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RFID-ROI-SME – ICT-PSP No. 250438
PROPRIETARY RIGHTS STATEMENT
This document contains information, which is proprietary to the RFID-ROI-SME Consortium. Neither this document nor the information contained herein shall be used, duplicated or communicated by any
means to any third party, in whole or in parts, except with prior written consent of the consortium
RFID-ROI-SME DELIVERABLE D7.3
“ROI Studies for RFID-ROI-SME Pilots”
Project Acronym RFID-ROI-SME
Grant Agreement No. 250438
Project Title Pilot RFID Deployments and ROI Studies for
SME using Open Source Middleware and Tools
Deliverable Reference
Number
RFID-ROI-SME-WP7-D7.3
Deliverable Title ROI Studies for RFID-ROI-SME Pilots
Revision Number V1.0
Deliverable Editor(s) AIT
Authors / Contributors AIT, ALU, BKS, RFID-SPE, SATA, SENSAP, SERO, UEAPME
Project co-funded by the European Commission within the ICT Policy
Support Programme
Dissemination Level
PU Public CO
Statement of originality:
This deliverable contains original unpublished work except where clearly indicated otherwise. Acknowledgement of previously published material
and of the work of others has been made through appropriate citation,
quotation or both.
RFID-ROI-SME – ICT-PSP No. 250438
PROPRIETARY RIGHTS STATEMENT
This document contains information, which is proprietary to the RFID-ROI-SME Consortium. Neither this document nor the information contained herein shall be used, duplicated or communicated by any
means to any third party, in whole or in parts, except with prior written consent of the consortium
Revision History
Rev. Author(s) Organization(s) Date Changes
V0.01 J. Soldatos AIT 10/01/
12 Structure and Table of Contents
V0.02 J. Soldatos, J.
Kaldis AIT
17/01/12
Analysis of the Methodology
V0.03 J. Kaldis,
G.Yovanof AIT
17/01/
12
Analysis of Partners Inputs on
Indicators
V0.04 J. Soldatos,
J. Kaldis AIT
08/02/12
Introduction and first comments on the indicators
V0.05 J. Soldatos,
J. Kaldis AIT, Inputs from
All partners 22/02/
12 Inclusion of Information on
Indicators and Relevant Analysis
V0.06 J. Soldatos,
J. Kaldis AIT
03/03/
12
Analysis of Cash flows,
Calculation of Indicators
V0.07 J. Soldatos, G.Yovanof
AIT 15/03/
12
Formatting of the document, inclusion of captions, quality
control
V0.08 J. Soldatos,
J. Kaldis AIT, Inputs from
All partners 27/03/
12 Analysis of Conservative /
Alternative Scenarios for All Pilots
V0.09 J. Soldatos,
J. Kaldis AIT
03/04/
12
Introduction, Executive Summary
and Main Conclusions
V0.10 V. Ilieva BASSCOM 11/06/
12 First quality review
V0.11 E. Belova CABLECOM 12/06/
12 Second quality review
V0.12
J. Soldatos
AIT 14/06/
12
Revision of the document after
the quality review
V0.13
T. Brookes UKITA
15/06/12
Third quality review (English)
V1.00
G. La Placa UEAPME
15/06/
12 Final version
RFID-ROI-SME – ICT-PSP No. 250438
PROPRIETARY RIGHTS STATEMENT
This document contains information, which is proprietary to the RFID-ROI-SME Consortium. Neither this document nor the information contained herein shall be used, duplicated or communicated by any
means to any third party, in whole or in parts, except with prior written consent of the consortium
Abstract
This deliverable is devoted to the evaluation of the eight RFID-ROI-SME pilots from a financial and economic perspective, using popular financial
models such as Return-on-Investment (ROI), Net-Present-Value (NPV) and Internal-Rate-of-Return (IRR). The analysis has been based on
realistic inputs and estimations from all the pilot sites regarding the Total
Cost of Ownership of the systems but also regarding the potential benefits of the solution. The deliverable complements D7.2 in the evaluation of the
pilot systems of the project. Overall the results are positive, since most of
the pilot sites (end-users) derived or are expected to derive positive return-on-investment associated with their RFID projects. For most of the
end-users their participation in the RFID-ROI-SME has acted as a catalyst
for engaging in the RFID deployment, as is also validated from the
financial analysis.
