As we enter 2018 and approaching the 2020 milestone, the most popular technology word is IoT or Internet of Things. IoT seems to be applicable everywhere! From Smart Cities, to Smart Homes and from Industrial IoT to Automotive IoT, nothing seems to be immune to the IoT disruption.
Although some may wonder why, the answer is really simple. An explosive growth of network connectivity and simplicity is underway and with that growth, an ever-expanding bubble of ideas and use cases for IoT.
But as IoT number of use cases increase and as some come closer to realization, so does realization that the associated cost needs to be justified. But how can you justify an investment on a technology?
The justification Challenge
Most IoT projects are complex involving a multi-layered cost structure. Why? Because costs originate from procurement of devices, deployment and provisioning (one-time) costs but also communication and maintenance recurring expenses.
IoT Return on Investment (IoT ROI)
There is always an expense to transitioning to the latest technology, so the real measure of success of IoT projects is when operational savings exceed the expense of time and investment.
Return on investment, or ROI, is a very popular metric because it can used as a gauge of an investment’s profitability. ROI can help guide you as you make decisions about the future. While ROI can be very easy to calculate and to interpret for a wide variety of investments, it can be a little more complex when applied to investments in technology.
Lets try to define how to calculate the value of time and cost savings that you could reap by implementing IoT.
The Mechanics of ROI
For any ROI calculation, the basic formula is a comparison of the net gain to the cost (ROI = net gain/cost). So if you are deploying a new Smart Lighting solution that costs $200,000 but saves you $300,000 over the first 3 years in electricity costs, the ROI is 50% à (300,000-200,000)/200,000.
But of course the devil is in the details. The ROI calculation needs to take into account a large variety of factors to develop a cost model. It must include the time to provision and maintain the IoT devices, from sensors, to gateways and network connectivity devices but also setting access and security policies.
To simplify things, an IoT ROI calculation is recommended to be based on models that provide a broad view of differing sizes of deployments in differing environments. While the underlying model may have multiple inputs, only the most important inputs are required to be exposed to the end-users to allow customization of the analysis to better match the IoT project.
The result, should be a standardized in-depth report based on the unique aspects of the particular IoT project.
Sometimes an IoT project may not be able to show a positive ROI depending on its size or complexity. In this case a review of the design, provisioning and maintenance time for the IoT project needs to be reviewed to ensure a payback period of a short period (less than ten years).
And that’s good justification.