how to measure smart city roi
TRANSCRIPT
BY JOHN DAMES, CTO
HOW TO MEASURE SMART CITY ROI
2
BY JOHN DAMES, CTO
HOW TO MEASURE SMART CITY ROI
Smart city initiatives are bringing connectivity to urban environments and improving the quality of life for residents. Projects like intelligent street lighting systems that dim when not in use or smart parking systems that direct drivers to open spots have clear financial benefits, but also drive value in other more intangible ways.
With the promise of propelling cities toward transportation, public safety, and sustainability goals, smart city spending is expected to reach $95 billion in 2019. Yet while 74% of government respondents reported a positive view of smart city developments (according to research out of CompTIA), public procurement remains a well-known hurdle.
This is a particular challenge when it comes to smart city initiatives that often lack the long list of successful use cases required to prove ROI. Government tends to be naturally risk-averse, and city planners looking to secure funding for first-to-market solutions are likely to face strong headwinds. To effectively demonstrate ROI against smart city initiatives, city planners will have to get creative — or risk missing out on substantial returns.
TOP USE CASES BASED BY 5 YEAR CAGR(2017-2022)
Source: IDC Worldwide Semiannual Smart Cities Spending Guide - Use Case Forecast, 2018H1
THE PROMISE OF SMART CITIES
Smart infrastructure relies on the Internet of Things (IoT) to act upon real-world events. This diverse suite of technologies can enable stakeholders to optimize a variety of urban systems — from waste management to energy efficiency. In numerous case studies, intelligent infrastructure has been shown to lower costs, enhance operational efficiency, and generate new revenue streams.
62%
Officer Wearables
49%
Vehicle to Everything
25%
Open Data
23%
Smart Trash Collection
23%
Smart City Platforms
18%
Other
BY JOHN DAMES, CTO
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From law enforcement to energy departments, municipal organizations are increasingly confident that connected devices will allow them to streamline processes and make better use of limited resources. In particular, government officials ranked cost savings, sustainability, data-driven decision-making, and better visibility as top benefits of smart city initiatives. And in a survey of European IT decision makers, 82% reported that they think smart city technology will help improve public safety and reduce crime. Furthermore, 78% of those surveyed believe there is a strong business case for investing in smart cities.
Ultimately, the true value of smart cities is proven out by their ability to attract and retain new residents. The benefits of smart city IoT initiatives have the potential to touch nearly every aspect of urban life, making cities more appealing places to live and work. In 2018, the McKinsey Global Institute released a report outlining the various ways in which intelligent technology could improve the quality of life in urban environments around the world.
According to the report, smart systems are expected to impact the following areas:
• Assault and robbery incidents lowered by 30-40% • Homicide, traffic, and fire fatalities reduced by 8-10%• Emergency response times cut by 20-35% • Emissions reduced by 10-15%• Water consumption lowered by 20-30%• The volume of solid waste cut by 10-20% per capita• Commuting times reduced by 15-20% (by 2025)
IoT technology promises substantive public safety and environmental benefits, but it also has the potential to lower operational costs and generate additional revenues. With intelligent lighting, for example, cities could reduce energy spending by 70-75%, with payback expected in five years. In addition, IoT-powered parking systems have the (estimated) potential to increase a city’s parking revenue by 10-35%.
The true value of smart cities is proven out by their ability to
attract and retain new residents.
BY JOHN DAMES, CTO
HOW TO MEASURE SMART CITY ROI
4
IoT technology promises substantive public safety and environmental benefits, but it also has the potential to lower operational costs and generate additional revenues. With intelligent lighting, for example, cities could reduce energy spending by 70-75%, with payback expected in five years. In addition, IoT-powered parking systems have the (estimated) potential to increase a city’s parking revenue by 10-35%.
HOW A SMART STREETLIGHT WORKS
Smart street lighting initiatives offer not only relatively fast returns — they can also function as networks for future smart city initiatives like public WiFi, traffic monitoring, and AI-enabled security solutions.
High-Efficiency Dimmable LED Bulb
Weather Suite (Anemometer, Barometer
Rain Gauge)
Ambient Light Sensor
Vehicular & Pedestrian Traffic Counter
Security Camera Public WiFi
Repeater Module
Digital Street Signage
Emergency Push-to-Talk
Intercom
Emergency Notification System
SECURING FUNDING FOR SMART CITY INITIATIVESGovernment officials rank financing as one of their top concerns in laying the groundwork for smart city development. However, 78% of IT decision-makers expect to have the budget to implement initiatives in 2019. So how can city officials meet the challenge of raising necessary funds?
BY JOHN DAMES, CTO
HOW TO MEASURE SMART CITY ROI
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According to a Deloitte report, 41% of smart cities opt to combine public and private financing when it comes to smart city initiatives. While generally the most feasible way to raise funds, this approach requires that city planners appeal to the agendas of both the public and private sectors. To accomplish this, officials need to develop a plan for measuring ROI that satisfies government requirements and meets the financial expectations of private investors.