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Table of Contents Revision History .............................................................................. 2 Abstract ........................................................................................ 3 Table of Contents ............................................................................ 4 Table of Figures .............................................................................. 6 Table of Tables ............................................................................... 8 Executive Summary ...................................................................... 10 1. Introduction ........................................................................... 14 2. Evaluation Methodology ........................................................... 16
2.1 Issues Addressed – Financial Questions Posed ........................ 16 2.1.1 Numerical and Tangible Benefits as KPIs ........................... 16 2.1.2 Investment Analysis with multiple indices ......................... 17 2.1.3 Identification and Segmentation of Cost Drivers ................. 18 2.1.4 The effect of EU funding ................................................. 19 2.1.5 Benefits and Projections of cash flows in the future ............ 20
2.2 Questionnaires Set-up and Distribution .................................. 21 2.3 Data Aggregation ............................................................... 22
3. Numerical Indices - KPIs .......................................................... 24 3.1 CABLECOM ........................................................................ 24 3.2 PICDA .............................................................................. 24 3.3 KOSKINIDIS ...................................................................... 25 3.4 STAFF Jeans ...................................................................... 26 3.5 DUF-rejser ........................................................................ 27 3.6 Sovereign Security ............................................................. 28 3.7 C.N.A. MODENA ................................................................ 28 3.8 BRIDGE 129 ...................................................................... 29
4. Investment Analysis ................................................................ 31 4.1 CABLECOM (Cable Trading Logistics) ..................................... 31
4.1.1 Cost Drivers and Cost Breakdown .................................... 31 4.1.2 Assumptions and Projections for income ........................... 33 4.1.3 Cashflows – Investment Viability with or without funding .... 35 4.1.4 ROI – NPV and other Financial Indices .............................. 37 4.1.5 Risks-Robustness-Conservative scenario ........................... 37 4.1.6 In Depth Analysis – Focused Calculator ............................ 38
4.2 PICDA (Manufacturing of Plastic Products) .............................. 40 4.2.1 Cost Drivers and Cost Breakdown .................................... 40 4.2.2 Assumptions and Projections for income ........................... 42 4.2.3 Cashflows – Investment Viability with or without funding .... 44 4.2.4 ROI – NPV and other Financial Indices .............................. 46 4.2.5 Risks-Robustness-Conservative scenario ........................... 46 4.2.6 In Depth Analysis – Focused Calculator ............................ 46
4.3 KOSKINIDIS (Intelligent Manufacturing) ................................ 48 4.3.1 Cost Drivers and Cost Breakdown .................................... 49 4.3.2 Assumptions and Projections for income ........................... 51 4.3.3 Cashflows – Investment Viability with or without funding .... 54 4.3.4 ROI – NPV and other Financial Indices .............................. 55 4.3.5 Risks-Robustness-Conservative scenario ........................... 56
4.4 STAFF Jeans (Retail-Apparel-Warehouse) ............................... 57
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4.4.1 Cost Drivers and Cost Breakdown .................................... 57 4.4.2 Assumptions and Projections for income ........................... 60 4.4.3 Cashflows – Investment Viability with or without funding .... 63 4.4.4 ROI – NPV and other Financial Indices .............................. 64 4.4.5 Risks-Robustness-Conservative scenario ........................... 65
4.5 DUF-rejser (Electronic Ticketing – Tourist Relationship Management) ............................................................................ 65
4.5.1 Cost Drivers and Cost Breakdown .................................... 65 4.5.2 Assumptions and Projections for income ........................... 68 4.5.3 Cashflows – Investment Viability with or without funding .... 70 4.5.4 ROI – NPV and other Financial Indices .............................. 71 4.5.5 Risks-Robustness-Conservative scenario ........................... 72
4.6 Sovereign Security (Security Systems Pilot) ........................... 72 4.6.1 Cost Drivers and Cost Breakdown .................................... 72 4.6.2 Assumptions and Projections for income ........................... 75 4.6.3 Cashflows – Investment Viability with or without funding .... 78 4.6.4 ROI – NPV and other Financial Indices .............................. 79 4.6.5 Risks-Robustness-Conservative scenario ........................... 80
4.7 BRIDGE 129 (Security/Surveillance – Safetyin Construction Worker Sites) ............................................................................ 81
