long-term financial goals. It is determined based on previous data like revenue streams and expenses.

definition of business budget

Essential components of a business budget

Estimated Revenue

Estimated revenue indicates the amount to be earned from the sale of goods or services. It consists of two components: the sales forecast and the estimated cost of the goods sold or services provided.

When a business has existed in the market for a few years, it is best to estimate costs based on historical data. In the early stages, the best practice is to model the data based on similar companies.

Fixed Costs

Fixed costs are all regular expenses, including employee salaries, insurance, rent, or utilities.

Variable Costs

These costs of goods and services change depending on your company’s situation. They are affected by the production and sales volume and, most importantly, the cost of goods sold.

They include inventory, production costs, or employee travel charges.

One-Off Costs

These are one-time and unexpected costs. They go beyond your business’s normal operations, such as buying new equipment or moving your office. These expenses are sometimes difficult to predict, so it’s a good idea to leave a certain reserve in the budget that can be used in such circumstances.

Cash Flow

Cash flow is money that flows in and out of a company. It is calculated by subtracting the funds available at the beginning and end of a period. When it is positive, it means more money has flowed into the company than flowed out of it. Cash flow should be monitored regularly – when and for what our money flows out.

Profit

Profit equals subtracted estimated costs from revenue – the actual difference between incurred costs and inflows.

In the most basic understanding of business, growing profits mean a growing business.

Our tip: The above constitutes a super simple overview. In order to prepare a solid budget plan, you might want to read more on how to allocate and predict costs and inflows.

components of the budget

Here’s the million-dollar question: Where would you place AI document automation in this budget planning puzzle?

Document automation – a fixed cost? A variable cost?

One way to look at the allocation of costs is to define the time perspective.

Here’s an example. Salaries may differ whenever your personnel changes, but a single job position is a fixed cost. You don’t want to shuffle headcount costs too often because this cost repeats itself over the following years.

The same principle works for any business cost. Depending on how often you’re planning to fiddle with a given asset, you may struggle to place them in the correct column of your budget.

Software, in general, can be part of both fixed and variable costs.

A tool implemented once and remaining operative over the next couple of years would certainly be categorized as a fixed cost. That could be an ERP system or platform with which an e-commerce shop is built.

Variable costs can also include certain kinds of software.

A tool your team uses only for organizing online events wouldn’t be needed monthly and can be purchased as a one-off cost.

Document automation falls into the category of fixed costs due to 3 main reasons.

First of all, automation platforms such as Alphamoon employs Machine Learning to improve the results over time. For advanced platforms that operate with IDP technology – engines that perform complex operations to extract knowledge from documents – time is essential. The longer you use the platform, the more significant the impact of new data uploaded each time.

Secondly, leading tools for intelligent document processing include cloud-based servers for storing docs and several integrations with existing repositories such as Google Drive. Moving away from such a platform can be time-consuming and confusing for the team.

Finally, most companies operate with a variety of documents daily. When considering an investment in AI for document operations, think broadly about its applications. Alphamoon’s IDP platform can perform several tasks that you can combine into separate use cases. The tool can perform, among others:

  • Page parsing – that is, identify pages in large scans of documents as individual documents;
  • Classification of documents – distinguish a particular type of document based on the layout or specific;
  • AI OCR – Optical Character Recognition enables the platform to understand any given page as humans do.
document automation as fixed cost

Investment in AI technology and digitalization is a ubiquitous goal for many business leaders too. According to Gartner, every two out of three surveyed CFOs planned to increase spending on digital technology in the next year.

Tip: Drop us a line, and we’ll get in touch with you to help you choose the best features and use cases for your business.

Metrics to measure the ROI and performance of document automation

Success metrics are essential in estimating the impact of any project. Suppose you are bringing in a brand new tool to automate document workflows. In that case, you eventually want to know if the effort was worth it. But establishing the right metrics is not an easy task.

When planning your future budget, you most likely look at the entire basket of necessary costs to incur. There are absolutely essential costs to continue business conduct, such as employee salaries. In times when the economy isn’t too much of a buoyant one, looking for cost decreases is of utmost importance.

While the balance that comprises all costs and revenue streams should be positive, sometimes it’s easy to focus solely on short-term goals. In hindsight, some investments pay off in the long term and help make space for future projects that otherwise wouldn’t happen.

Document automation often delivers benefits from both short- and long-term perspectives.

Short-term ROI

Immediate results often can be expressed in saved time that would otherwise be wasted on manual tasks.

