ARTICLE: The investment case for IoT
Updated: Jan 7
Set against a backdrop of increased spending due to COVID-19, inflation and increasing customer expectations, local authorities are challenged to reduce spending, streamline services, and improve productivity. Intelligens Consulting’s research demonstrates that these challenges can be met by investing in IoT. However local authorities don’t understand the IoT investment case, or the value returned. This article, the second in a series of three, reveals the investment case for IoT.
Deliver more service of better quality
Following the chancellor’s spending review in the October budget, the Institute of Fiscal Studies warned that local authorities will be forced to cut essential services. These cuts are despite additional income made available to local authorities in the budget.
However, high inflation means local authorities are likely to be worse off and will be faced with stark choices to reduce cost leakage, improve productivity, and streamline services.
Set against this challenging backdrop is an increasingly ‘on-demand’ consumer society demanding more services, with better quality and quicker response times. Local authorities seem to have an impossible task – with their hands tied behind their back – to deliver more services of better quality within a constrained fiscal framework.
IoT should be a key consideration in service design and spending policy
Many local authorities will have come across the Internet of Things (IoT); however, IoT has been dismissed by some local authorities as they don’t understand the investment case or the value returned i.e., the Return on Investment (RoI).
Our research shows that IoT can make a significant contribution to reducing cost leakage, improving productivity, and improving services.
In addition, the decision to invest in new and emerging technologies such as IoT can be daunting for local authorities particularly if they don’t have in house expertise, knowledge or awareness of the many direct and indirect social and economic benefits enabled by IoT particularly in building smart connected places.
IoT can help local authorities to deliver better services to citizens and businesses, improve the productivity of its work force and reduce cost leakage thereby reducing pressure on its financial resources. In other words, IoT should be a key consideration for local authorities when designing services and when undertaking their spending review.
Our research reviewed the RoI for two IoT use cases.
IoT in social housing can breakeven in two to four years
Local authorities and social housing landlords will be familiar with expensive repair bills and maintenance costs associated with dampness and rot. It is common practice for local authorities to have property maintenance budgets aka ‘rot budgets’ set at millions of pounds per annum to tackle dampness and rot repairs.
Deploying an IoT solution with humidity, temperature, and CO2 sensors in social housing can detect early signs of dampness and rot enabling an early intervention to rectify any issues before they become problematic thereby reducing property management costs and repair bills.
Our modelling shows that it is possible to achieve cash-flow breakeven within a four-year period of having deployed IoT within social housing. In other words, the cost of investing in an IoT solution is recovered within a four-year period. This is a direct result of a reduction in the expected spend on dampness and rot repairs. Note that these results will vary depending upon the IoT solution used, number of premises, the commercial model, and the state of existing housing stock.
The breakeven can be further improved when the reduced time spent by officers undertaking visual damp and rot inspections is factored in. In addition, the data generated by the IoT platform can determine whether a tenant is living in fuel poverty, or whether there is a problem with ventilation and air quality delivering social benefit.
Installing IoT sensors to detect faulty lights can payback within 2-8 years
Between 2016-21 UK councils have received 3,720 complaints about their streetlights with faulty lamps as the most common reason for complaint. Further, improved street lighting can reduce violent and property crime in comparison to areas where lighting is inadequate.
Many local authorities rely upon the public to report faults or upon night surveillance teams to spot faulty lamps. In addition, as most faults are reported in winter this results in peaked winter maintenance workloads.
Installing IoT sensors to detect faulty lights can automate fault detection removing the need for night surveillance which results. This reduces complaints, streamlines maintenance team workloads, and created safer environments for people working, living, and visiting the area.
Our independent modelling shows that it is possible to achieve a cash-flow breakeven within eight years as a result of having deployed IoT across lighting columns.
The breakeven reduces to two years once the combined effect of LED replacement is taken into consideration. It is estimated that some 1,330,466 LED streetlights (out of some 6-7 million in the UK) have been installed since 2016.
Structured financing can unlock private capital investment
Despite the case for IoT being clear, many local authorities may not have adequate funds available to invest in IoT. Local authorities in this situation may need to consider alternative private finance and structured finance models to fund the investment in IoT.
Structured finance models (such as a joint venture, for example) is one way of unlocking capital investment from the private sector.
Intelligens Consulting's team of technology, strategy, economic, procurement and finance experts can help local authorities to deliver their smart and connected place ambitions. In our next article we will explain how to make financial business case stack up for IoT and how to determine the IoT return on investment.
This research was commissioned by R3IoT, CENSIS and North. Please contact us should you wish to learn more about anything discussed in this article.