Introduction

In situations where two systems don't communicate effectively, automating processes can lead to significant cost savings and improved efficiency. A common example of such a scenario is an auto loss mitigation department that needs to send repossession notices to clients, with the borrower's contact information stored in a separate system from the vehicle data. In this article, we'll discuss how Monte Carlo simulations can be used to estimate the cost savings resulting from automating this process and help you make an informed decision about investing in the necessary development work.

Automation Use Case:

In our use case, the current manual process involves an agent preparing the repossession notice, retrieving the borrower's contact information from a separate system, and pasting it into the letter. Additionally, a quality control step requires another agent to verify that the letter is being sent to the correct person. A scrum team can develop a solution to automate this process, either through a bot or an API, but the development time could range from half a sprint to two sprints. With a known approximate cost for the development team, Monte Carlo simulations can be used to estimate the cost savings by eliminating the need for manual work by loss mitigation agents.

Applying Monte Carlo Simulations:

To estimate the potential cost savings, Monte Carlo simulations can consider the following variables:

• Development cost: Minimum, maximum, and most likely estimates for the cost of the scrum team's work.
• Time saved per letter: Minimum, maximum, and most likely estimates for the time saved by automating the process.
• Hourly wage of loss mitigation agents: Minimum, maximum, and most likely values for the agents' wages.

By running thousands of simulations using random values from these ranges, Monte Carlo methods provide a comprehensive view of possible cost savings, taking into account the variability of each variable.

Building an Interactive Tool:

Monte Carlo simulations offer a powerful and accurate approach for estimating the cost savings resulting from automating various processes such as estimating sales projects, project costs vs potential payoffs, personnel costs, and material cost impacts on construction costs and profitability. By considering the variability in input variables, such as development costs, time saved, hourly wages, and others, Monte Carlo simulations provide data-driven insights that can guide decision-making.

To make this analysis more accessible, you can create an interactive tool on your personal website that allows users to input their own estimates and see how changes in input variables impact the potential cost savings. The tool can perform Monte Carlo simulations and display the results in a visually appealing and easy-to-understand manner, enabling users to explore different scenarios and make more informed decisions about investing in process improvements.

As an experienced data consultant using Monte Carlo simulations, I can help you create an interactive tool that meets your unique needs and provides valuable insights for your business. Contact me today to learn how I can help you leverage the power of Monte Carlo simulations for your organization.

To try out an example of this type of simulation, visit our working model page.

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