Calculating a return on investment (ROI) for modern smart building technology deployments can be challenging and is often seen as a significant reason for slower-than-anticipated adoption. Because smart building systems encompass a broad spectrum of technologies targeted to solve different building challenges, determining the financial benefit and implementation can vary dramatically from one project to the next.
Let’s examine a step-by-step process for calculating the ROI of smart building technologies and see why choosing the appropriate technology consumption model significantly impacts the accuracy of these calculations.
Step 1: Calculate Investment Costs
Determining the costs for hardware, software, licensing, and installation is likely the simplest part of the process. However, there are environmental costs associated with most implementation projects. For smart building technologies, this may mean accounting for not only the smart building hardware, software, and support but also for additional spending to run extra power, Ethernet cabling, or bolster wireless connectivity. If a technology integration partner is used, calculate the cost of the design and implementation through completion and into Day 1 operations.
Step 2: Calculate Operational Costs
Smart building technology lifecycles typically span anywhere from 5-10 years before it’s time for a significant refresh. Throughout this timeframe, the ongoing licensing, support, and maintenance of the technology must be estimated. Remember that as technology ages, it becomes increasingly more expensive to keep systems operational and compatible with other infrastructure components added or upgraded within this lifecycle.
Operational costs are typically the part of an ROI calculation with the least accurate estimate, as ongoing maintenance, repair, and support costs are highly variable over time. Thus, it’s often prudent to set this value 10-20% higher than anticipated for typical smart building technologies and 20-30% higher for high-risk projects.
Step 3: Calculate the Value of Direct and Indirect Benefits
Once the costs of smart building technology have been estimated, it’s time to look at the benefit of your proposed investment. Value can be broken into two parts: direct and indirect.
Direct investment values really depend on the technology being implemented. For example, with tech that reduces energy, water, or other utilities, the percentage savings of the technology is easy to calculate based on current, historical, and estimated future consumption costs of the utility. Operational cost savings can also be calculated based on the number of operator hours recovered by simplifying tasks and the use of automation.
Lastly, we can estimate the indirect costs associated with implementing the technology. These costs vary depending on the specific technology used. Still, indirect benefits can generally include increased property value, higher rent rates due to enhanced occupant satisfaction, and advantages in meeting various regulatory standards.
Achieve More Accurate Operational Cost Estimates
As stated, smart building technology ROI estimates often become inaccurate when operational costs are miscalculated. One way to improve these calculations is to consider outsourcing the operations of the smart building technology to a managed service provider (MSP).
[Related: Pro's and Con's of Outsourcing Your In-building Network]
This approach allows you to stabilize the costs of maintaining and managing the systems, providing transparent and predictable expenses. Because the MSP is well-versed in managing systems throughout a full technology lifecycle, you may find that your estimated operational costs could be lower when outsourcing operations instead of performing those duties in-house. Thus, when evaluating an MSP, obtaining these cost estimates for comparison is beneficial, ensuring that no significant expenses are overlooked.
Additional Benefits and Considerations
Still not sure if you’ve covered all of your bases in determining whether or not you’ll see a payoff by implementing smart technology? Here are a few additional considerations and how they might impact your building’s bottom line:
- Space Optimization: Smart building technologies can optimize space usage through real-time data and analytics, which can lead to cost savings and improved space utilization.
- Preventative Maintenance: Don’t forget the role that IoT and sensor data play in predicting maintenance needs, which can prevent costly repairs and downtime, thereby improving your ROI in the long run.
- Employee Experience and Retention: Smart building technologies can improve employee satisfaction and retention by creating a more comfortable and efficient work environment. This can reduce turnover costs and enhance productivity, which contributes ROI, albeit indirectly.
- Recruitment and Well-being: Let’s not forget the impact smart buildings can have on recruitment efforts and employee well-being, which can be hard to quantify but still contribute to ROI by attracting talent and reducing absenteeism.
By applying these insights, you can make informed decisions that enhance operational efficiency and contribute to your organization’s overall success.
