How to define profitability of IoT project: assessment criteria
IoT project means investments with high risks and unclear financial result. However, not only do solutions based on the Internet of Things directly effect a saving of money. To calculate an actual profitability of IoT project, one should also take into account intangible benefits provided by the integration of new technologies.
- Technical benefit. The speed of manufacturing processes, machines, and equipment.
- Economic benefit. The increase in company’s direct profit.
- Social benefit. The level of customer satisfaction.
The main methods for determining the economic efficiency of IoT projects at enterprises include quantative, or financial, qualitative, and probabilistic (risk calculation) ones. What profitability ratios should be considered in order to prepare the business evaluation and to monitor the results of IoT initiatives?
Value of data from smart devices
The Internet of Things allows to obtain an accurate information on the behavior of appliances and machines while in operation as well as the way of how users apply them. This information is of great value if one knows how to use it. For example, received data allow to remotely check devices, eliminate certain defects, integrate appliances with ERP/CRM systems, and offer value-added services.
The analysis of information from connected products will help to properly defend business decisions, improve these goods, speed up and optimize manufacturing processes. Most significantly, one can analyze business benefits using data from IoT devices. It is important to start collecting data before the launch of IoT project in order to compare figures in future.
To define a real profitability of IoT project, one should keep in mind the following criteria (and their priority for a certain company).
Quantitative characteristics of connected device value. It is referred to the market share, expenditures, and profitability. In brief, everything that can be measured in precise figures and promptly: this will help to calculate the financial benefit from the project. Characteristics that will be crucial to assess profit depend on a certain project and its goals (for instance, a company initially focuses on enhancing the market share and system life).
Case study: after integrating IoT technologies, Leica, a company producing optical systems, reduced unplanned delays by 40% and increased the efficiency of maintenance department by 5%.
Improvement of support service. All products require a high-quality maintenance service. Connected items allow to increase their lifetime and conduct remote diagnostics and monitoring. Besides, it helps to use support service resources more efficiently, decrease the amount of visits, and provide preventive maintenance.
Case study: Diebold, a company installing security systems at financial institutions, solves 17% of issues remotely (by the way, a period between receiving a call-up and solving the problem is reduced threefold).
Qualitative analysis and adoption of better decisions. Information from connected IoT products can be applied to develop new ideas that will raise income and performance. Data are useful in three areas: to define equipment quality problems, to offer predicted maintenance, and improve product design.
Case study: From 2007 to 2009, Agilent Technologies, a company offering innovative solutions for the measuring technology sector, advanced the number of integrations by 450% (based on data from connected goods).
Benefits for common users
The EU countries carry out the energy audit using IoT technologies. Data from smart meters are collected daily or every fifteen minutes within a day, allowing to distribute electricity bills throughout the house based on the actual consumption.
In this case, energy usage is optimized in the following way:
- comparison of the efficiency;
- detectionof leakage/defects;
- taking into account power consumption in vacant apartments.
Moreover, measurement is conducted in real time using IoT technologies, which simplifies calculations when dwellers quite or enter apartments. Such solutions are offered by IоT Factory, a provider of smart M2M and IоT solutions.
“Every time a company seeks our advice, we initially analyze its IoT integration challenges. We select several possible options of the IoT integration to optimize company’s business processes, for example, using smart meters,” Lionel Anciaux, a representative of IоT Factory, comments.
According to the expert, smart gadgets are becoming cheaper and their quality is growing. Therefore, there will be more and more companies integrating IoT technologies into their services and obtaining benefits from this.
Products connected into the global IoT network allow companies to provide high-quality service and to cut costs. Thus, they can enhance profit and market share as well as increase client loyalty. At the same time, each company should take into account its type of activity and business demands when integrating IoT and calculate investment compensations in advance.