4.7.1 Cost Drivers and Cost Breakdown .................................... 81 4.7.2 Assumptions and Projections for income ........................... 84 4.7.3 Cashflows – Investment Viability with or without funding .... 84 4.7.4 ROI – NPV and other Financial Indices .............................. 85 4.7.5 Risks-Robustness-Conservative scenario ........................... 86
4.8 C.N.A. Modena (Document Management) ............................... 87 4.8.1 Cost Drivers and Cost Breakdown .................................... 87 4.8.2 Assumptions and Projections for income ........................... 90 4.8.3 Cashflows – Investment Viability with or without funding .... 91 4.8.4 ROI – NPV and other Financial Indices .............................. 92 4.8.5 Risks-Robustness-Conservative scenario ........................... 93
5. Consolidated Investment Analysis .............................................. 95 6. Conclusions ............................................................................ 98 7. References ........................................................................... 100 8. Web Sites ............................................................................ 101
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Table of Figures Figure 1: Costs breakdown per year associated with the CABLECOM pilot.................................................................................................. 32 Figure 2: Cost breakdown per category for the CABLECOM pilot ............ 32 Figure 3: Cost breakdown per sub-category for the CABLECOM pilot...... 33 Figure 4: Operational Monetary Benefits for CABLECOM ...................... 34 Figure 5: Non-Operational Financial Benefits for CABLECOM ................. 34 Figure 6: Cumulative Monetary Benefits per year for CABLECOM........... 35 Figure 7: Cash Flow per year for the CABLECOM pilot (including the EC funding) ...................................................................................... 36 Figure 8: Cash Flow per year for the CABLECOM pilot (without the EC
funding) ...................................................................................... 36 Figure 9: Costs breakdown per year associated with the PICDA pilot ..... 41 Figure 10: Costs breakdown per category for the PICDA pilot ............... 41 Figure 11: Costs breakdown per sub-category for the PICDA pilot ......... 42 Figure 12: Operational Benefits (in monetary terms) for the PICDA pilot
(per year) .................................................................................... 43 Figure 13: Financial Non-Operational Benefits for the PICDA pilot (per
year) .......................................................................................... 43 Figure 14: Cumulative Monetary Benefits (Financial vs. Operational) for
the PICDA pilot (per year) .............................................................. 44 Figure 15: Cash Flow per year for the PICDA pilot (including the EC funding) ...................................................................................... 45 Figure 16: Cash Flow per year for the PICDA pilot (excluding the EC
funding) ...................................................................................... 45 Figure 17: Costs breakdown per year associated with the KOSKINIDIS
pilot ............................................................................................ 50 Figure 18: Costs breakdown per category for the KOSKINIDIS pilot ...... 50 Figure 19: Costs breakdown per sub-category for the KOSKINIDIS pilot 51 Figure 20: Operational Benefits (in monetary terms) for the KOSKINIDIS
pilot (per year) ............................................................................. 52 Figure 21: Financial Non-Operational Benefits for the KOSKINIDIS pilot (per year) .................................................................................... 53 Figure 22: Cumulative Monetary Benefits per year for KOSKINIDIS ....... 53 Figure 23: Cash Flow per year for the KOSKINIDIS pilot (including the EC
funding) ...................................................................................... 54 Figure 24: Cash Flow per year for the KOSKINIDIS pilot (excluding the EC
funding) ...................................................................................... 55 Figure 25: Costs breakdown per year associated with the STAFF pilot .... 58 Figure 26: Cost breakdown per category for the STAFF pilot ................ 59 Figure 27: Cost breakdown per sub-category for the STAFF pilot .......... 60 Figure 28: Operational Monetary Benefits for STAFF ........................... 61 Figure 29: Non-Operational Financial Benefits for STAFF ...................... 62 Figure 30: Cumulative Monetary Benefits per year for STAFF ............... 62 Figure 31: Cash Flow per year for the STAFF pilot (including the EC
funding) ...................................................................................... 63 Figure 32: Cash Flow per year for the STAFF pilot (without the EC funding)
.................................................................................................. 64
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Figure 33: Costs breakdown per year associated with the DUF pilot ....... 66 Figure 34: Costs breakdown per year associated with the DUF pilot ....... 66 Figure 35: Costs breakdown per category for the DUF pilot .................. 67 Figure 36: Costs breakdown per sub-category for the DUF pilot ............ 67 Figure 37: Operational Benefits (in monetary terms) for the DUF pilot (per
year) .......................................................................................... 68 Figure 38: Financial Non-Operational Benefits for the DUF pilot (per year)
