IoT Investment Case Toolkit 1

Smart Parking

IoT
INVESTMENT
CASE TOOLKIT
Smart Parking

Terry Norman and Steven Revill

Future Cities Catapult

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CONTENTS

3 EXECUTIVE SUMMARY Get in touch:

5 INTRODUCTION IoTUK.org.uk

[email protected]
6 THE TOOLKIT
6 When to use the Toolkit? @IoTUKNews
7 An Outline of the Toolkit
8 Defining IoT – What is an Internet of Things?

10 PHASE 1: DEFINING THE CONTEXT

10 Task1.1 Describe the service

10 Task1.2 What is the demand?
10 Task1.3 Review the strategic objectives of the project
12 Task1.4 Test the market
12 Task1.5 Seek stakeholder opinion
12 Task1.6 Do a SWOT analysis
13 Task1.7 Develop your communications strategy

14 PHASE 2: SHAPING THE SOLUTION

14 Task2.1 Important design considerations for key components

18 Task2.2 Consider the solution alternatives
19 Task2.3 Compare the merits and limitations of the solutions
20 Task2.4 Consider how to prove success
21 Task2.5 Testing the solution against other Authority activities
24 Task2.6 Risk Assessment
25 Task2.7 Equality Impact Assessment

26 PHASE 3: FINANCIAL ANALYSIS

26 Task3.1 The Break Even Analysis
29 Task3.2 Opportunity Cost
29 Task3.3 Sensitivity Analysis
30 Task3.4 Leveraging IoT for Funding Access

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EXECUTIVE SUMMARY

The following document describes the Investment Whilst appraising direct benefits is
Case Toolkit method, the Toolkit. The Toolkit straightforward, due to the nascent nature of
provides advice to enable city agencies to urban IoT indirect benefit evaluation is less so.
assess the value of an IoT-based project quickly First, few IoT interventions exist at a scale which
without compromising rigour and to establish will impact the agents of change that bring about
an evaluation process for IoT projects which is indirect benefits. Consider the limited effect of
repeatable thereby benefitting future projects. a few hundred smart parking spaces upon the
It can be used at all stages of the project, including air quality levels of a city. Moreover, drawing a
proof of concept pilots; retrofit to proof of concepts; cause and effect relationship between the indirect
scaling up pilots and large scale roll-outs. benefit and the IoT is difficult. Any change may
fall into the background noise of normal day to
Using Smart Parking management as an exemplar, day variations. Again, consider measuring air
this document shows how the Toolkit can be quality and attributing any variation to a small
used by city council executives and others when scale IoT smart parking intervention. Second,
appraising IoT projects in general and Smart IoT interventions which draw inferences by
Parking in particular. combining data from multiple sources are rare.
Consequently, a mature understanding of the
When appraising an IoT intervention, the project mechanisms of this type of indirect benefits
team should recognise the new technology frontier does not exist and proper analysis of real world
being defined as the implications this will have for interventions to enable lessons to be learned and
the business case are significant. Understanding to be transferred to other projects has not yet
why this is so is a subtle and important point and a been done.
valuable component of the Toolkit.
Most current urban applications of IoT are a simple
On one level the value of an urban Internet of intervention. Smart parking or smart waste are
Things derives from the optimisation of an individual good examples. Rather than IoT, these simple
business processes like smart waste or smart interventions are better described as Machine
parking. This we call the direct benefit. In addition to Machine or M2M applications. In an M2M
there may be indirect benefits. For example in application a simple sensor will be monitoring
the case of smart parking a reduction in the some feature of an asset, like the fill level of a
time it takes to find a parking space leads to a waste recycling bin. Analysis of the data gathered
reduction in the number of vehicles on the road by the sensor data is used to improve a business
and by extension reductions in pollution levels and process, for example to optimise a waste collection
respiratory complaints. Additionally, by combining route. The final component in a simple M2M
the data gathered from a number of different IoT application is some form of actuator designed to
interventions, and other data sources, like social use this information to effect a change. Often this
media, maps, etc., inferences can be drawn is an application. In Smart Waste this would be an
which aid city executives, process managers and application developed to convey this information to
planners to design, build and operate a city which the waste collection team.
is sustainable. A sustainable city is one where
population growth is uncoupled from resource City executives are looking to these simple
consumption and where the quality of services rather M2M applications to reduce costs and optimise
than being compromised by this are improved. services, and this is understandable. However in
These are also indirect benefits. Accounting for direct the absence of a coherent urban IoT strategy as
and indirect benefits is crucial when it comes to part of a larger Digital Strategy these initiatives
building a positive business case for IoT. are destined to become disparate islands of

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technology unable to realise their full potential as is a collection of considerations which together
enablers of an interconnected urban IoT network. describe the context for the solution which will
Mindful of the present need to deliver services then be used in the following section, shaping the
more efficiently and the longer term benefits solution.
of urban IoT to address the existential crisis of
sustainable cities we advocate cities follow a plan The second phase is about defining and refining the
of continuing M2M interventions whilst ensuring solution alternatives. The objective is to reduce the
they are IoT ready. This theme underpins the number of solutions down to two or three, (which
Investment Case Toolkit. can then be tested and compared in the final phase,
the financial analysis). This second phase begins by
IoT readiness we describe as an appropriate listing a number of important design considerations
framework of policy which enables M2M type peculiar to urban IoT which will help shape the
interventions to evolve into an urban IoT. There are design, commercial model and procurement
four cornerstones of IoT readiness: process. In this phase the solution alternatives –
by now a short-list – are compared to determine
• Align the project with the wider strategic the costs – capex and opex and the benefits.
objectives of the authority, like citizen Deciding how to measure success of the project
engagement, management of the and identifying costs associated with this is a further
environment, sustainability, etc.; important point in this phase as is understanding
• Establish the project within a strong data risk. In a wider sense, this phase seeks to place the
management policy framework which context in the context of other authority initiatives in
ensures data integrity, protects an Individual’s order to maximise the benefits. An equality impact
privacy and which provides storage which is assessment, a legal requirement upon authorities, is
secure; and, also carried out in this section.
• Understand the opportunity to effect
transformational change upon existing Taking the short list of solution alternatives and
business processes, like choice of funding, the costs and benefits of the various options, the
approach to procurement, etc.; third phase, Analyse the Finances, seeks to offer a
• Analyse the financial benefits in full, including numerical analysis of the costs and benefits (direct
indirect and long term benefits. and where possible indirect) of the solution options.
This includes a discussion of break-even analysis
These principles have been adopted in the Toolkit. as related to an IoT intervention and approach to
The toolkit is divided into three Phases, each with carrying out a sensitivity analysis and a discussion
several tasks. of lost opportunity costs.

The first phase is concerned with understanding Collectively, these three phases of work provide
the context of the problem. This includes sufficient qualitative and quantitative analysis
describing the service affected by the proposed to thoroughly articulate the business case for
project and understanding the problem being a number of solution alternatives and to make
answered and the demand for a solution, not recommendations on the preferred solution.
necessarily an IoT based solution. A key part of
this phase is placing the project in the context of
the overall strategic objectives and aspirations
of the city authority. Informed opinion is obtained
from the market and stakeholders regarding the
possible solutions and the costs and benefits
of the solution alternatives. SWOT analysis is
used to summarise the project. It is important
to communicate a description of the project
and its objectives to both internal authority
departments and to the wider public as early as
possible in the project life cycle. Consequently
the communications strategy is also deliberated
upon in this Phase. The output of the first phase

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INTRODUCTION

This investment case toolkit for Smart Parking is This latter point is crucial, for, in the not too distant
part of the Future Cities Catapult contribution to future, the functionality delivered by the Internet
the IoTUK programme. Launched as part of the of Things will be taken for granted as simply a
Government’s £40m investment in IoT, the IoTUK component in the way we design, manage and
programme is designed to advance the UK’s global deliver-services in our cities.
leadership in IoT and increase the adoption of high
quality IoT technologies and services throughout Before we begin our discussion of an approach to
businesses and the public sector. appraising an IoT project, it would be useful to set
the scene by reviewing what this thing is that we
This document has been designed to support city call an Internet of Things.
council executives and others appraising Smart
Parking projects which incorporate an Internet
of Things (IoT). The advice offered follows the
principles of the HM Treasury’s Green Book.

