Special Feature
Part of a ZDNet Special Feature: Harnessing IoT in the Enterprise

How to calculate TCO and ROI for enterprise IoT implementations

Determining how much your IoT rollout will cost and what return on investment to expect involves a number of factors. Here's how to do it.

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Image: iStock/milindri

Internet of Things (IoT) devices serve a number of useful applications, such as environmental, asset or inventory monitoring/control, security functions, fitness devices, or smart watches. There are an array of IoT functions for both consumer and business purposes, but determining the total cost of ownership (TCO) and the return on your enterprise investment (ROI) in a widespread or large-scale implementation can be challenging.

There are three factors to consider when calculating TCO and ROI on IoT projects: current environmental costs, your IoT implementation costs and the projected savings IoT will provide. Here's a breakdown of each:

Current costs

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Current costs refers to any existing systems, responsibilities or other elements already in place which your IoT implementation is intended to replace.

For instance, perhaps you have an expensive security system which will be rendered obsolete via the implementation of IoT sensors. In that scenario you would input the hardware and software costs, the labor costs to keep the soon-to-be-defunct system running (estimate the percentage of time your staff devotes to running this system and divide their salary or salaries by this number: for instance, a system administrator making $100K per year who spends 15 percent of his or her time working on this system is therefore being paid $15K per year to do so), operational costs (electricity, for instance), maintenance (upkeep and repair, warranties, etc.) and any other costs that are a factor.

IoT implementation costs

These are projections, or current data if available, involving your IoT implementation: devices, cost per device, and the various components related to the IoT environment and what is required to support it, whether software, hardware, labor overhead, repairs and support, and so on.

Projected savings

The projected savings fields are based on what you can expect to eliminate via your IoT environment: hardware and software you can retire, labor which can be invested elsewhere, lower facilities or maintenance costs, and so on.

This can be somewhat nebulous, and if you aren't actually retiring any existing systems being replaced by IoT it can create the impression that there is no ROI. However, the labor savings field alone can probably yield significant results.

If your IoT implementation means staff can focus their attention on other matters, calculating how much time they will save and dividing their salary by that figure should produce a substantial figure. Spread out over several years, the savings on labor should be significant. For instance, you may currently employ a security guard being paid $50K per year. In the wake of an IoT security implementation that position might be eliminated or transferred elsewhere (such as to another facility) which would therefore yield $50K of labor savings.

Calculations

Knowing your current costs, implementation costs, and projected savings will help you to determine what you can expect to get out of an IoT implementation to assist in making a case for new purchases or adjusting an existing implementation for the best results. Make sure to rerun it on an annual basis as details and factors change, to ensure you obtain the most accurate data regarding your IoT environment.

To make this process easier, ZDNet's sister site, TechRepublic created an Excel calculator, plus detailed instructions on how to use it. It's available for download here: Enterprise IoT TCO and ROI Calculator. (Use your existing ZDNet user name and login information.)

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