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5 Strategies for Rethinking Smart City ROI

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Growing populations, shifting demographics and evolving expectations. Modern cities are facing an expanding list of complex problems. Today’s urban economies are often dependent on static infrastructure that is not prepared to meet the challenges of tomorrow.

The term “smart city” has long been thrown around, though usually in the abstract. But connected technology is real, and it can solve many of the issues cities are currently facing. So why is the smart city still considered a pipe dream in some circles? It’s not because the value isn’t there, but because cities are struggling to demonstrate that value.

That’s why we should rethink how we talk about smart city ROI. City planners need to lay out achievable goals for each stage of development to translate the benefits of connected infrastructure into measurable returns. As cost savings and quality of life improvements become clear, smart city projects are likely to attract increased funding from private enterprises and other investors. But the proof is, as they say, in the pudding.

Here are five recommendations on how stakeholders can demonstrate smart city ROI and get buy-in from city hall:

1. Start with small, scalable projects

Intelligent infrastructure relies on the Internet of Things (IoT) to optimize a variety of systems from public transit to water management. To prove ROI early in development, cities can focus on implementing projects step-by-step, beginning with a particular street or neighborhood. Data collected from pilot programs can be used as evidence for stakeholders, as well as a guideline for improving performance. If the project achieves its goals, it’s easier to scale.

Smart street lighting is often a good choice for a pilot program for a number of reasons. First, lighting infrastructure has a short purchase cycle, and connected lights can provide an already-needed upgrade. The upfront costs tend to be relatively low, and the payback times relatively high. These projects can be deployed without a massive overhaul of existing infrastructure.

When cities are ready to replace out-of-date lampposts in a particular area, planners can install connected lights in their place. Once deployed, smart lighting has the potential to reduce energy costs by 70-75 percent — with 50 percent saved just by switching to LED bulbs. In addition to these benefits, smart streetlights can provide a platform for future IoT solutions like AI-enabled security cameras or public Wi-Fi.

2. Find the right model to measure success

To accurately represent the value of smart city initiatives, public officials need to identify their immediate and long-term benefits. There are several ways to measure ROI, including quantitative (think cost savings) and qualitative (i.e., quality of life) methods. In particular, planners should determine how effectively smart city tech addresses specific challenges, as well as pinpoint areas for future improvement.

Several models exist as guidelines for evaluating smart city development. One methodology created by Siemens and Arup is based on an analysis of five European cities: London, Brussels, Aberdeen, Alba Iulia, and Istanbul. The model examines the effects of intelligent infrastructure on services such as energy, transportation and security. Based on these factors, it uses a “digital value sphere” to measure the ROI of smart city tech in terms of the benefits it provides to stakeholders. This sphere begins with standard cost-benefit assessments and then expands to include how the project impacts investors, the city as a whole and the digital economy.

3. Understanding the value of “intangible” benefits

While there’s a temptation to focus on cost-benefit assessments, audits and other quantitative measures, city planners and CIOs need to take into account how smart city tech impacts the day-to-day lives of citizens. Soft benefits such as a lower crime rate and more convenient public transit can help stakeholders gain community support for digital infrastructure.

In a 2018 report, the McKinsey Global Institute explores the potential benefits of smart city initiatives, highlighting how connected technology could improve the quality of life in urban environments. The report estimated that with a selection of smart city implementations, assault and robbery incidents could be lowered by 30-40 percent, emergency response times cut by 20-35 percent, emissions reduced by 10-15 percent and commuting times lowered by 15-20 percent. Citizens are likely to respond positively to these quality of life improvements, which help make modern cities attractive places to live and work.

4. Reinvest cost savings into new smart city initiatives

While ROI may be uncertain for some smart city projects, many promise to generate revenue within a few short years. Smart streetlights, for example, can substantially reduce energy costs, with payback expected in five years. Other initiatives have an enormous potential for monetization. Smart parking projects could result in a fee revenue increase of 10-35 percent, as well as the growth of spending in retail areas.

These funds can be reinvested into additional intelligent infrastructure projects. Plus, the success of these initial endeavors can serve as proof of concept for hesitant stakeholders. With pilot programs acting as a foundation, city planners can gain the support they need to expand the scale and scope of these investments.

5. Avoid data silos with a connected platform

The transformative potential of smart city tech is enormous, but only if the information it collects is put to good use. Because IoT devices are often implemented piecemeal and by different departments, cities run the risk of creating data silos. Without access to this data, cities can neither capture nor measure the ROI of their smart city projects.

An integrated platform serves to aggregate data from disparate systems — smart water, smart parking, smart lighting, and others — into a common operational picture. Such platforms serve to make data actionable and ensure the measurability and clarity of smart city ROI.

Proof of Connected Tech Benefits

A few hurdles must be overcome before smart city tech represents the normal state of affairs for urban residents around the globe. However, there are a number of test cases that offer a peek into the future. Cities like Barcelona are already seeing the benefits that connected infrastructure can provide. Reports from 2014 reveal that the Spanish city is saving €42.5 million on water (U.S. $48 million) per year, and generating €36.5 million ($40 million) in additional parking revenue. Intelligent infrastructure has helped Barcelona create approximately 47,000 new jobs.

Barcelona may be an early leader in connected technology, but cities both large and small certainly have the raw tools to experience similar benefits. The most significant hurdle remains the ability to demonstrate value and secure the attendant public support. It’s up to city planners to rethink the way they measure, prove, and capture smart city ROI.

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