When searching for motivation to carry out

appraisal, one can do far worse than look to Joe
Grice, who, as Chief Economist and Director, Public
Services to HM Treasury, in his preface to the Green
Book, said:

“Appraisal done properly, is not rocket science but

it is crucially important and needs to be carried
out carefully. Decisions taken at the appraisal
stage affect the whole life cycle of new policies,
programmes and projects. Similarly, the proper
evaluation of previous initiatives is essential in
avoiding past mistakes and to enable us to learn
from experience”.

When developing the Investment Case Toolkit for

Smart Parking it was recognised that it should add
to the offerings of the Green Book and specifically:

• acknowledge the new technology frontier being

defined by IoT and advise upon the implications
this will have for the business case;
• provide advice which enables agencies
to assess the value of IoT quickly without
compromising rigour; and,
• establish an evaluation process for IoT
projects which is repeatable thereby
benefitting future projects.

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THE TOOLKIT

The toolkit provides a method to assess Internet • assess the return on investment from IoT smart
of Things solutions. It assumes technology is part technologies;
of the solution and is designed to be applied to • evaluate an IoT initiative in weeks rather than
proposed technology solutions rather than be months or even years; and,
used to define a solution to a problem such as • learn lessons and avoid making the same
unbalanced parking demand geographically and mistakes in future to capitalise upon benefits
by time which contributes to circulating traffic realised.
searching for spaces.
Whilst the example used here is Smart Parking,
Significant work has been done in the area of user the tools and techniques can be equally applied to
led demand and design such as that undertaken other IoT projects.
by the Design Council (http://www.designcouncil.
org.uk/our-services/service-transformation) and When to use the Toolkit?
this should form part of the overall approach The toolkit can be used at various stages of the
taken by local authorities. Whilst this toolkit likely roll-out of an IoT intervention: before delivery
takes a technology based approach, ensuring or to retrofit proof of concept deployments; after
the technology solves a real problem, providing proof of concept has been carried out and in
benefits for citizens and potentially making an preparation for wide-scale rollout. This view was
impact against the root cause of the problem is shared by local authorities. In early market testing
part of the process. asked local authorities to indicate when they may
use the Toolkit. Feedback indicated (see Figure 1)
In summary, agencies will find this toolkit enables that the tool would be useful at all stages of IoT
them to: technology roll out and specifically most popular
at the pilot planning stage or before. In this case it

Figure 1 – Feedback on when Local Authorities may use this Toolkit

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would supplement existing processes undertaken The second phase is about defining and refining the
to develop IoT business cases and deployments. solution alternatives. The objective is to reduce the
Furthermore, early indications suggest that the tool number of solutions down to two or three, (which
could be used to replace planning stages and not can then be tested and compared in the final Phase,
just supplement existing stages specifically the the financial analysis). This second phase begins by
planning stage for the proof of concept and the listing a number of important design considerations
pilot planning stages. peculiar to urban IoT which will help shape the
design, commercial model and procurement
An Outline of the Toolkit process. In this phase the solution alternatives –
The first phase is concerned with understanding by now a short-list – are compared to determine
the context of the problem. This includes describing the costs – capex and opex and the benefits.
the service affected by the proposed project and Deciding how to measure success of the project
understanding the problem being answered and and identifying costs associated with this is a further
the demand for a solution, not necessarily an IoT important point in this phase as is understanding
based solution. A key part of this phase is placing risk. In a wider sense, this phase seeks to place the
the project in the context of the overall strategic context in the context of other authority initiatives in
objectives and aspirations of the city authority. order to maximise the benefits. An equality impact
Informed opinion is obtained from the market and assessment, a legal requirement upon authorities is
stakeholders regarding the possible solutions and also carried out in this section.
the costs and benefits of the solution alternatives.
SWOT analysis is used to summarise the project. Taking the short list of solution alternatives and
It is important to communicate a description of the the costs and benefits of the various options, the
project and its objectives to both internal authority third phase, Analyse the Finances, seeks to offer a
departments and to the wider public as early as numerical analysis of the costs and benefits (direct
possible in the project life cycle. Consequently the and where possible indirect) of the solution options.
communications strategy is also deliberated upon This includes a discussion of break-even analysis
in this Phase. The output of the first phase is a as related to an IoT intervention and approach to
collection of considerations which together describe carrying out a sensitivity analysis and a discussion
the context for the solution which will then be used of lost opportunity costs.
in the following section, shaping the solution.

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Defining IoT In a simple M2M system (Figure 2), a device,

What is an Internet of Things? usually a sensor and radio transceiver in a single
Before we begin discussing the approach to unit, is attached to an asset to measure some
appraising the value of an urban Internet of Things quantity of interest. This measurement is then
which we recommend, it is worth reviewing what it passed by a communications network, which
is that defines an Internet of Things, particularly an may be wireless or fixed, to an application.
Internet of Things in an urban context. The application provides a tool which enables
the enterprise to monitor and control the asset
In the following, we first we describe a simple based upon the measured information. Service
Smart Parking service which uses a machine to enablement is a stage designed to free developers
machine or M2M system and then show how this from needing to know the structure of the low level
may be one of a multitude of similar M2M services. data. The overall objective of an M2M system like
We then discuss how these separate M2M services this is to optimise the business process.
might be drawn together using data analytics
to form an Internet of Things. In this way we not Smart Parking is a practical example of an M2M
only distinguish between a collection of M2M system. Figure 3 shows a typical Smart Parking set
services and an Internet of Things but also give our up. A sensor and radio transceiver is embedded
definition of an Internet of Things. in the parking space. Whether or not the space

Figure 2 – A simple M2M system

Figure 3 – An idealised Smart Parking System

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is occupied is measured by the sensor and If properly managed this rich source of insight can
this measurement is passed to an application be used to monitor and control the use of services
running on a motorist’s mobile phone. Using the and resources, to enrich, enlighten and augment
application, the driver can then find the nearest the quality of life of citizens and to plan, design
unused parking bay. Improved parking bay and manage sustainable cities. When applied to
management, accurate record of parking space a city, IoT can enable sustainable growth without
usage and reduced time to find an empty space compromising upon the quality of the services
are the immediate benefits. enjoyed by the citizens.

In an Internet of Things, such an M2M application

can be seen as one strand within a collective of In summary, an Internet of Things is far more than
similar M2M systems, see Figure 4. Here we see a collection of M2M systems and services. The
‘spaces’ and a ‘transport’ application (highlighted hardware infrastructure of an Internet of Things
in red) to indicate an M2M Smart Parking flow of is, however, made up of multiple, interconnected
information within an Internet of Things. Other M2M systems. Indeed, interconnection between
sensors associated with people (electronic disparate M2M systems and data extraction are
ticketing), vehicles (RFID payment tags), buildings defining characteristics of an IoT. Appreciating that
(integrity monitoring sensors) etc., extend into the science and techniques of data analytics can
the city similarly gathering data and feeding be applied to the data collection to draw inferences
this back into the common data store. Context then gives a complete understanding of IoT (and
may be added to the data by accessing external differentiates between M2M and IoT).
databases, like social media, mapping and
positioning, etc. An urban Internet of Things comes
into its own when, using the sensor and context
data a suite of applications is then able draw
insights about the way the city is being used, the
behaviour, activities and habits of its citizens and
consumption of resources.

