Establishing the ROI of IoT Projects

The Internet of Things (IoT) has moved well beyond the hype stage, with organizations in a variety of industries eager to leverage the technology in ways that will enhance efficiency, improve insight and optimize processes. IoT success isn’t automatic, however. Companies must have a clear vision for the project, a concrete implementation strategy and a solid understanding of how it will produce a return on investment (ROI).

In a recent Forbes Insights/Hitachi survey of more than 500 global executives, IoT ranked as their most important technology initiative — one that is likely to impact both current and future business goals. Nevertheless, 57 percent admitted that their IoT initiatives are either not meeting expectations or aren’t yet showing any clear signs of success. An inability to demonstrate a compelling ROI was listed as their No. 1 challenge.

Companies typically establish ROI targets or thresholds as part of the approval process for technology projects. In calculating the target, ROI is typically expressed as a percentage or ratio in which the benefit (or revenue) is divided by the cost. The challenge with IoT calculations is that the benefits are very difficult to quantify in the beginning.

Almost all IoT benefits flow from the data being collected from connected devices and sensors. Analyzing this data can enable data-driven decision-making in order to improve business processes, reduce costs or increase revenue. However, benefits must be measured over a fairly long timeline. Predictive analytic engines get better as the quality and amount of data increases, so ROI is likely to improve incrementally over time.

It’s easier to estimate the value of the data being collected if your project begins with a narrow, well-defined focus. For example, quantifying the costs and benefits of “digital transformation” would likely involve a great deal of speculation and guesswork. However, you could establish a very predictable baseline for a project to reduce energy costs with smart lighting and thermostats.

This is one reason why experts say narrowing the initial scope of an IoT project is one way to establish a compelling ROI picture. Additionally, starting with an achievable project that has a defined return is a good way to set the stage for a larger, comprehensive IoT plan. Smaller projects not only make it easier to establish ROI, they give you a chance to test your technology, organize your data, establish your priorities and build a team of stakeholders.

As organizations advance into more sophisticated IoT projects, it will be necessary to look beyond cost reduction and evaluate other benefits that will deliver ROI. Streamlined business processes, faster problem resolution, reduced downtime and more can lower costs and boost profit margins.

ROI calculations should also look at ways the IoT project is enhancing revenue. Predictive analytics and data-driven decisions can lead to new go-to-market strategies, new services or products, and new customer acquisition.

IoT adoption is increasing rapidly as businesses look to connect all their digital assets in ways that boost profits, cut costs and improve processes. ROI analysis is an essential building block for any IoT project because it establishes baseline expectations and helps establish the project scope. The IoT team at IPC Technologies can develop a proof of concept that demonstrates business value. Give us a call to discuss how we can help you lay the groundwork for a successful IoT project.