Despite the technology’s promise to revolutionize manufacturing, calculating the ROI of a newly installed Industrial Internet of Things solution — and realizing its full potential — is easier said than done.
Business leaders are often seduced by cutting-edge IoT solutions rather than focusing on their company’s business needs and objectives. While the IIoT offers the industrial sector a wealth of benefits, these are only realized when the right solution is installed at the right time and, critically, for the right reasons.
To maximize ROI, organizations should first identify the business problems that need solving and define the data they will need to collect before conducting thorough research to find an appropriate solution.
It’s worth remembering that bad technology implementations are not only costly but also result in the collection of swathes of useless data. Harvard Business Review, for example, found in 2018 that less than half of the structured data and less than 1% of the unstructured data held by companies were used in decision-making.
According to Microsoft, the average price of an IoT sensor declined from $1.30 in 2004 to $0.44 in 2018. As the technology becomes more efficient and easier to produce, prices are expected to drop even further.
Budget IoT solutions are understandably appealing to industrial organizations, but it’s important to consider the total cost of ownership. Overall expenses will vary widely depending on the project’s complexity, scope, and size. Here are some important considerations:
ROI is calculated by subtracting the costs associated with implementing and maintaining an IoT solution from the tangible benefits it offers. However, industrial organizations often find it challenging to accurately and precisely quantify the benefits of their IIoT implementations. In fact, according to one Siemens survey, 80-90% of organizations cannot accurately measure ROIs for their IoT initiatives.
Let’s imagine a bicycle manufacturer, Wizard Wheels, installs an IoT-powered predictive maintenance system across its bicycle bell production line. After six months, the floor manager calculates that the technology has prevented—on average—three machinery breakdowns per month, at a cost of $150 per breakdown. They conclude that the implementation will ultimately save the company $5400 annually.
The problem with this calculation is that it fails to address the various—and often costly—knock-on effects of machinery breakdowns. These range from a reduction in equipment lifetime and bottlenecking in other areas of the manufacturing facility to a loss of customer sales due to longer lead times and poor worker utilization. With all of these factors considered, the solution’s ROI is likely to be much higher than first calculated.
To ensure the ROI of an IIoT initiative is properly calculated, organizations should model detailed impact chains, considering all potential operational and financial business outcomes. At this stage, leveraging the expert knowledge of factory floor workers, plant managers, and business leaders is useful.
It’s also important to allow for some uncertainty with any ROI calculations. Since it’s difficult to predict the precise outcome of a new technology implementation, organizations are advised to calculate an “ROI range” rather than a single figure.
In 2022, HSB announced that its top 10 Internet of Things (IoT) customers achieved an average ROI of 506% in 2021, by preventing millions of dollars of potential property and equipment losses. Sensor Solutions, the company’s insurance-focused IoT program, leverages IoT sensors, data dashboards, and proprietary algorithms to continuously monitor property conditions. If water leaks, potential equipment failures, or other adverse conditions are detected, the solution issues actionable alerts, preventing damage, downtime, and costly business interruption.
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