Figure 4 – An Internet of Things

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PHASE 1:
DEFINING THE CONTEXT

This phase, the first phase in the Investment Case Task1.1

Toolkit, is concerned with understanding the Describe the service
context of the problem. Throughout this toolkit we Describing the service is the first activity the project
will illustrate key points using a problem which team should carry out. The objective should be
faces many Authorities, How do we manage to define the scope, scale and importance of
parking more efficiently? the service. In the Smart Parking Management
example this would include types of recycling bins,
Whilst there are many potential solutions to this approximate distribution, etc., along with current
problem, we have assumed that the solution will collection, scheduling and disposal procedures.
be based upon a subset of IoT technologies; but Additionally, at this point the stakeholder community
even within this subset a multitude of options still – residents, businesses and others – should be
exist. The overall aim of this section is to pare described.
down this solution subset. The output should
be a collection of considerations which together Task1.2
describe the context for the solution. The context What is the demand?
will then be used in the following section – It is necessary to identify the demand for the
shaping the solution – to reduce all possible solution from a user point of view. Potential
solutions down to a number of viable options. information sources may include:

Our work in this project has involved us engaging • Parking service documentation
with cities who are actively developing their urban • Consumer and customer surveys
IoT. Throughout the course of our investigations, • Complaints
our suspicions that IoT interventions have the • Media commentary
potential to influences the way that a city does • Vendor interviews and vendor product
business and affect a larger number of interested description and specifications
parties than a conventional service delivery • Project sponsor
project, were confirmed. To properly appraise an • Relevant previous/legacy projects
IoT project, the local authority should take into
account this wider context. This means seeking Practically, this would result in a problem statement
the opinions and advice from a base much and demand analysis typical of any conventional
broader than one would in a conventional service service delivery project.
delivery project. (A conventional service delivery
project is one which does not use IoT as an
enabler.) This means in addition to conventional Task1.3
demand analysis and a general description of Review the strategic objectives of the
the service and the problem, contextualising project
the project means aligning the project with the When it comes to building a comprehensive
strategic objectives of the organisation; carrying business case for an IoT project, aligning the
out soft market testing; and, seeking commentary strategic objectives of the project with the overall
from a much broader stakeholder community. strategic objectives of the Authority is critical. Why
The following is a discussion of our key learnings this is so is one of the important differentiators
under these headings. between a conventional service delivery and IoT
based service delivery project. This is a subtle and
important point worth discussing further.

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An urban Internet of Things has the potential to be see Figure 3, to provide additional services and
an enabler for service enrichment and planning benefits, previously unforeseen. These are some
rigour to an extent which previously was not of the indirect benefits of the project. Collectively
possible. To illustrate this point, consider how the direct and indirect benefits go to form the
the data gathered as part of an IoT intervention upside of the business case. Understanding and
can be used. Of course optimising the service valuing the indirect benefits can be the point at
is the primary use of the data. In the case of which the business case tips from the red into the
parking management this means to provide a black, consider the Smart Parking example.
more efficient parking service. This is the direct
benefit of the project. But indirect benefits may The primary motivation for Smart Parking most
also be had. The data can be used as a source of often comes from the council department
revenue, sold on to other companies to develop concerned with parking services. Whilst the
new products. It can also be used by a community principle benefits to the department are likely to be
of developers, along with other data sources, cost reduction and general savings, it is important

Potential benefit Policy Area

Reduced emissions from vehicle traffic leading to a reduction in Environment

pollutants including NOx, CO, etc.
Reduction in motor traffic volumes from circulating traffic Transport

Improving access to parking services through the provision of Parking Management

information on availability of spaces.
Moving demand away from over subscribed to lower occupancy Parking Management
locations leading to a more balanced distribution of parking
Improved payment compliance in paid for spaces – increasing Parking Management
revenues and reducing administration costs.

Operational efficiencies: the real time and historic sensor data Parking Management
provides a key source of information in the intelligent deployment
of traffic wardens.

Improve access to parking bay occupancy data and other usage Digital Access and/or
data Transparency

Reduce demand for real estate by optimising usage of current Sustainability

parking space

Reduced time to park – improved customer experience and Economic Growth

increased productivity
Data is being increasingly used by external organisations and app Economic Growth
developers in the production of integrated parking applications and
in car solutions that will make finding a parking space even easier,
and the payment transaction seamless.

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to look at the project as a means of delivering allow interoperability of IoT solutions and
against the broader aspirations of the council. a cross sector approach to incorporating
Smart Parking solutions can realise the following IoT technologies, like smart parking, to be
additional benefits which are likely to align promoted.
strategically with your own Council’s strategies and • The time needed for product development or
policies, as defined in policy area: to develop specialist financing
It is envisaged that the information to identify
alignment of the IoT Solution with the strategic Soft market testing should be used as early as
objectives of the project will come from key sources possible in the project life cycle.
including
Task1.5
• Council Strategy documents Seek stakeholder opinion
• Five year plans The costs, benefits and risks of the project should
• Manifesto and cabinet documentation be discussed with the key stakeholders, and
• National Policy Documents typically these would be:

Task1.4 • Head of parking services

Test the market • other cabinet members
As IoT introduces technological ideas previously • councillors
not known to the authority and disrupts existing • other authorities (who have already carried out
processes and procedures, early market the intervention)
engagement is particularly important. The usual • executives at service provider
approach is through soft market testing to shape • pressure groups
thinking on a number of issues that inform • public opinion
commercial strategies formed later on in the • others as determined by strategic alignment
business case process.

A soft market testing exercise held with potential Task1.6

suppliers or investors allows informal exploration Do a SWOT analysis
of procurement issues, new business models Most authorities carry out SWOT (and associated
and technologies and helps form a strategy for PESTLE) analyses to develop their thinking on the
approaching the market. It also offers the potential project. In the case of IoT interventions, SWOT
to invite council members or other executives to analysis can make a useful contribution.
develop their understanding of the commercial
opportunities and to develop an understanding of SWOT analysis is typically used to identify the
new IoT business models enabled and how they strengths, weaknesses, opportunities and threats
relate to conventional local authority and public of a proposed intervention. This is a critical initial
sector approaches to procurement and contracting. step in framing a given project. It provides a
useful opportunity to identify the key factors which
In particular, soft market testing provides the local may affect the outcome, both in the near and
authority with an opportunity to test its thinking long term. In addition to the benefits or strengths
around: of the proposition, SWOT analysis can be used
to uncover follow-on opportunities, or indirect
• the allocation of risk benefit. By now it is clear that the indirect benefits
• the limitations of current smart parking of an IoT project are important to developing a
products and services positive business case.
• where market participants see value being
generated by the project Whilst SWOT can also be used to summarise
• The structure of the formal procurement the important risks to a project by discussing the
process to ensure market interest threats and weaknesses, PESTLE is a much more
• An outcome framework to procurement to useful tool in this regard. Conventionally a PESTLE
all ow greater innovation from vendors in analysis is used to tease out the weaknesses
developing their solutions and threats which then feed into a SWOT
• An outcome framework approach to analysis. We suggest that when appraising an

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IoT intervention. SWOT analysis should be used Task1.7

to summarise the strengths and opportunities Develop your communications strategy
of a project and add to the thinking about the
benefits, direct and indirect. PESTLE analysis The final task in this section is about developing
should be used to provoke thinking about the s strategy for communicating the project and
threats and weaknesses by looks to the wider its objectives to the wider community. An IoT
political, economic, technological, social, legal intervention has the potential to be disruptive. To
and environmental prevailing conditions. By way limit the potential disruption and confusion that
of illustration, the effect of some expected fiscal such a project may bring about, it is important
policy on the project may be reviewed under the to communicate the purpose, the objectives and
heading of Political; Economic may consider the expected outcomes, especially if this is a trial, to
local economy – can the services be afforded, those likely to be affected by it. In other words it is
and so on. important to formulate a communications plan.

