Counting the cost side: a first value case

Step 1 Warm-up recall

From M1.L2: write the four tests for a good use case.

Your answer

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Step 2 Learning goal

By the end of this lesson you can:

• compute the current cost of a process (Foundation);
• compute the cost with an AI tool, including errors (Core);
• state the saving and what it depends on (Core).

Step 3 A familiar example

A vendor presents a single number: “save 80% of the work”. A careful buyer asks about the remaining 20% of work, the monthly fee, and the cost of fixing mistakes.

Step 4 Clear explanation

A first value case compares two monthly costs: the cost of the process today and the cost with the tool. Here is an invented example of 2,000 invoices a month, each taking 5 minutes at £0.60 per minute. The tool costs £1,500 a month, handles 80% of invoices automatically, and makes errors on 2% of those, each costing £20 to correct.

The saving is £2,660 a month, or £31,920 a year, but it depends on the assumptions: the share handled automatically, the error rate and the cost per error. A prudent leader tests these numbers on a pilot before committing. Notice that the error line is a real cost: if the error rate doubled to 4%, the correction cost would be £1,280 and the saving would fall to £2,020. See the entry on risk scoring for ways to rank risks.

Step 5 Worked example (4 marks)

Invented: 1,000 documents a month, 4 minutes each at £0.50 per minute. A tool costs £600 a month, handles 50% automatically and errs on 4% of those, at £10 each.

1. Current cost = 1,000 × 4 × £0.50 = £2,000. (1 mark)
2. By hand: 500 × £2.00 = £1,000. (1 mark)
3. Errors: 4% of 500 = 20; 20 × £10 = £200. (1 mark)
4. New cost = 600 + 1,000 + 200 = £1,800; saving = £200 a month (10%). (1 mark)

Step 6 Learner practice (instant-marked)

Step 7 Recap

• New cost = tool fee + work still done by hand + cost of correcting errors.
• Saving = old cost − new cost.
• Test the assumptions on a pilot.

Step 8 Exit ticket (ungraded)

List the three cost lines you would add to a vendor’s “save 80%” claim.

Your answer

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Step 9 Go further (Extension)

Recalculate the example with an error rate of 4% and see how the saving changes.