.................................................................................................. 69 Figure 39: Cumulative Monetary Benefits for DUF ............................... 69 Figure 40: Cash Flow per year for the DUF pilot (including the EC funding)
.................................................................................................. 70 Figure 41: Cash Flow per year for the DUF pilot (excluding the EC funding)
.................................................................................................. 71 Figure 42: Costs breakdown per year associated with the SOVEREIGN pilot
.................................................................................................. 73 Figure 43: Costs breakdown per category for the SOVEREIGN pilot ....... 74 Figure 44: Costs breakdown per sub-category for the SOVEREIGN pilot . 75 Figure 45: Operational Benefits (in monetary terms) for the SOVEREIGN
pilot (per year) ............................................................................. 76 Figure 46: Financial Non-Operational Benefits for the SOCEREIGN pilot
(per year) .................................................................................... 77 Figure 47: Cumulative Monetary Benefits for SOVEREIGN .................... 77 Figure 48: Cash Flow per year for the SOVEREIGN pilot (including the EC funding) ...................................................................................... 78 Figure 49: Cash Flow per year for the SOVEREIGN pilot (excluding the EC
funding) ...................................................................................... 79 Figure 50: Costs breakdown per year associated with the BRIDGE129 pilot
.................................................................................................. 82 Figure 51: Costs breakdown per category for the BRIDGE129 pilot ........ 83 Figure 52: Costs breakdown per sub-category for the BRIDGE 129 pilot . 83 Figure 53: Financial Non-Operational Benefits for the BRIDGE129 pilot
(per year) .................................................................................... 84 Figure 54: Cash Flow per year for the BRIDGE129 pilot (including the EC funding) ...................................................................................... 85 Figure 55: Costs breakdown per year associated with the CNA Modena
pilot ............................................................................................ 88 Figure 56: Costs breakdown per category for the CNA Modena pilot ...... 89 Figure 57: Costs breakdown per sub-category for the CNA Modena pilot 89 Figure 58: Operational Benefits (in monetary terms) for the CNA Modena pilot (per year) ............................................................................. 90 Figure 59: Cumulative Monetary Benefits for CNA Modena ................... 91 Figure 60: Cash Flow per year for the CNA pilot (including the EC funding)
.................................................................................................. 92 Figure 61: Cash Flow per year for the CNA pilot (excluding the EC funding)
.................................................................................................. 92 Figure 62: Average Costs Breakdown per category (All RFID-ROI-SME pilots) ......................................................................................... 95 Figure 63: Average Costs Breakdown per sub-category (All RFID-ROI-SME
pilots) ......................................................................................... 96
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Table of Tables Table 1: Numerical Values for KPIs associated with the CABLECOM pilot 24 Table 2: Numerical Values for KPIs associated with the PICDA pilot ....... 25 Table 3: Numerical Values for KPIs associated with the KOSKINIDIS pilot
.................................................................................................. 26 Table 4: Numerical Values for KPIs associated with the STAFF pilot ....... 26 Table 5: Numerical Values for KPIs associated with the DUF pilot .......... 27 Table 6: Numerical Values for KPIs associated with the SOVEREIGN pilot
.................................................................................................. 28 Table 7: Numerical Values for KPIs associated with the CNA Modena pilot
.................................................................................................. 29 Table 8: Numerical Values for KPIs associated with the BRIDGE 129 pilot.................................................................................................. 30 Table 9: Overview of costs associated with the CABLECOM pilot
deployment .................................................................................. 31 Table 10: Cash flows for the CABLECOM pilot .................................... 35 Table 11: NPV and other Financial Indices for the CABLECOM pilot ........ 37 Table 12: General Input provided by CABLECOM for ROI/NPV calculation38 Table 13: CABLECOM costs used in the scope of the ROI calculator ....... 38 Table 14: Quantification of Operational Efficiency in the scope of the
CABLECOM pilot ............................................................................ 39 Table 15: Total Benefits Calculated for CABLECOM (NPV Calculation) ..... 39 Table 16: Overview of costs associated with the PICDA pilot deployment 40 Table 17: Cashflows associated with the PICDA pilot ........................... 44 Table 18: NPV and other Financial Indices for the PICDA pilot .............. 46 Table 19: General Input provided by PICDA for ROI/NPV calculation ...... 47 Table 20: PICDA costs used in the scope of the ROI calculator .............. 47 Table 21: Quantification of Production Planning benefits in the scope of