41% of cities engage Public-Private Partnerships for smart city initiatives.
SMART CITY INNOVATION: PUBLIC VS. PRIVATE
VS.
High tolerance for risk
Centralized leadership and decision-making
Greater freedom to “fail fast”
Well-established tech departments
PRIVATE SECTOR PUBLIC SECTORLow tolerance for risk
Poor alignment between departments
Long & complex procurement processes
Just beginning to hire CTOs & CIOs
HOW TO MEASURE SMART CITY ROI
The success of smart city initiatives can be measured with both quantitative assessments — such as cost-benefit analyses, audits, and technical monitoring — and qualitative indicators that reflect holistic improvements for citizens. Planners should use key performance indicators (KPIs) to evaluate how effectively a project addresses particular challenges, as well as identify areas for improvement.
BY JOHN DAMES, CTO
HOW TO MEASURE SMART CITY ROI
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The Journal of Urban Design outlines two major models for measuring smart city ROI. The Smart City Maturity (SCM) Model categorizes smart cities in terms of how far along they are in their development. It places cities into five different stages — from “ad hoc project planning” to “optimized” — to describe the progress of smart solutions. This model is useful in terms of comparing different initiatives and establishing benchmarks for development.
The second model — the Smart City Reference (SCR) Model — uses seven “layers” or “stages” to describe the range of development needed for smart city initiatives. It identifies areas for innovation and processes that support sustainable projects. Each layer is associated with a different level of progress and is measured with different KPIs.
A report by Siemens and Arup describes a methodology for evaluating the success of smart initiatives based on an analysis of five European cities: London, Brussels, Aberdeen, Alba Iulia, and Istanbul. The model uses a “digital sphere” to measure the value of intelligent infrastructure from the perspective of different beneficiaries. It begins with ordinary cost-benefit assessments and then expands its scope to consider the value to investors, the city as a whole, and the digital economy. Benefits include everything from cost savings to public health to lower crime rates.
PROVE VALUE BY STARTING SMALL
To drive success early in the development process, cities should focus on small, scalable pilot programs such as smart water management. These smaller projects enable planners to learn what works for a particular community and how to deploy with cost-efficiency. They also offer the opportunity to make adjustments in advance of a larger rollout. If the initiative achieves its goals — and generates new revenue to invest — it can serve as a foundation for additional smart city projects.
6 out of 10 citizens report a high degree of interest in living in a smart city.
BY JOHN DAMES, CTO
HOW TO MEASURE SMART CITY ROI
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Smart water solutions are one effective method for planners to initiate city-wide transformation. This technology is available, ready to be implemented, and can demonstrate ROI within a single billing cycle. Using smart meters, cities can lower costs by detecting pipe leakages and reducing water loss. This results in more efficient regulation of water consumption, as well as the potential to generate revenue from data monetization. One report indicates that smart water initiatives have already helped reduce water usage by 20% and energy consumption by 30% across the U.K.
The success of one initiative like smart water management can inspire investment in other smart city projects — but first, it’s up to planners to ensure that they’re tracking the right metrics. By collecting valuable data from pilot programs, cities can acquire the evidence they need to prove ROI and satisfy stakeholders. This data can also serve to help streamline and scale the original initiative.
Across the U.K., smart water initiatives have reduced water usage by 20% and energy consumption by 30%.
BUILDING COMMUNITY SUPPORT
The evidence supporting smart city solutions may be clear, but how do city planners go about conveying their value to investors and the community at large? Getting stakeholders on board is an essential part of the planning process, and it requires transparent communication about the benefits and drawbacks of smart city initiatives.
METHODS OF SMART CITY OUTREACH
Town Hall Forums Outreach to Community Organizations
Social Media / Mobile
BY JOHN DAMES, CTO
HOW TO MEASURE SMART CITY ROI
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Online Forums Citizen Surveys Outreach to Business Associations
First, planners need to ensure that smart city initiatives meet the needs of the people they serve. While cost savings may appeal to some, citizens are more likely to respond to improvements in quality of life, such as the convenience of smart parking or lighting solutions. This may include committing to additional projects that serve the public interest — for example, investing the funds generated from smart city solutions into building affordable housing.
It’s also important for city planners to proactively address any concerns about data security that stakeholders may have. While an IoT-powered surveillance system is likely to lower crime rates, residents may worry about their data privacy. In fact, in a recent survey, citizens cited cybersecurity as their second most pressing concern with regard to smart city infrastructure. Government officials should therefore establish clear regulations around data collection and storage, and incorporate citizen feedback to avoid public opposition.
In addition to public support, it’s important for smart city projects to gain buy-in from local business leaders. For instance, businesses are likely to respond to initiatives that raise the profile of the city, therefore attracting and retaining skilled workers. Without strong partnerships, intelligent infrastructure runs the risk of being undermined by competition from the private sector. Philadelphia’s first city-wide wireless program, for example, faced considerable opposition from Internet service providers like Verizon and Comcast, which helped contribute to its eventual failure. City officials can avoid similar obstacles by working together with businesses to develop solutions that benefit both parties.
