ROI Calculation for MS Copilot

While rolling out Copilot, there is an obvious question around justifying the incurred cost. Here we look into how we can structure the calculation to justify the spending. Essentially, we can split the discussion into two parts: Direct Cost and Indirect Cost.

Direct Cost

One obvious cost is the license fee. There are two types of licenses available in the context of enterprises:

• Microsoft 365 Copilot: Typically priced per user per month, often requiring an annual commitment. For example, $30 per user per month with an annual commitment.

• Copilot Studio: Priced based on message packs (e.g., $200 per pack of 25,000 messages per month), used for building custom copilots.

  There is also a low-cost option for individual customers at $20 per month.
  Depending on the number of users, the specific Copilot products deployed, and the chosen subscription model, you can quantify the direct cost easily.

Indirect Cost

Indirect costs are often less visible but can significantly impact the total investment. These are not directly tied to the purchase of licenses but arise from the operational, organizational, and change management aspects of rolling out Copilot.Common categories include:

1. Change Management and Training

   • Time spent by employees in training sessions, learning to use Copilot effectively.

   • Cost of trainers, external consultants, or internal knowledge-sharing sessions.

   • Lost productivity during the learning curve.

2. Process Redesign and Integration Overhead

   • Adapting workflows to leverage Copilot capabilities effectively.

   • Customizing prompts, templates, and integrations with other business systems.

   • Coordination between IT, business units, and compliance teams.

3. Data Preparation and Governance

   • Time and resources spent cleaning, structuring, and labeling data for Copilot use.

   • Ongoing compliance checks for GDPR, ISO 27001, and other regulatory requirements.

   • Security reviews and risk assessments.

4. Operational Overheads

   • Internal support costs (help desk, troubleshooting Copilot-specific issues).

   • Additional infrastructure or monitoring tools needed for performance and usage tracking.

How to Quantify Indirect Costs

To estimate indirect costs, follow these steps:

1. Identify Activities
   Break down all non-licensing efforts related to the Copilot rollout. Use project documentation, stakeholder interviews, and your operational readiness plan.

2. Estimate Time per Activity
   For each activity (e.g., “train 500 employees” or “integrate with Teams and Jira”), estimate the hours required.

3. Assign Hourly Rates
   Use the average fully-loaded cost per role (salary + benefits + overhead). For example, €60/hour for knowledge workers, €80/hour for IT specialists.

4. Calculate Cost per Activity
   Formula: Cost = Time (hours) × Hourly Rate × Number of People Involved.
   Example: 500 employees × 2 hours training × €60/hour = €60,000.

5. Add One-Time and Recurring Costs Separately
   Distinguish between one-time setup costs (e.g., initial data preparation) and recurring costs (e.g., quarterly compliance audits).

6. Validate with Pilot Results
   If you have a pilot group, use actual time logs and productivity impact data to refine your estimates.

Calculating ROI

Once costs and benefits are quantified, the ROI can be calculated:

Step 1: Calculate Total Investment (Total Costs)
Sum all direct and indirect costs:
Total Investment = Licensing Fees + Infrastructure Costs + Integration/Customization Costs + Change Management/Training Costs + Data Preparation Costs + Pilot Program Costs

Step 2: Calculate Total Benefits (Monetary Value of Tangible Benefits)
Sum all quantifiable benefits:
Total Benefits = Productivity Gains + Reduced Manual Effort + Improved Quality/Accuracy Savings + Accelerated Project Completion Value + Cost Avoidance

Step 3: Calculate Net Benefit
Net Benefit = Total Benefits – Total Investment

Step 4: Calculate ROI (%)
ROI (%) = (Net Benefit / Total Investment) × 100