When committing your business to a strategic move into IIoT, you’ll want to build a solid business case. “Blah, blah, billions of dollars, 75% of CEOs believe, CAGR of 25%, Gartner Magic Quadrant...” - much of the IIoT information out there is just hand-waving waffle, second-hand information gleaned from dubious surveys, or just downright self-promotion. There’s a lack of cold, hard facts, and advice won from “hard yards” experience, which is what you need to build a solid RoI business case.
For example, in “How do you achieve RoI with the Industrial IoT?”, Siemens claim that the most popular measures of Return on Investment are: Productivity, Streamlined business processes, and Improved visibility - but the paper is silent about how to translate those benefits into actual dollars. On the other hand, Siemens’ paper “Internet of Things - from buzzword to business case” does contain more specifics, and in particular introduces the useful concept of “impact chains” to map-out the relationship between IoT-led innovations and business benefits.
To help you in planning your business case, here’s a round-up of some of the most useful advice that we know of. We’ll ease in with some great advice, then get specific on metrics for RoI, and then finish with some RoI calculators.
Some great advice, but no formula
In “Prove It! The challenges in demonstrating IIoT RoI”, Robert Golightly of Aspentech says not to just digitalise without a clear goal, but to identify problems to solve, prioritise and quantify improvement targets. Great, but what targets? We do like this quote though: “The only reason any industrial company embarks on an IoT project is to drive higher levels of operational excellence”
World Sensing describes how IoT has both direct and indirect benefits (so if the RoI accrues to your customer rather than you, this might reflect in pricing). They also have a nice example of how IoT can enable dynamic pricing.
In their paper “Unlocking RoI”, Microsoft claims that most IoT projects fail because they’re treated like technology projects rather than strategic initiatives. We agree - it’s reminiscent to us of the early days of the Web where building a website was often seen as a one-off technology project, rather than a fundamental business shift. Quoting Shane O’Neill, they stress the need to “fall in love with the problem, not the solution”. Defined metrics not only anchor the project’s RoI, they help to identify the stakeholders who will support it. “Start small and realise value quickly”. Plan business strategy in tandem with technology strategy.
XMPro suggests that rather than conducting a PoC (proof of concept) first, which is a one-off-project to prove the technology viability, conduct an IoC (initial operational capacity) - a military term which proves the business problem.
Specific categories of return, and return metrics, and target numbers
A number of articles listing categories of return to consider in your RoI calculations...
In “Quantifying the Return On Investment: The Business Case for Internet of Things Initiatives”, PTC says that while RoI traditionally translates to “reduce costs”, in IIoT this can often be secondary to improving customer satisfaction and brand differentiation.
Page 4 then lists a great set of metrics/goals for connected products, including:
- Reducing your time-to-market, service costs, downtime/SLA penalties, MTBF, MTTR (mean time to repair), recalls and returns, call centre volume and warranty claims
- Increasing your market share, revenue, profitability, ASP (average selling price), FTFR (first time fix rate), customer satisfaction, uptime, and competitive advantage.
A Leica case-study showed an RoI of more than $500k annually, by avoiding 400 on-site visits.
Another useful list of potential benefits to quantify in calculating the RoI is provided in Engineering Review’s article “ROI - The Driving Force for IIOT Investments”, along with a list of potentially-hidden costs to consider.
In Four vital steps to measure the RoI of your IoT Solution, Sigfox says “don’t let the technology take over” and stresses the importance of testing the value proposition with users, at the same time that you’re testing the technology’s ability to solve their problem. Metrics of value for an IoT solution include: Increased revenue, reduced downtime, lower operational cost, a rise in productivity, streamlined business processes, quicker time-to-market, better customer response times, improved visibility, better understanding of equipment use and better understanding of new behaviour.
In “Unprecedented Opportunity: Finding the ROI in IIoT”, the International Society of Automation set some goals which it says are achieved by the top quartile of manufacturers, including 2 weeks of extra production availability, 20% lower operating costs, 3x few safety incidents, 30% CO2 reductions and energy spending reduced to one third.
In “How to measure Smart City ROI”, Coolfire talk about Smart City benefits achievable (clicking the link takes you to a broken web page, but you still receive the PDF by email). Targets include 20-35% cut in emergency response times, 10-15% reduction in emissions, 20-30% reduction in water consumption, and commuting times reduced by 15-20%.
In “Unlocking the business value of IoT operations”, Cap Gemini have a nice 2-axis chart of “gestation delay” vs. “potential” (on page 9) to help identify those IoT initiatives which might have a quick RoI, vs. ones which are long-term strategic bets. On page 11 they list a set of specific RoI metrics achieved in a variety of industries (a US grocery chain achieving a 50% reduction in out-of-stock goods, Rolls Royce achieving 1% reduction in fuel usage, Hershey’s delivering $500k savings per batch of sweets, Shell achieving a $1m return on an $87k investment in asset monitoring.
CBTech “Refinery of the future” quotes specific IIoT benefits achieved such as 400% increase in efficiency, 90% reduction in time to file compliance evidence, 89% reduction in inspection time and 75% reduction in time to identify malfunctions - though sadly they don’t specify the investment required to achieve this return.
Onix Systems’ “Some Clues on How to Calculate RoI for IoT investments” comes at the RoI question purely from an investor perspective, and thinking about how cash-flow can delay profits.
IIoT RoI Calculators
Finally, getting right down to the numbers and the “how-to” of RoI calculation, the following posts contain either online or offline RoI calculators:
- Maciej Kranz is a recognised thought-leader in IoT and his “IoT RoI calculator” is just that - enter your variables and it helps you calculate the result.
- ZDNet “How to calculate TCO and ROI for enterprise IoT implementations” - complete with a downloadable Excel-based calculator.
- Machine Metrics’ paper “Driving measurable RoI with IoT solutions” contains an online RoI calculator.
- Deloitte’s “How much of a return can you get from an IoT solution?” has an online RoI calculator.
- SensrTrx has a nice worked example of an “ROI Calculator” for implementing IIoT in a factory, quantifying in these categories: Soft Costs, Downtime / Availability / Utilization, Changeover time, Throughput / Performance and Quality.
On the subject of RoI calculators, we can’t resist calling out our own 4-part series on the subject of “How much will Service Monitoring improve your bottom line?” which contains DevicePilot’s own “bottom line” calculator. This is focused on how Service Monitoring can improve the RoI of your IIoT deployment (rather than the RoI for the doing the IIoT deployment at all), though of course as it will improve your IIoT RoI, it’s certainly worth considering in your RoI calculations from day 1.
RoI calculation is never simple, and rarely accurate, but it’s an essential first step to align the company around deploying IIoT as a strategic transformation initiative - rather than a throw-away, one-off project.
Please feel free to contact us to discuss IIoT RoI calculation further - we have lots of experience to draw on, and might be able to connect you to a customer who has already worked through the RoI calculations in a relevant business.