An IoT project has the potential for the motivation

behind it to be misunderstood. For example,
when a new smart parking management
systems is introduced, there may be a perception
that the information is being used to increase
parking charges. This is not uncommon in data
gathering and IoT type projects. In this sense the
communications plan is the first steps in a journey
of education.

The overall aim of the plan is to set out a

framework that defines how the project and its
benefits will be communicated to all interested and
affected parties. Interested and affected parties
are not limited to residents and businesses. There
is also a need for communicating the nature of
the project to stakeholders within the council –
council officers, councillors and others, for example
suppliers of existing services. Whilst the focus of
the external plan is about defining the approach to
communicating awareness to the user; informing
the user of availability of the service and should be
ongoing throughout the lifetime of the service, the
internal approach should have a slightly different
focus, in particular this should include creating
awareness of project, how the data is to be used
and highlighting potential connections with other
IoT projects and Authority initiatives in general.

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PHASE 2
SHAPING THE SOLUTION
As implied in the title, ‘Shaping the solution’, this Task2.1
phase is about defining and refining the solution Important design considerations for key
alternatives. The objective is to reduce the number components
of solutions down to two or three, which can then Standard business case evaluations normally
be tested and compared with the do-nothing case include assessment of the direct value of the
in the final Phase, The financial analysis. project, or as termed in this report, an M2M
implementation. However, IoT enables additional
First we discuss some important design benefits to be created which are not always
considerations which are peculiar to an IoT accounted for in the traditional business case
intervention. Taking on board the comments will approach. This section seeks to illustrate some core
take us a long way towards shaping the final examples of these benefits and why they should
solution. At the conclusion of this task we imagine be included in the business case assessment. The
the Authority will have sufficient information from wider implications enabled by IoT and presented in
the work carried out so far to arrive at a short this document are:
list of solution alternatives. The next task is to
test these against other works going on within • Sensors Networks
the Authority to find opportunities to optimise • Network Connectivity
the benefits whilst minimising the risks. The final • Improved Data Analytics
task in this phase is to compare the solution • Open Data Standards
alternatives in terms of benefits, risks, process • Data Visualisations
impacts and value chain impacts. • Integrated Data Analytics
• Open Data as an Asset
At the conclusion of this phase, all evidence • The Deployment Scale
needed for the business case will have been
gathered, and along with the Financial Analysis, Sensor Networks and Network Connectivity
Phase 3, the project team will be in a good position It is good practice to deploy standardised
to write a compelling business case. technologies. Standards lead to economies of
scale which drives down costs. Standardisation
of technologies leads to interoperability between
the devices and ease of interchangeability of
devices. This enables the city to engage with
multiple vendors during the lifetime of a project
and prevents vendor ‘tie-in’ at the conclusion
of a project. These are important commercial
considerations when it comes to developing an
Internet of Things which uses multiple, competing
vendor offerings.

The IoT radio access network as shown in Figure

5 is particularly troublesome when it comes
to standards. The standards world relating
to the radio access network is confusing and
fragmented. To secure a commercial foothold in
the marketplace, many companies are advocating
their own inventions as de facto, or informal
standards. Broadly a taxonomy for this emerging

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Figure 5 - IoT access network showing multiple sensors, a

single access point. Also shown is cloud connectivity and
a data server

landscape can be described along spectrum and The means by which these components of an IoT
proprietary lines. Unlicensed spectrum (Wi-Fi) has infrastructure are interconnected, is an important
the virtue of being free. An open standard has consideration. If the sensor and the modem are
the advantage of being publicly available without bought from different manufacturers, great care
the need for a licence. Both unlicensed spectrum must be taken to ensure that these two devices
and open standards will materially contribute to a communicate with one another, which means they
positive business case and attract new entrants. both must adhere to a common design for the
However, new entrants due to cash constraints interface between them. The modem should adopt
often have the greatest risk of failure. This fact standards which enable it to communicate with
should be foremost in the mind of an authority when the fixed or mobile network. For example a 3GPP
investing in a radio access solution. In contrast, standard, like GSM for wireless communications or
closed standards and standards which use licensed Ethernet for wired connections.
spectrum tend to be supported by the big players
in the market. Whilst, these companies are less Interoperability and standardisation challenges
at risk of failing, an IoT solution founded upon a are not limited to the access network, they are
closed standard, arguably limits the authority’s problematic in the communications network too. The
ability to integrate multiple proprietary solutions very nature of an Internet of Things in a city means
and to choose an alternative solution at the end of that wireless connectivity will be key to its delivery.
a contract. This is particularly problematic in the IoT The vast majority of sensors will be connected into
world, where data is gathered from multiple sources the core network via wireless connections, and
and in a nascent market where new solutions are this means wireless mobile networks – the same
emerging almost daily. networks used by mobile phones. Cities must be
prepared to pay to access the mobile network at
Two important components of the IoT infrastructure a price which competes with other mobile services
are the sensor and the modem. The sensor is a like mobile broadband. That is not to say that the
transducer attached to the asset to measure some price of connecting a sensor is the same as a
particular feature. In the case of smart parking mobile device, but it does mean that the business
this would typically be infrared or ultrasonic sonar case for an IoT network must be strong enough for
technology to detect when a vehicle is parked in a city to compete with other services when bidding
the bay. The modem is the transmitter and receiver for wireless connectivity. An authority will need to
pair which communicate the data back and forth assess all the benefits – including indirect and long-
between the sensor and the main communications term – that a project has to offer.
network, a fixed or mobile network as appropriate. Wi-Fi is an alternative to mobile network

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connectivity. And in that regard, some comments One leading example of this is the Hypercat
provide useful food for thought here. Wi-Fi (www.hypercat.io) standard which is a hypermedia
connections are subject to interference, catalogue format designed for exposing
particularly in areas of dense population. This information about the Internet of Things assets over
may limit the reliability of communications. Wi-Fi the web. It is an open, JSON-based hypermedia
relies upon street furniture to anchor the antenna catalogue format for exposing collections of
systems and a source of mains electricity. It may uniform resource identifiers (URLs) for exposing
be difficult to find a location with the appropriate information about IoT assets over the web.
utilities. Many cities have sold off the rights to
Wi-Fi on street furniture to commercial Wi-Fi As a catapult we are breaking new ground in
providers. Which exacerbates the problem of this area. We are developing a tool to allow cities
finding the appropriate site. Unless Wi-Fi is being to benchmark themselves (or be benchmarked)
provided by a third party, it is not possible to against the PAS 182 standard. PAS 182 is concerned
protect the communications quality of service with interoperability and establishing a data model
using service level agreements. So a proper due of interoperability between the different ‘data
diligence exercise will need to be undertaken to gathering’ systems.
assess the feasibility of Wi-Fi network connectivity.
This may include network speed and capacity Data Visualisation
(bandwidth) analysis. The use of the data and/ or visualising it in real-time
or near real-time to improve decision making and
As a corollary, Authorities should consider the therefore operational efficiencies is considered to be
implications of selling off the rights to access street a key feature of a smart parking service. The feature
furniture, effectively selling off the rights to Wi-Fi, in this example contributes to a clear benefit by
as ready access to Wi-Fi connectivity will become making the management of the service easier.
an important contributor to positive IoT business
cases. This will become increasingly important as The example shown illustrates that on a
the dramatic growth of IoT based services in cities geographic level, in 2014 the sensor zone had
is realised. several highly occupied streets (red icons), with
some adjoining under occupied streets (green
Open Data Standards icons), suggesting local imbalance of demand. By
Interoperability at a sensor and network 2015, most of the dark red streets had converted
level should be developed further by looking to less decisive colours, with almost no red/green
at embedding data standards for data pairs, suggesting a better spread of occupancy
interoperability. between nearby streets.