Urban residents are more likely to support smart city initiatives that deliver quality of life improvements.
METHODS OF SMART CITY OUTREACH
BY JOHN DAMES, CTO
HOW TO MEASURE SMART CITY ROI
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MEASURING SMART CITY SUCCESSAround the world, cities are already reaping the benefits of intelligent infrastructure. Barcelona, Spain is leading the way in many areas, saving €42.5 million on water (U.S. $58 million) per year, and generating an additional €36.5 million ($50 million) in parking revenue. By implementing a variety of IoT systems, the city has also created approximately 47,000 new jobs.
BARCELONA’S INTERNET OF EVERYTHING
Smart Bus Stops
500 Km Underground Fibre Network
Smart Parking Spots
Smart Water Management
Smart Street Lights
Charlotte, NC has experienced similar savings with their Envision Charlotte project — a PPP between the city and several businesses like utility company Duke Energy. By early 2017, the initiative had reported $26 million in energy savings.
Smart Traffic Monitoring System
Smart Air Quality System
Smart Weather Sensors
BY JOHN DAMES, CTO
HOW TO MEASURE SMART CITY ROI
10
But these initial successes are only the beginning. The Siemens and Arup study found several areas where the five focus cities could lower costs or enhance quality of life with specific smart city initiatives. East London’s “Arc of Opportunity,” for example, could create a digital dividend of €304 million over 35 years through the implementation of virtual power plants, smart meters, and intelligent LED streetlights. In Brussels, IoT technology like smart surveillance cameras could be used to save the city €30 million, or 8% of police costs. The Siemens report also estimated that real-time traffic data could improve safety and save the city €14 million.
In the U.S., local police departments are adopting drone (UAV) programs with increasing speed, deploying the technology for everything from accident scene mapping to search and rescue operations. In Tazewell County, Illinois, the local Sheriff’s department achieved a payback time of just six months on an initial investment of $15,000 for drone hardware and training.
Barcelona’s smart city initiatives have created approximately 47,000 new jobs.
In the U.S., Boston tops the list of the 50 cities with the most to gain from smart city initiatives, followed by Chicago, Atlanta, Philadelphia, and Austin. With a diversity of business and industrial sectors, these urban centers are likely to see the greatest ROI from smart city developments. However, cities both large and small can benefit from investing in intelligent infrastructure.
POLK COUNTY SHERIFF’S OFFICE
Polk County, FL
INITIAL INVESTMENT: $32,000
ROIPCSO has saved an estimated $107,000
by using the drones versus launching a helicopter according
to spokeswoman Carrie Horstman.
TAZEWELL COUNTY SHERIFF’S OFFICE
Tazewell County, IL
INITIAL INVESTMENT: $15,000
ROI
EUGENE POLICE DEPARTMENT
Eugene, OR
INITIAL INVESTMENT: $5,000
ROI“It just gives you an overall view,
literally a bird's-eye view that you won't have from
the ground.” — Chief Terry Ney
ROI / DRONE INITIATIVES IN LAW ENFORCEMENT
“We’ve probably saved [$80,000] in overtime alone,” — Lt. Bruce Scott
BY JOHN DAMES, CTO
HOW TO MEASURE SMART CITY ROI
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DEFINING THE SMART CITY PLATFORM
Cities that invest in smart technology and data connectivity today are poised to meet the challenges of the future. With a net 6 out of 10 citizens interested in living in smart cities, the task is now for city planners and their partners in the public and private sectors to make it happen. This entails clearly outlining the value of these initiatives and exploring the full range of funding opportunities.
Despite the extensive benefits of IoT technology, smart city projects run the risk of creating departmental silos and isolated data sets if their solutions are not properly architected. In turn, these failures could prevent decision-makers from accessing all the information they need to design and prove out effective solutions. Without powerful software that integrates and activates relevant data, cities will end up not only wasting time and effort on unactionable information — they’ll impede future smart city applications.
What is imminently needed is a platform that not only makes data actionable but enables smart city stakeholders to measure and prove ROI. These stakeholders must recognize that they are competing for public tax dollars against a well-established collection of departments, industries, and organizations — and these entities have well-established methods for ROI measurement to match. “Dumb” parking solutions may not hold a candle to their intelligent counterparts when it comes to addressing congestion, public safety, emissions, and resident satisfaction, but they have a long history of revenue generation that’s simple to understand.
But the challenge of capturing the evasive, multivariate ROI that smart city projects can deliver should also be regarded as an opportunity; the ROI is there — as is the data to prove it. It has only to be aggregated, activated, and leveraged in the right way. This is exactly what a platform does — it integrates siloed infrastructure and elevates the data for decision-makers; It forms a common operational picture that improves situational awareness and delivers only the right information to the right people at the right time; It enables stakeholders to both effectively capture and measure smart city ROI.
Cities need platforms that can activate data — not only to capture ROI, but to prove it out as well.
BY JOHN DAMES, CTO
HOW TO MEASURE SMART CITY ROI