the PICDA pilot ............................................................................. 47 Table 22: Quantification of Operational Efficiency in the scope of the
PICDA pilot .................................................................................. 48 Table 23: Total Benefits Calculated for PICDA (NPV Calculation) ........... 48 Table 24: Overview of costs associated with the KOSKINIDIS pilot
deployment .................................................................................. 49 Table 25: Cash flows for the KOSKINIDIS pilot .................................. 54 Table 26: NPV and other Financial Indices for the KOSKINIDIS pilot ...... 56 Table 27: Overview of costs associated with the STAFF pilot deployment 57 Table 28: Cash flows for the STAFF pilot ........................................... 63 Table 29: NPV and other Financial Indices for the STAFF ..................... 64 Table 30: Cash flows for the DUF pilot .............................................. 70 Table 31: NPV and other Financial Indices for the DUF pilot ................. 71 Table 32: Costs breakdown per year associated with the SOVEREIGN pilot.................................................................................................. 73 Table 33: Cash flows for the SOVEREIGN pilot ................................... 78 Table 34: NPV and other Financial Indices for the SOVEREIGN pilot ....... 79 Table 35: Cash flows for the BRIDGE129 pilot.................................... 84 Table 36: NPV and other Financial Indices for the BRIDGE129 pilot ....... 86 Table 37: RFID Adoption Rate within the CNA Modena branches ........... 87
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Table 38: Costs breakdown per year associated with the CNA Modena pilot
.................................................................................................. 88 Table 39: Cash flows for the CNA Modena pilot .................................. 91 Table 40: NPV and other Financial Indices for the CNA Modena pilot ...... 93
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Executive Summary The main goal of the RFID-ROI-SME project is to organize, conduct and evaluate eight different pilot projects developed/integrated by Small
Medium Enterprises (solution providers) to the benefit of Small Medium
Enterprises (end-users). This deliverable is devoted to the analysis of the financial benefits associated with the eight RFID-ROI-SME pilots. The
deliverable is therefore a critical element of the evaluation efforts of the
project, which complements other evaluation activities associated with the
usability, technical and technological evaluation of the pilot systems.
In the scope of the present deliverable, all pilot sites have attempted to
record the costs and benefits associated with their pilot RFID systems, in the most credible way. Following the identification and documentation of
costs and benefits a financial analysis has been performed, which led to
the calculation of various parameters and indicators for each pilot including: (a) Net Present Value (NPV) analysis with the discounted cash-
flows, (b) Internal Rate of Return (IRR), (c) Payback Period, (d)
Accounting Rate of Return, (e) Cost-Benefit Ratio, and (f) Profitability
index (PI). Several of the above models have taken into account the time value of money on the basis of realistic Weighted Average Cost of Capital
(WACC) values. Accordingly, these financial models have been analyzed
and interpreted for each of the pilots.
The interpretation of the financial indicators for the various pilot sites has
been based on a basic scenario with moderate assumptions about the revenues and business benefits for each one of the pilots. At the same
time, deviations from the basic scenario and associated risks have been
also discussed. Furthermore, the role of EC funding has been explored,
given that in several cases the co-funding has acted as a catalyst for the end-users SMEs to engage in and benefit from the pilot deployment. In
general, most of the deployments have been proven to be financially
viable and beneficial for the end-user SMEs. This is because most of the basic scenarios received a positive evaluation. Furthermore, most of the
pilots could have been viable even without support from the EC (on the
basis of the co-funding) even though the EC funding has greatly improved
the financial indicators.
To be more specific, as part of the CABLECOM pilot on cable trading
logistics, the end-user SME enjoys clear business benefits stemming from a better utilization of cable left-overs, faster order collection, faster
choice of the right drum and faster localization of the chosen drum. These
benefits have been observed during the pilots, and have contributed to tangible cost savings (especially due to better utilization, which was the
main cost driver). Note that this project could break even, even without
the EC co-funding, even though this would significantly increase the
payback period.
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In the case of the PICDA pilot, monetary benefits from operational
improvements (e.g., Reduction in the Number of Bags that must be destroyed, Reduction in the Number of Manipulation Mistakes, Reduction
in the Number of lost coils) and increased sales were accounted.
Operational efficiency benefits have been measured and proven and were
the main revenue driver for PIDCA. In addition to the tangible improvements in the KPIs, PICDA expects some increase in sales, which
could however be questioned. However, the pilot was associated with a
high IRR value, which would remain positive even in the case where the anticipated sales increase will not be confirmed.