Figure 6 – Visualisation of parking

occupancy in Westminster for 2014 and 2015

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Data Analytics The business case benefit of integrated data

“Successful smart cities invest in open, flexible, analytics can be further enhanced by ensuring
integrated and scalable ICT architectures that open data standards are put in place.
enable accelerated service innovation such as
provision of automated and real-time dynamic Open Data
response capabilities.(1 )” The UK Government and the devolved
administrations are promoting the provision of
There are numerous benefits which improved data Open Data:
analytics reusing the data collected and made
available can offer including: • making it easier to access public data
• making it easier for data publishers to release
• Local Authority Benefits – Improved Decision data in standardised, open formats
Making, Efficiency, Cost Savings, Improved • engraining a ‘presumption to publish’ unless
Partnership Working and Better Outcomes there are clear, specific reasons (such as
• Citizen / Communities Benefits - Improved privacy or national security) not to do so
learning, health and employment as a result
of better support through better access to The often real-time and data rich nature of IoT
preventative measures interventions can provide a valuable asset and
• Business / Local Economy Benefits - Better specifically a public asset which can be included
market insight for the retail economy, in any business case development. Open Data
improved strategic investment planning during benefits can be identified for key user groups
regeneration projects including but not limited to:

These elements can all be included from a • The Council in improving transparency and
qualitative view point. The value of the analytics is accountability
improved as more data becomes available for re- • The general public in accessing public data
use and the software tools and skills are in place to • The private sector with better informed
undertake the analysis. The availability of IoT data business decisions
can support the business case for integrated data • The private sector through the creation of
analytics and vice versa. services using data as an asset
• Academic Institutions in having greater access
to data for research

Benefit of open data

Date Study Lead Scope
(% GDP)
2015 EU Commission (2 ) Europe (public sector data only) 0.5
2013 Shakespeare (3 ) UK (public sector data only) 0.4
2013 McKinsey (4 ) Global 4.1
2014 Lateral Economics (5 ) G20 countries 1.1

Table 1 – The impact of open data on GDP

1 http://www.scottishcities.org/s/Smart-Cities-Readiness-Assessment-Guidance-Note.pdf
2 http://www.europeandataportal.eu/sites/default/files/edp_creating_value_through_open_data_0.pdf
3 https://www.gov.uk/government/publications/shakespeare-review-of-public-sector-information
4 http://www.mckinsey.com/business-functions/business-technology/our-insights/open-data-
unlocking-innovation-and-performance-with-liquid-information
5 https://www.omidyar.com/sites/default/files/file_archive/insights/ON%20Report_061114_FNL.pdf

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Quantifiable research indicates that the positive Task2.2

impact of Open Data on GDP can be anywhere Consider the solution alternatives
between 0.4% and 4.1%. The EU Commission At this point, the authority, along with commercial
report indicates that Open Data can contribute partners, should be able to define a shortlist of
directly to €262 Million of cost savings for the public solutions which have the right sensors, appropriate
sector. The figure is a direct calculation from a network connectivity and make maximum,
Danish Government survey that indicated a cost appropriate use of the data gathered. There may
saving of 0.22% between 2010 and 2014 directly be solution alternatives with respect to the business
attributed to open data. model used. As a simple example the comparison
below for smart parking compares a self-build
To ensure this is taken into account the Contracting solution with a more outsourced turnkey or build to
authority should consider appropriate data order solution.
ownership, data provision through Application
Programming Interfaces and compliance with Identifying the main fixed and running costs of
standards in their Contracts. the solutions is one of the key outcomes from this
task. The costs considered are primary capital
expenditure (CAPEX) and operational costs (OPEX).
Additional costs like the cost of retraining, process
re-engineering, change management etc. are
considered later in this document in Phase 3.

The self-build sensor solution

Self-build describes the situation where a council
decides to build, own and operate the service and
the infrastructure needed to deliver the service. In
the case of a real time parking monitoring solution
this would typically mean procuring sensors,
installing them, provisioning connectivity to a
centralised database and designing the analytics
and the application used to plan collection routes.

A general description of the cost item: CapexA turnkey or build to Opex

order solution
Sensors Cost of sensor Regularly testing

Replacement

Network communications Purchase of network hubs Fees to network providers,

– e.g. Wi-Fi mobile or fixed operators
Database(s) Purchase and installation Service charge of network
of database equipment cloud – database as a
service
Data processing Data analysis as a service
Application Cost of developing app
Data access Data devices Connectivity costs –
network service charges
Managing data Security software Policing data access

Table 2 – The self-build sensor solution

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A turnkey or build to order solution Task2.3

A turnkey or build to order solution involves the Compare the merits and limitations of the
authority engaging with a commercial entity solutions
to provide the service. Under contract with the The following is a list of the main qualitative
council the service provider builds and owns the considerations when comparing a self-build and a
infrastructure and operates the service. If this is an turnkey solution. These may point towards further
off the shelf solution then typically this is called a costs, benefits and risks.
turnkey solution. If the service requirements dictate
a bespoke infrastructure, then this is called a ‘build The self-build sensor solution
to order’ solution. • Identification and replacement/repair of failing
parts is straightforward
The principle implementation costs is repeated • No need for contractual Service Level
operational expenditure through fees paid to Agreements to manage service quality
system integrator and operational expenditure to • The value of the service is retained within the
service provider, which may be the same company council
or two different organisations, as discussed. • The council is not ‘tied-in’ to a single service
provider – can change providers of service
elements, e.g. sensors, at will
• Solution knowledge remains within the council
• The council is not tied into long term contracts
• Retaining control of data – maximising use
of data, e.g. making it available to an app
community or for service provision in house
• The council can control privacy and security
of data
• A turnkey or build to order solution
• Predictable running costs
• Contract obligation for service provision
• Good-fit with the trend to service outsourcing
• Leverages service provider expertise, e.g. data
management
• Responsibility for data management
outsourced – minimising risk of reputational
damage

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Task2.4 • Baseline the Data. Here we should carry

Consider how to prove success out market analysis using the data sources
The performance of the project must be assessed to establish the baseline of social, economic
post implementation. The mechanism for and environmental metrics against which the
measurement will need to be accounted for in evaluation of improvement will be made.
the business case. Measuring the performance of • Measure Performance. Improvement in these
the intervention is required to determine whether metrics is expected as a consequence of the
benefits have been realised. Any mechanism for IoT Interventions. These improvements will be
measuring performance will contribute to costs. recorded and formatted suitable for analysis.
• Quantify Performance. Using an analytical
The principle means of measuring performance process, like the Performance in Use analytical
will be to compare ‘before and after’ effects upon tools developed by Future Cities Catapult, the
the benefits, listed in NBED #. The rationale being improvements will be quantified.
that collectively these measure the success of the • Optimise Performance. It is also possible to
project. Provision should be made at the outset of consider optimisation at this point to determine
the project to measure the following as a baseline improvements to the intervention parameters.
before the project commences and at regular An improvement is one which brings about
intervals throughout the project. If the project is an increase in the measured benefit(s).
a pilot scheme then a concluding measurement Future Cities Catapult has developed such an
should be made at the end of the trial period. Optimisations Tool as part of its Performance
in Use portfolio.

Metric Comment
Changes to bay How bay designations change and whether they now better match customer
designations needs will be an important proof of concept metric.
Bay occupancy Bay occupancy levels will be noted throughout the course of the trial and
rates: from this changes in the year on year demand differential for bay spaces and
parking real estate and cost differential in the delivery of parking service core
functions should be assessed.
Service enquiries The impact upon enquiries, i.e. service complaints or members enquiry,
from the public received outside of the statutory appeals process: issuing of notices / appeals,
CEO behaviour, Suspensions should be noted.
Penalty Charge The number of PCNs issues should be monitored and compared with the
Notifications numbers issued before the intervention.
User survey results Additionally, councils should consider carrying out a user (residents, workers
and businesses) survey to feedback customer/user evidence.
Improving air Reduction vehicle emissions improve air quality, mitigate climate change and
quality contribute to making a ‘low carbon and low waste city. To do this baseline
measurements of air quality need to be made. This may mean another IoT
project. NBED Performance in Use?

