The Importance of Payback Period in an IoT Project

Although the internet of things (IoT) can be viewed as a long-term investment, the target period for IoT payback should be fairly short due to the magnitude of impact the technology can have on any business.

IoT is taking over every industry, from agriculture and manufacturing to insurance and entertainment. Businesses are exuberantly investing in IoT projects, including pilots, as they realize the benefits of the technology. Investing in IoT for a long-term benefit is a smart move for any business seeking sustainability in a future powered by IoT. However, in addition to having a long-term vision, business leaders should also establish intermediate milestones that would indicate the profitability of IoT and justify the investment. These milestones should propose having a relatively short IoT period.

Importance of IoT Payback Period

An IoT project proposal, just like any other form of technological project, should include a clearly defined budget, key performance indicators, outcomes, and targets - including the expected break-even point and the payback period. The payback period enables a business to evaluate the risk involved in an investment and a way to manage expectations. Estimating and tracking the payback period is also important to gain leadership buy-in for projects, and to ensure continued funding for future projects based on similar technologies.

Expect Early IoT Payback

IoT is a technology which, if well planned and executed, can deliver exceptionally positive results. An example of such results is Royal Dutch Shell’s $1 million return on a $87k investment in an IoT based asset monitoring and maintenance solution. Initial implementation of IoT should be in areas where your business can assuredly gain returns within a short time. A Gartner report advises businesses to set the targeted IoT payback period to 12 months. This provides early evidence of project success, paving the way for future successes and improvements. This will also give the business leadership and investors more confidence in the technology, ensuring that future IoT projects are welcomed and more likely to be funded.

The IoT Payback Danger Zone

The aforementioned Gartner document also warns organizations of the danger zone for IoT payback, which is more than five years. IoT implementations that haven’t broken even within five years of commencement should be a matter of concern. It may potentially signify a failure in the execution of the initial project plan or a badly planned project to begin with. Although long-term, strategic thinking is a virtue in business, when it comes to a highly potent technology like IoT, a delay in breaking even on the initial investment that exceeds five years should make business leaders stop and think.

There is enough evidence to suggest that you can transform your business using IoT and achieve unprecedented growth and profits. It is also something that can be easily gauged for effectiveness. As a business or technology leader, you should ensure that your IoT projects have a short payback period and avoid the danger zone. However, not all businesses are the same, and hence this is not an iron-clad rule but a general guideline. Your project can have a reasonably longer payback period, under justifiable circumstances.