The KOSKINIDIS pilot (on intelligent manufacturing of packaging/paper
products) has also resulted in tangible operational improvements for the company. Respective benefits have been calculated on the basis of stock
monitoring accuracy, cost calculation & forecasting accuracy, raw
materials & ready-made products traceability, quality assurance, as well as some (intangible) marketing effects. The financial analysis for the pilot
has rendered a considerable IRR indicator, which would remain high even
if potential benefits on sales would be totally disregarded.
The case of STAFF jeans is a prominent case where the EC co-funding was
essential in realizing this investment. Indded, the company gained several
benefits from the RFID deployment including Less Stolen Items, Better Customer Service, Improved Branding/Marketing, Time Savings in the
Receiving Goods Process (approx. 1 PM per Year), Better Stock
Replenishment, Time Savings In Check out and Returning Goods Procedures (approx 1 PM per Year), as well as in-house Experience for
Future Installations in all company shops. Several of these benefits were
directly translated into monetary benefits. Nevertheless, this investment suffers from high tagging costs which are in practice distributed between
several projects, given that STAFF products are tagged in the company’s
central warehouse. The high costs (including costs of consumables) lead
(without the EC funding) to a rather low IRR, which is below WACC (2.79% vs. 12% (in 2012 in Greece). This is not making the investment
necessarily un-attractive as it eventually breaks even, but still it is a lot
more attractive since EU funding assists a lot with cash flows. In particular, with the EC funding, this retail cases is proven to be a very
interesting investment for STAFF, while without the EC funding it would
struggle to marginally yield profit.
As far as the DUF project is concerned, the estimated benefits lead to very
positive indicators. Note however that the monetary quantifications in this
case can be error-prone, since it is based on some estimated indicators including sales increase and increase in motivation (resulting in higher
performance). The effect of the RFID project on these indicators can be
hardly measured and only educated assumptions have been made. Overall, the project was financially interesting but
technically/organizationally difficult (due to the need to secure reliable
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wireless network connectivity at the various venues/sites). The later has
also been the primary reason for DUF not to sustain the RFID system after the end of the RFID-ROI-SME project, contrary to the rest partners which
remain committed to the sustainability (and in several cases to the
expansion) of their systems.
The SOVEREIGN is one of the RFID-ROI-SME pilot projects, where huge
business benefits can be derived from the wider deployment and use of
the RFID system (e.g., through deploying the system to more customers of SOVEREIGN). The project has proven to be profitable based on a
number of revenue generating factors and cost cutting drivers including
operational savings, labour savings, savings on travel costs, provision of
new added services to customers, as well as prospective Sales increases. Even with conservative estimates the pilot has been estimated to render
high IRR.
The BRIDGE129 pilot has been also proven as a profitable one, based on
the assumption that «smart poles» (comprising active RFID tags and the
relevant software) can be sold to a number of interested customers at the prices of 12000 € per unit (i.e. net income after taxes for the integrated
solution). The EC funding has made this project a very interesting case for
the SME end-user, given that cash flows and benefits can be generated
from the first year of the project (where relevant costs could be also amortized).
Finally, the CNA Modena pilot has proven that RFID-enable document management provides an interesting business case for the SME end-user.
In the scope of the deliverable we have analyzed the potential benefits,
assuming the adoption of the RFID solution by several branches of CNA Modena. In particular, CNA Modena has about 50 branches, which prepare
40.000 tax assessments per year. The tax assessment process requires 45
full time equivalent persons, with an average personnel cost of 30.000 €
(as a minimum). The analysis and performance evaluation of the RFID system has shown its potential to lead to total savings of up to 300.000 €
per year, or else an average of 6.000 € per branch per year. These figures
result in clear financial benefits, even in the case where conservative rates for RFID adoption/deployment are assumed.
At the end of this deliverable we also present a consolidated analysis aiming at quantifying the average and total benefits achieved as part of
the RFID-ROI-SME project. Note that such average values are only
indicative given the diversity of the companies, the application sectors and
the deployed RFID applications. Beyond the absolute quantification of the benefits for each pilot (which depend on the industry, the country, the
nature of the RFID applications and more), the present deliverable has
illustrated clearly positive financial indicators associated with the adoption of RFID in the various sectors. Hence, RFID-related cost analysis should
not be a premium barrier to the adoption of RFID (and other AutoID)
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technologies by SMEs. The sole exception concerns deployments that
involve item-level tagging, where the recurring costs of consumable can be high and more difficult to justify. Overall, given the cost effectiveness
of the various project(s), SMEs should consider RFID solutions, as they
can confront various operational issues, while at the same time increasing
sales, improving quality of products and services and overall boosting branding.