Table 3 - A list of the benefits and metrics

which might be measured to prove
the success of a Parking management
intervention

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Task2.5 The smart parking example lends itself to deploying

Testing the solution against other at scale across the area as the benefits within
Authority activities monitored areas have been shown to be positive
The candidate solutions should now be tested when compared with the unmonitored zones.
against the following considerations to develop Furthermore evidence suggests that the monitored
further any benefits and to identify and mitigate zones have the potential to improve demand to the
some of the risks: detriment of the unmonitored zones as users feel
more confident parking in a zone with a known
• The impact of scale upon the likely success of space over that with unknown parking levels.
the proposed solutions
• The impact of the proposed solutions upon Furthermore the economies of a wider roll-out of
existing processes and value chains IoT also contribute positively to the business case,
• Considering the solutions in the broader IoT and specifically can offer a better return on:
context within the authority
• Considering the solutions against a backdrop • Network Connectivity
of other Authority projects • Data storage
• Data Management
The objective of this task is to identify any • Data analytics and Dashboards
additional benefits or risks of the proposed • Data alerting services
solutions. Additional when one views the project • Application development and
against a backdrop of other Authority activities. • Deployment

The impact of scale Impact upon existing processes

IoT technologies and deployments often benefit To fully cost the impact of the intervention upon
from deployments at scale. The scale itself of council services it will be necessary to identify the
the project can therefore be a key supporting processes affected by the project. The following is
driver of the roll-out of IoT and contribute to the a list of likely processes affected by smart parking;
business case. also shown is the impact upon the associated
processes, and identification of the principal costs.

Process Impact Costs

Parking enforcement Process for dynamic response to retraining, reorganisation,
(contractor or internal) compliance failure will be required. change management and
Human resource savings. process reengineering
Communications and PR Data will be available and used by change management and
communications officers working process reengineering
on preparing correspondence with
members of the public
Advice on relevant data trends.
Engineering Services Need to be advised of the location of Training, change management
sensors and arrange for reinstatement and process reengineering
of sensors after works. Process for
sensor removal should be established.
Bay sensor smart Service delivery process should be change management and
parking vendor established. process engineering
Transport strategy Inform any relevant policies change management

Table 4 – The impact on existing processes

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Impact upon existing value chains How these insights are derived from an analysis
An IoT project has the potential to disrupt the value of the value chain is best illustrated with a
chain and it is important to investigate to what practical case, for example Parking Management.
extent this is true for each solution. Whilst value Here, below, we can see a simplified value chain
chain disruption can be managed, the lesser of a typical parking management process. Cash
disruption can point to the preferred solution. and services are exchanged between the local
community and the local authority in the form of
A value chain diagram illustrates the flow of cash taxes and parking charges, respectively. Similarly,
between stakeholders in return for the provision of cash and services are exchanged between the
a service. A simple value chain is shown below. service provider and the local authority; the local
authority pays the service provider to deliver
parking management. 

SERVICE
CUTOMER
PROVIDER

SOCIETY

Cash

Service

LOCAL
Figure 7 – A simple value chain [Source: Future Cities AUTHORITY

catapult, 2015]

Value chain analysis is a useful technique in PARKING

Cash
the process of identifying how an Authority can SERVICE
PROVIDER
benefit from a new technology. This will show Service

current cash flow, and how this might change and

importantly diverge from a reciprocal service flow Figure 8 – A parking management value chain diagram
if the proposed technology is adopted. Comparing
current and future value chains contributes to the
appraisal in a number of important ways, it: Improvements to the process of parking
management might be enabled by the IoT system
• serves to identify the business process under monitoring the status of the sensors deployed, for
consideration, putting it under the microscope example timely information about parking
and separating it from the noise of other availability. 
processes;
• helps to identify the commercial entities Here, below, we can see the local authority
in the process and thereby to identify the has decided to fund the introduction of an IoT
key personnel for subsequent stakeholder- system. The authority could have chosen to self-
interview; manage the project, including the procurement of
• indicates areas where service level software, hardware and associated services as
agreements need to be introduced to ensure well as overseeing the process of integration. In
that the benefits of the technology are seen by this case the authority has chosen to hand over
those paying for it; the responsibility for design, procurement and
• provides valuable information for the benefit- integration to a systems integration company.
cost analysis stage to come later. The integrator in turn has engaged software
and hardware equipment vendors to install the
infrastructure.

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Hardware
Devices
SYSTEM
Base System
INVESTIGATOR
Network

Software
Database management
PARKING
LOCAL Web – user interface
CUTOMER SERVICE
AUTHORITY Queires
PROVIDER
Alerts

Cash

Service

Figure 9 – An IoT enhanced parking

management value chain diagram

Contrasting the exchange of cash and services • Is the project an anchor project for a
before and after the introduction of an IoT system programme of IoT interventions?
shows change. In this example it can be seen that • Does the project fit into a programme of IoT
cash flows to the system integrator, but arguably interventions?
there is little change in the service offered to the • Is the project an upscaling of a previous
authority compared with before the intervention. project?
The value chain could be rebalanced by service • Can lessons learned from this project be
level agreements – to improve the quality of transferred to other IoT projects?
the service. Additionally the diagram shows the • Describe how the project can be modularised
potential for the benefits – timely alerts etc., to (to make it scalable and replicable).
reduce the costs of the service provider. Again
the value chain can be rebalanced by creating Place in the context of other authority projects
contractual obligations to pass on part of these Understanding the opportunities for additional
benefits and to share ownership of the data with benefits and costs may come from placing the
the council. project in the context of other authority initiatives. It
is important to understand how the project fits into
Whilst a fairly simple example, it nevertheless a wider scheme of council projects. This may reveal
shows how value chain analysis can be used to opportunities to achieve efficiencies and reduce
understand how the project may disrupt existing costs, especially in management and engineering
cash and reciprocal service flows and where SLAs works, for example, reduce delivery time, reduce
may be needed to ‘balance the chain’. cost and materials by avoiding duplication of work,
avoiding redoing work, and by combining similar
Place in the context of other IoT projects works into one. The following questions should be
An understanding of the opportunities for considered.
additional benefits and costs may come from
placing the project in the context of other IoT • What engineering works are taking place in
projects. The true benefit of IoT will be realised the area where the pilot is designed to take
through the combination of a number of IoT place?
projects. It is important therefore to understand • Will these works effect the deployment
the relationship between the project under of sensors and related communications
consideration and synergies (costs and benefits) equipment?
from related IoT projects. The following questions • Are there opportunities to avoid duplication –
should be answered: for example in road excavation?
• Inform internal communication