The time necessary to process a given document can be an excellent metric to test the impact of document automation in the short term. Accounting teams use this metric as the principle. As a result of the shortened time spent processing one invoice, AP specialists can allocate resources elsewhere.

Here’s an example.

Case Study #1: Cutting time on invoice processing

An accounting specialist can process 20 invoices daily on average. That means assorting them into accounts, adding to the existing system, manually extracting information, and cross-checking the invoice value with actual bank statements.

That leaves us roughly 20 minutes per invoice, 400 minutes per day – more than 6 hours per day, which is twice the average productive time according to research.

Alphamoon’s IDP platform can reduce this processing time up to 10x times. The result is now 2 minutes per invoice, meaning 20 invoices take just 40 minutes.

On top of that, automated invoice processing has several benefits – including a higher degree of security, gaining access to structured data, and even becoming paperless.

The above works for most documents and workflows. When automation’s in place, employees gain precious time to generate more value. While that may require more complex calculations, the time gain is a straightforward metric for budget planning and success measurements.

Note: Are you an Accounts Payables expert? We’ve prepared a guide to Accounting automation that might pick your interest.

Long-term ROI

From the long-term perspective, the ROI of document automation often refers to the additional headcount that a company would need if an IDP platform weren’t an option.

Let’s see an example to understand the logic behind it better.

Case Study: Positive annual ROI for a team of 5

Imagine that an online marketplace grows exponentially over the year and considers hiring additional five new employees to process invoices and documents from vendors and clients.

The average payroll of a new specialist oscillates around 1.400 EUR, which yields a monthly employment cost of 7.000 EUR (5 employees with average salary of 1.400 EUR).

Now, an IDP platform can achieve an automation level of 70% (meaning that 70% of the time can be saved from manual work).

The monthly ROI formula is as follows:

ROI = (total spendings * level of automation)/100 = (7.000 EUR *70%)/100 = 49

Positive ROI (value above 0) means that the investment should pay off. Let’s add the cost of a subscription to the platform – 3.000 EUR – to the equation. The gain based on ROI in monetary values will equal to 4.900 EUR.

To calculate the monthly NET ROI, we need to extract the cost of subscription from the total spendings.

NET ROI = 4.900 EUR – 3.000 EUR = 1.900 EUR

The NET monthly ROI for the marketplace would be 1.900 EUR monthly and 22.800 EUR annually.

Other metrics can include automation-specific ones.

Since most workflows include data extraction from documents, a recommended metric to follow is an agreed-upon level for extraction accuracy. This metric expresses the percentage of extracted fields from documents that do not require human correction.

Another metric is straight-through processing, which refers to the percentage of documents in a given set where the tool correctly processes all fields.

Below we list more metrics you may consider.

automation-specific metrics

Note: Check out the data extraction comparison of Alphamoon vs. leading cloud providers, including Microsoft and Google. The article explains in detail how to properly understand the business meaning of data extraction accuracy.

The above case studies illustrate how document automation can be expressed in business terms.

Such calculations can be a solid foundation to prove exact expectations from the platform – it might come in handy when the heads above you need a bit of convincing.

3 tips on how to create a good business budget

Finally, let’s check out a few tips on how to create a bulletproof business budget.

#1 Analyze the Competition

When creating a budget, we recommend studying the budgets of other companies. You can find such insights in reports from McKinsey, Gartner, or when you do some digging in Statista on your own.

Competition analysis as part of budget planning is essential for two reasons, specifically:

A) your competitors often face similar challenges,

B) that’s the best benchmark to know where you may gain a competitive advantage.

#2 Establish Spending Goals & Metrics

Creating a budget is not just math.

Knowing how you spend your money and monitoring proper metrics to see the effectiveness of your spending is just as important as charting the growth journey. Business is a long-term game, and budgets should reflect it. In difficult times, it’s all about the trade-offs – investing in specific fields at the expense of others.

Setting goals is about determining which direction the company wants to sail. By selecting the right path, you can set and meet these goals.

#3 Aim For Increased Productivity and Efficiency

In today’s world full of new technologies, it’s almost impossible not to find a program, application, or product that suits your industry or answers the headache you’ve had.

Familiarize yourself with the options available on the market and compare them with each other. Try answering some key questions:

What impact will it have on the operation of the company?

What benefits will it bring?

Will it pay off financially?

These are questions worth finding answers to.

3 tips on how to create a good business budget

Alphamoon – your help with document-related headaches

We’re not selling painkillers, but the IDP platform can save you from many pains, sleepless nights, and hours of frustration.

Contact our sales team and discuss how to automate your company’s workflows.

Complementary reading:

Less paperwork. More time for business.

Learn more