Quantifying Return On Investment (ROI)
The Business Case for Internet of Things Initiatives
“In order for an organisation to invest in any technology, a solid business case needs to be constructed that details the costs and benefits associated with deployment. This is as true for a mobile phone operator specifying a 5G network as it is for a small to medium sized business upgrading its photocopier. The difference is that as the technology becomes more transformative, the equation becomes more complex”, writes George Malim, the managing editor of IoT Now.
This is certainly the case with the Internet of Things (IoT), which has the capability to transform companies from being makers of products to being providers of services. The problem when attempting to construct a business case for an IoT investment is that there is unlikely to be an end-to-end greenfield deployment of IoT technologies in any organisation. Far too often, technology already in deployment is thrown away for new systems. Yet, in many cases, junking good infrastructure is completely unnecessary.
Therefore, ROI can only be calculated for individual steps on the path to the complete vision. The good news for the spreadsheet averse is that this can enable business cases to be constructed based on a single, relatively simple use case. That might, for example, be a deployment of sensors on waste bins that alert the local authority when they are full. In this example, the case is simple; the cost of the sensors and their connectivity is offset by reduced truck roll and greater efficiency in rubbish collection. The delta between the cost and the savings is the ROI.
However, the calculation becomes more complex when the connectivity provided to the bin can also support another service like temperature monitoring or local lighting control. Then, the infrastructure can be used to support multiple use cases and becomes more cost effective to deploy.
Ultimately, this becomes a true internet with other organisations utilising the infrastructure, perhaps even paying for it, thereby monetising the initial investment.
However, we remain very much in the era where intangible benefits are being tied to IoT. Loose concepts such as increased productivity, decreased downtime or better quality assurance need to have firm metrics attached to them in order to contribute to an IoT business case. The issue is these are mere projections and not sufficient alone to pass organisations’ investment scrutiny.
Too often IoT relies on a willingness to take a leap of faith. Organisations must believe that business benefits and revenue will accrue only if an investment is made. This paper, from PTC, acknowledges that the true value of IoT investments will only be shown in later phases of deployment, but advocates that organisations should identify use cases that will provide a solid ROI upon initial deployment. These proofs of concept can then be expanded with further integration into the wider ecosystem and the value that an IoT infrastructure will create.
If this is done carefully, and the right first stage opportunities are selected, IoT can only over-deliver on its monetisation potential.