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Task2.6 • Behaviour change

Risk Assessment • Revenue and demand, and
The analysis of risk drives many aspects of • New combinations of risk.
investment decision-making for public and private
investors and authorities. It is therefore crucial to Finance risk
understand the nature of risks as they affect an • For local authorities who are not running
urban IoT project and how these risks differ from an operational surplus in their parking
those which traditional propositions face. Five management and enforcement there are
stages to consider, illustrated by Smart Parking few finance sources available to fund the
examples, are outlined below: substantial upfront investment required into
new and often unproven IoT technologies
• Risk identification: the process of identifying at the scale required to achieve operational
all the risks relevant to the project, whether efficiencies. Smart parking models tend
during its construction phase or its operational to focus on using IoT technologies unlock
phase; efficiencies in the of the parking estate through
• Risk assessment: determining the likelihood improved utilisation and enforcement
of identified risks materialising and the • If loan financing is sought through an
magnitude of their consequences if they do organisation such as the Public Works Loan
materialise; Board, there are few examples of large
• Risk allocation: allocating responsibility for scale deployments of smart parking projects
dealing with the consequences of each risk to achieving the direct financial efficiencies at
one of the parties to the contract, or agreeing the organisational level required to fund the
to deal with the risk through a specified loan repayments. In other words, the lack of
mechanism which may involve sharing the risk; comparative evidence of efficiency savings
• Risk mitigation: attempting to reduce the from other successful projects presents a huge
likelihood of the risk occurring and the degree risk from a finance perspective.
of its consequences for the risk-taker; and
• Risk monitoring and review: monitoring and Political risk
reviewing identified risks and managing new • There is a significant political risk with smart
risks as the smart parking project develops parking schemes due to the large numbers of
and its environment changes. This process third parties making use of a scheme to park
continues during the life of the contract The and the wider effects that parking policies
following risks tend to be particularly relevant have on business such as retail and the
to urban IoT projects and should feature in operations of public facilities such as hospitals.
discussions with suppliers or as part of market The large number of diverse stakeholders
engagement processes. effected by changes often encourages
press interest which will tend to focus on the
When it comes to risk, several good templates negative effects of a smart parking scheme.
and tools exist to nudge our thinking in the right • Any negative operational issues picked up by
direction. One of the best known is PESTLE, which the press will affect the appetite for expanding
seeks to frame our thinking about risks in terms the smart parking scheme and potentially
of Political, Economic, Societal, Technological, future smart city initiatives using ICT in the
Legal and Environmental contexts. Our approach urban environment.
however has been to consider risk under the
following headings, which we feel are more Technology risk
relevant to an urban IoT intervention. • A smart parking scheme may be overtaken
by new mobility technologies reducing
• Finance forecasts revenue.
• Politics • The collection of data about individual’s
• Technology movements on a granular scale by a council
• Operations and 3rd party raises cybersecurity and
• Management privacy risks

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Operational risk Some of these risks may be unfamiliar to local

• Smart parking schemes involve the authorities and require technical assistance to
deployment of ICT in the urban environment appraise and develop mitigation strategies and
which may become susceptible to connectivity understand their impact upon the viability or the
outages and equipment and power failures. expected social or environmental return of the
scheme.
Management risk
• Managing a smart parking contract or in- In general, the private sector is better placed to
house scheme may require different skills, assume commercial risks while the public sector is
knowledge and management to current better placed to assume legal and political risks.
practice.
Task2.7
Behaviour Change, Revenue and Demand Risk Equality Impact Assessment
• In areas with competing parking options “An equality impact assessment is a tool that helps
available there may be a perception from public authorities make sure their policies, and the
consumers that smart parking schemes are ways they carry out their functions, do what they
complex to use and existing parking options are intended to do and for everybody. Carrying out
are more attractive. The business models an EIA involves systematically assessing the likely
for smart parking tend to rely on efficiency (or actual) effects of policies on people in respect of
savings from greater utilisation, more efficient disability, gender, including gender identity, and
payment process and enforcement to provide racial equality and, where you choose, wider
a revenue stream to help fund the project. As equality areas.”
such, any fall in occupation rates of parking
spaces below the baseline agreed at the start This requires consideration specifically when
of project would have a significant negative looking at the direct impact of technology on the
impact on the business plan for a scheme. user groups such as staff or the general public.
Previous examples of public sector equality impact
New combinations of risk assessments on technology projects indicate for
• Smart Parking projects introduce a significant example:
new ICT component to the parking
management sector and local authority • that “Some members of staff and customers
contracts. From a procurement perspective may have difficulties adapting to new
this introduces the risks associated with technology and ways of working ” with risk
carrying out successful ICT projects in addition mitigation through appropriate training; and
to delivering an effective parking service. • that confirmation should be made that
Those risks are currently managed by different technology is to be DDA compliant and
people, and in a different way in local authority accessible (Disability Discrimination Act).
and may require a significant investment of
time and resources to set up new procurement The Authority has a legal obligation to carry out
and contact management processes. an EIA, IoT projects have the potential to benefit,
Corporate leadership in a local authority is and these benefits should be equally seen by all
therefore essential with an executive and citizens, regardless of disability, gender, gender
political sponsor appointed to help provide identity, race, and, where appropriate, wider
leadership and steer the project through equality areas.
implementation and delivery stages.

The allocation of risk will have an impact the

market appetite for participating and the ability of
vendors to raise finance.

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PHASE 3
FINANCIAL ANALYSIS
Whilst the analysis of Phases 1 and 2 frames the Task3.1
project in a qualitative fashion, the business case The Break Even Analysis
needs an additional, numerical measure of the Break Even Analysis endeavours to understand the
project’s ‘value’ to the authority. In this a Cost point at which the project costs, set up costs and
Benefit Analysis approach can be very useful. running costs, are matched by the benefits of the
project, i.e. the Break Even Point. The first stage in
Before moving on to discuss quantitative analysis estimating the break-even point is to determine the
in detail an important observation on qualitative contribution margin.
analysis is required. Most public sector services are
not designed to make a profit. Unlike a commercial Typically when applied to parking management
business case therefore, qualitative analysis carries the contribution margin is measured by improved
a great deal of weight and should be properly efficiency, numerically this is the difference between
articulated in a public sector business case. the additional revenue per unit and the direct costs*
to deliver the service per unit. So if the Revenue is
Cost Benefit Analysis is a systematic way of £500 per day and the Direct Costs are £40 per day,
assessing a project quantitatively. Not only does the contribution margin is £460 per day.
this provide a ‘Figure of Merit’ for the project, it also
enables a straightforward, numerical comparison
between alternative-option projects. Contribution Margin = Revenue per unit – DCI

Crucial to being able to properly value a project

are the time taken to see the benefits and the risks. *DCPU: Direct Cost per Unit - expenses which can
Cost Benefit Analysis also can be used to model be traced directly to a cost centre or product
the impact of time upon the project and to evaluate
uncertainty and risk. Note (1) It is important to note that compared with
costs and revenues prior to the intervention, costs
Cost Benefit Analysis evaluates the project based can fall and revenues can increase giving a double
on its net benefits: total benefits less costs. benefit.
The impact of the costs and benefits upon the
project are appraised using Break Even Analysis Note (2) In the case of a new service costs
while a separate Sensitivity Analysis should be will increase as a direct consequence of the
used to analyse uncertainty. Uncertainty can also intervention,
be modelled in the Break Even Analysis.
Note (3) Additional benefits may be seen in other
areas, like health, it is important to endeavour to
value these additional benefits.

Knowing the contribution margin, all that is now

needed to determine the break-even point is to
determine the number of days over which the
service must be delivered (i.e. duration of cost
efficiency delivery) to meet the cost to set up
the project, to break even. This is achieved by
simply dividing the savings per unit into the total
overhead costs.

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So, if, as in our example, the overhead costs of to set up the project and its infrastructure; OPEX
the project is £100 000, then, the project will break (operational expenditure) describes the costs
even during the eight month of operation, £100 associated with running the project.
000 ÷ £460 (per day).
Often the CAPEX costs will be the fixed, overhead,
project costs and OPEX will make up the running
Fixed Costs costs, the costs to deliver the service. However
Break Even Point = apportioning fixed and variable costs in this way
Contribution Margin should be done with care and advice from finance
departments should be sought where necessary.

