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.
The true value of smart cities is proven out by their ability to attract and retain new residents.
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%.
6 out of 10 citizens report a high degree of interest in living in a smart city.
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 or communities 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.
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.
Urban residents are more likely to support smart city initiatives that deliver quality of life improvements.
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.
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.
MEASURING SMART CITY SUCCESS
Around 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 smart city initiatives have created approximately 47,000 new jobs.
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.
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.
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.
Cities need platforms that can activate data — not only to capture ROI, but to prove it out as well.