Furthermore, IoT technologies process sensed information about these assets towards optimizing building and facilities management processes. In these ways, IoT applications provide significant benefits, including:
Despite these benefits, many enterprises are still reluctant to invest in IoT-based building management and related facilities management systems. One of the main reasons is that new technologies tend to be associated with a lot of hype about their merit and potential business benefits.
In the past, sometimes investments in new technologies have failed to deliver significant financial returns. This makes C-level executives and other decision-makers very sensitive against investments in innovative technologies and services. Corporate decision-makers are always concerned with improving their bottom lines. They want to achieve fast paybacks and tangible financial returns in quite short intervals (e.g., 2-3 years), rather than having to wait for a longer period.
Fortunately, it is possible to calculate tangible capital budgeting indicators for IoT deployment. These indicators illustrate and quantify the impact of IoT technology investments on corporate Profit and Loss (P&L) accounts. Hence, they are usually understandable and accepted by key decision-makers, which helps to unlock decisions for IoT investments in buildings and facilities management.
The calculation of capital budgeting and financial returns indicators hinges on the production of credible estimates for the Total Gains of the investment and the Total Costs of the Investment.
For example, the popular Return on Investment (ROI) Indicator can be calculated as follows:
According to this formula, an ROI calculation boils down to the calculation of the total gains and the total costs of an investment.
Producing a credible estimate of the total costs is usually straightforward, as most of the costs are known with high accuracy. The main challenge in estimating the costs lies in making sure that all the cost factors are taken into account.
Here are some possible costs to consider:
There might also be potential hidden costs. For example:
All of these costs should be considered when calculating the Total Cost of Ownership (TCO).
On the other hand, the calculation of the benefits is more demanding. It requires the estimation of the various benefits of the investment, including:
The estimation of these parameters is usually associated with some assumptions for future revenues and reduced costs, which cannot be always accurate. Hence, the estimation of benefits incorporates the uncertainty of these assumptions and the inaccuracy of future predictions. A robust ROI calculation process must calculate potential gains based on realistic assumptions about cost reductions and new cash flows that will be produced due to the new investment.
Nevertheless, there are always intangible benefits that cannot be credibly quantified. For instance, the positive effects of investment on the strategic positioning and brand image of an industrial enterprise can be hardly quantified.
This is one of the known limitations of the ROI methodology, which remains one of our best tools for estimating financial returns nonetheless.
ROI is a quantitative measure of the financial returns of an investment. It is also a very good tool for comparing and prioritizing alternative investments. C-level executives and other decision-makers are likely to prioritize the investments that yield a higher ROI.
ROI is not the only financial return indicator used in practice. Several companies calculate and consider other indicators as well. For instance, enterprises tend to consider the payback period of an investment i.e. the time it will take for the company to amortize the investment.
Moreover, the Net Present Value (NPV) of the investment is very commonly calculated. NPV considers the time value of money i.e. the fact that present investments and cash flows have higher values in the future. This is because once obtained, they can be invested to provide additional yields.
Furthermore, for investments that are materialized over very long periods (e.g., many years), many enterprises calculate the Internal Rate of Return (IRR) of the investment. While ROI indicates the total growth of the investment (i.e. from start to finish), IRR identifies the annual growth rate of the investment in the form of a percentage (%). IRR considers the time value of money (i.e. the NPV of costs and benefits) and hence it is more appropriate for quantifying investments that span multiple years.
The formulas for calculating NPV and IRR are more complex than the ROI formula, and they can all be found in most popular spreadsheet applications and statistical tools.
As already outlined, the most challenging part of calculating ROI is the estimation of the benefits of an investment.
This part involves two main steps: the identification of potential benefits and their quantification.
The identification of the benefits depends on the application sector and the business requirements that the solution addresses.
In the case of IoT solutions that leverage Disruptive Technologies sensors, the potential benefits include:
The following case studies are enabled by our great team of partners, who are an extension of our family and critical to our success.
The Disruptive Technologies ambient temperature monitoring solution enabled our customers to save up to 36% in air condition energy.
This is a tangible benefit that can be directly quantified in the scope of ROI calculations. However, the benefits go beyond energy savings, as they also include increased tenant satisfaction due to better comfort.
These benefits can be more challenging to quantify, but they should be taken into account in the overall business decision making for the approval of similar projects.
The water pipes monitoring solution enabled by Disruptive Technologies sensors ensures that our client’s water services operate at acceptable temperatures that do not encourage pathogen growth. Our customer saved on its legionella compliance costs through tangible reduction on the times needed for inspection of the pipes and water flushing.
Our customer saved 2900 kg of carbon across the building and 600 liters of water per tap annually, as well as reduced time spent on legionella compliance by 81%.
They also used our touch sensors a button to call service, which helped them improve their customer service:
We improved the service quality for our guests with a "Call Service - Button", which immediately passes the information on to the responsible employee using rules from the Conrad Connect Portal."
- Torsten Keppler, Head of IT, Dorint Hotels.
The deployment of our sensors in a popular Gelato shop enabled our client to save on wasted food and loss in sales due to unnoticed temperatures that compromised the quality of the ice-cream. Our solution provided timely identification of unacceptable temperatures, which triggered savings in wasted raw materials and labor time.
Each incident would have cost the small coffee shop 20,000 NOK (approximately 2,300 USD) in food waste and would have had a significant impact on sales. This equates to nearly 60,000 USD a year in savings.
Within three days, the cold storage solution powered by Disruptive Technologies was implemented in all locations. Then, when needed, alerts allowed our customer’s staff to move food to a functioning freezer or to fix malfunctioning ones.
As a result, ensuring the correct storage, more than £1.25 million in food inventory was saved. That amounts to cost savings of 4,462.04%.
In addition, thanks to the 24/7 monitoring system (compared to the daily physical monitoring), eight freezers have been identified as not operating within the expected parameters and temperature incidents have been detected on five others.
Robust IoT solutions allow for the optimization of all operations, thus reducing waste across processes and saving energy. At Disruptive Technologies, everything we do is designed to make a difference and have a positive impact on people, planet and society. Our customers’ gains can give insight to the potential of IoT for changing the future of sustainability.
Based on the above-listed case studies it becomes evident that there is no “one-size-fits-all” ROI calculation for IoT deployments in smart buildings and facilities management.
Rather, the estimation of the costs and benefits in each deployment depends on multiple parameters, such as:
At Disruptive Technologies, we are committed to delivering tangible business value to our customers. We serve dozens of customers in Buildings and Facilities Management, all with different business cases and deployment contexts. Thus, we have data points regarding the expected ROI and other financial return indicators in this industry. We also schedule interactive sessions with our customers to collect their feedback on already-observed or anticipated gains.
Based on our findings, we put together a Savings Estimator without breaching the privacy of the sensitive business data of our customers. This tool helps quantify the value of your IoT investment and the practical impact of our solutions on your bottom line.
This Savings Estimator is based on anonymized and aggregated data and gives wider insights into the benefits of our solutions. The insights are clustered and reported per industry, per application, and per use case, all based on real gains by our customers.
Follow this blog for a peek of our future!
* By subscribing to our newsletter, you agree to receive digital communications. You may withdraw this consent at any time.
Start With The Right Sensor There are three things that are important to consider when selecting a wireless..
This article is part of the Disruptors Series, a special quarterly edition of our blog where thought leaders..