To help in this process of identifying and categorising Examples of CAPEX and OPEX tables for a typical
costs, it is useful to first assemble costs in CAPEX intelligent parking project can be found in
and OPEX tables, Table 5 and Table 6. CAPEX Table 5 – CAPEX and Table 6 – OPEX.
(capital expenditure) is a one-time expense, usually

CapEx Estimates  
Estimated
starting Capex
OPEX Estimates   Estimated
Yearly Cost
Infrastructure   Infrastructure    
Parking Sensors   Sensors    
Number of Parking Sensors 3000   Number of Sensors 3000  
Cost per Sensor £150 Operating cost per
 £30  £90,000
Installation Cost per sensor £50 Sensor (per month)

Total Cost of Sensors   £600,000  Warden Devices    

Warden Devices     Number of Warden

100  
Devices
Number of Warden Devices 100  
Operating cost per device
Cost per Device £100    10 £12,000 
(per month)
Total Cost of Sensors   £10,000  Total Estimated Fixed
Realisation     Operating Cost of    
Sensors
Planning    £10,000
Sensor Connectivity    
Applications    
Number of Sensors to be
Number of Applications 1     3000  
connected
Cost Per Application  FREE  
Operating Cost per
Total Cost of Applications   FREE  Connected Sensor (per  £0.20
Human Capital     month)

Number of Specialists  3   Operating Cost of Sensor

  £7,200  
Connectivity
Cost Per Specialist  10,000
Total Yearly Estimated
Total Cost of Specialists   30,000    
Cost of Connectivity
TOTAL ESTIMATED CAPEX    £650,000.00 TOTAL ESTIMATED YEARLY
   £108,200
OPEX

Table 5 – CAPEX Table 6 – OPEX

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 IoT Investment Case Toolkit 28
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In addition to the outlay of capital and revenue for equipped areas by taking patronage away from
cost intelligent parking interventions also offer the the non-equipped areas or not.
possibility of increasing the income generated from
parking. Estimates indicate that parking patronage An indicative variation on revenue of 2% is shown
in the areas equipped with bay sensors have a in Table 7 and used to illustrate how it can be
minor positive impact on patronage over areas incorporated into further calculations in the
without bay sensor monitoring deployed. breakeven analysis shown in Table 8 and Table 9.

During development of this toolkit Future Cities Table 8 and Table 9 provide an example of a
Catapult undertook case study evaluations breakeven analysis on an intelligent parking
with Councils who had implemented similar solution. The net present value is the difference
solutions to give indicative figures on patronage between the present value of cash inflows and
increase. Taking account of corrective factors, i.e. the present value of cash outflows. NPV is used in
the reduction in overall parking revenues in the capital budgeting to analyse the profitability of a
wider area a general positive benefit on parking projected investment or project. The formula used
revenues was noticed. However it is unclear as to to generate this is illustrated in Table 7.
whether the improved service increases demand
Table 7

After
Revenue Variations  Baseline
implementation
Estimated Revenue    
Total Parking Revenue 15,000,000 15,000,000
Percentage uplift estimated 2.0%
Estimated uplift in revenue per annum £300,000
Table 8

Breakeven Analysis    

Breakeven of intelligent parking

Total Estimated Yearly Fixed Cost of Sensors £108,200.00
Total Capital Cost of solution £650,000.00

Baseline revenue collection £15,000,000

Anticipated increase in revenue % 2%
Annual Revenue Increase £300,000
Table 9

Breakeven Analysis Build Year +1 +2 +3 +4

Purchase of Equipment -£450,000

Installation of Equipment -£200,000
Ongoing Maintenance
Costs -£108,200 -£108,200 -£108,200 -£108,200
Total Project Costs in year -£650,000 -£108,200 -£108,200 -£108,200 -£108,200
Baseline Income £15,000,000 £15,000,000 £15,000,000 £15,000,000 £15,000,000
Variation percentage 1% 2% 2% 2% 2%
Income variations £150,000 £300,000 £300,000 £300,000 £300,000
Total Cost/ Income -£500,000 £191,800 £191,800 £191,800 £191,800
Cumulative Position -£500,000 -£308,200 -£116,400 £75,400 £267,200
Net Present Value -£505,072 -£326,025 -£153,033 £14,110 £175,601

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IoT Investment Case Toolkit 29
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t
NPV =  ∑
C_ t
– C_ 0
( 1+r ) t
t=1

C t = net cash inflow during period t  £1,350,000

Co = total initial investment costs  £1,082,000
r = discount rate (6)  (1 + 0.035)n
t = number of time periods  5

Another calculation worth considering is the Return Task3.3

on Investment (ROI) which is a measure of the Sensitivity Analysis
efficiency of an investment, to compare a series of Sensitivity Analysis identifies costs and assumptions
investments. It is a basic calculation of the return that cause significant uncertainty in the output of
on investment relative to the cost of investment. the cost benefit analysis. Once identified, through
The formula below illustrates how to calculate this the process of Sensitivity Analysis, these inputs
and would return a ROI result of 0.24. then become the focus of attention. In order to
make the model more robust further analysis of
these costs and assumptions takes place. In this
way, Sensitivity Analysis provides an analytical
(Gains from investment – Cost of Investment)
ROI =   framework for assessing and dealing with some of
Cost of investment the risks to a successful intervention.

A formal process for carrying out a Sensitivity

Analysis can be quite involved. However, for most
Task3.2 practical purposes a simple three-step process can
Opportunity Cost be adopted.
An economist defines the cost of [lost] opportunity,
opportunity cost, as the cost of an alternative that Step 1: The simplified approach involves first
must be forgone in order to pursue a certain action. changing the inputs, CAPEX or OPEX items or
In other words it’s the benefits lost by not taking an assumptions regarding benefits, and noting to
alternative course of action. In the case of a smart what extent this affects the output, the Break Even
parking IoT solution, the benefits that all alternative Point.
parking solutions offer are lost when one solution
is chosen in preference to the alternatives. In Step 2: Once the inputs which cause significant
practical terms, considering the opportunity cost is variation in the outputs have been identified, further
a formalised mechanism to ensure the benefits of analysis is carried out to define as accurately as
one solution are not exaggerated by not taking into possible the underpinning assumptions of that
account the value which is lost by not choosing one particular input.
of the alternative solutions.
Step 3: Any uncertainty which still exists can be
Opportunity cost is accounted for in the cost benefit dealt with by allowing estimates of costs and
analysis process suggested here by repeating the benefits to be spread over a range of values which
process for each proposed solution, including the reflect the uncertainty, the greater the uncertainty
do-nothing case, and comparing the results. The the wider the spread.
do-nothing case describes the situation where a
new smart solution is not adopted and the service Sensitivity analysis is most beneficial when applied
continues to be provided using the existing service directly to the financial appraisal element of the
provision process. business case of a given intervention.

6 Discount Rate calculated from green book figure 3.5% for a 5 year project
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/220541/green_book_
complete.pdf

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IoT Investment Case Toolkit 30
Smart Parking

Task3.4
Leveraging IoT for Funding Access
As a footnote to Financial Analysis it is worth
commenting that the nascent nature of the
emerging global IoT market can offer a positive
opportunity to leverage external funding. Funding
instruments for pilot or wider scale roll-outs
present themselves as money invested to prove
the feasibility and benefits of the technology and
the solutions.

The best, and perhaps most recent example,

of direct investment in this area to prove the
fundamentals of IoT was “The Internet of Things
City Demonstrator” which is currently investing up
to £10 million in a single collaborative R&D project
to demonstrate the capability of IoT in a city region.
The Demonstrator, funded by the UK Department for
Culture, Media and Sport (DCMS) and administered
through Innovate UK was successfully secured by
the Manchester CityVerve Programme.

At the European level funding exists in Horizon

2020), European Regional (Euro Regional
Development Funds) and at the National levels
for the UK and England. Opportunities may also
exist through the Local Enterprise Partnerships and
various regional funding elements.

Generally speaking, these funding instruments give

greater weight to solutions which offer transferability
and proven success and this should be considered if
looking to leverage funding in this manner.

This document is funded to contribute to the body

of evidence supporting IoT investment and make
deployment easier as part of the IoTUK Programme.

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IoT Investment Case Toolkit 31
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