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1. Introduction Among the main objectives of RFID-ROI-SME is to assess and disseminate
the benefits of RFID technology for Small-Medium-Enterprises (SMEs),
across a variety of sector and application domains. To this end, the project has already deployed and evaluated eight RFID pilot systems
deployed across eight different SMEs in six EU countries. In particular, the
RFID-ROI-SME project has selected an indicative and dispersed sample of various industries, ranging from manufacturing, logistics and other serial
production facilities, to a wide range of services including among others
retail, security, document management, travel and leisure. As part of the evaluation of these systems, it is considered of utmost importance – and it
is a significant cornerstone to whole project- to attempt a complete
analysis of the economic and / or financial impact of those pilots both as a
review as well as a starting point for future reference in equivalent cases. The present deliverable illustrates the results of this financial analysis,
which has been performed on the basis of well-known financials models
and indicators as outlined in the project’s evaluation methodology (detailed in deliverable D7.1). The purpose of the analysis is twofold: (a)
On the one hand to assess the potential financial benefits of the RFID
deployment to the end-user beneficiaries of the RFID-ROI-SME project and (b) On the other to use the results of this evaluation as a reference
case for other similar deployments that might be undertaken by SMEs in a
similar position (i.e. SMEs considering, evaluating or even adopting an
RFID solution).
The methodology used for the evaluation is based on the disciplined
documentation of the costs associated with the pilot, as well as on the educated estimation of the potential benefits. Note that the
documentation of the costs is quite accurate, given that all the partners
have a concrete knowledge of the costs that are entailed in the deployment (including costs for hardware, software, personnel,
consumables, support and maintenance contracts). At the same time the
estimation of the benefits has been powered by results obtained in the
scope of the pilots. Following the documentation and estimation of costs and benefits, the financial analysis has been performed on the basis of
well known financial models and indicators including: (a) Net Present
Value (NPV) analysis with the discounted cash-flows using the WACC, (b) Internal Rate of Return (IRR) using the WACC, (c) Payback Period
(expressed in years required for the cash flow to reach break-even), (d)
Accounting Rate of Return calculated as (Total benefits - Total Costs -
Depreciation)/Useful Life), (e) Cost-Benefit Ratio, calculated as the sum of Operational and other financial (monetary) benefits over the total costs
(fixed , variable, sunk etc.) and (f) Profitability index (PI), calculated as
the present value (PV) of (Future Cash Flows / Initial Investment).
In the scope of the project’s evaluation activities, the present deliverable
complements the findings of deliverable 7.2 “Per Sector Evaluation Reports” in which several business aspects where addressed. In a sense
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this is a step further trying to quantify results and employing widely
accepted metrics. As an extension, the current work can be the basis for confirmation of existing knowledge and/or new lessons learnt as far as the
business, financial and utterly investment viability in such projects is
concerned.
Note that the title “ROI studies for RFID-ROI-SME pilots” should not be
taken literally as the following sections do not just present the ROI index
alone for each case of pilot. On the contrary, we employ a more complete analysis, containing business indices, KPIs, investment analysis tools and
metrics, cost driver identification, projections and generally an overall
evaluation from multiple angles addressing the main question: “Was the
entire investment worth it, is it a financially viable case and what exactly are the monetary and other business benefits?”. The answers to the above
questions are valuable not only for the assessment of the RFID-ROI-SME
project’s results, but also for the wider impact of the project’s pilots on SME communities. The later are expected to consult the results of the
RFID-ROI-SME project prior to engaging in future RFID projects.
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2. Evaluation Methodology In the following section we properly explain the methodological aspects employed in the following analysis. Note that the general aspects of the
methodology have been provided in the scope of D7.1. In this section we
focus on more specific aspects of the evaluation methodology, including the particular tools used.
2.1 Issues Addressed – Financial Questions Posed
The scope of the deliverable is to attempt to reach the economic
dimension of the pilot projects and to assess the investment made with as
many parallel and different ways as possible. The questions and indicators outlined in the following paragraphs were posed to make sure that every
possible view was given always employing “undeniable” hard numbers
instead of “subjective” measures.
2.1.1 Numerical and Tangible Benefits as KPIs
In accordance with the analytical business evaluation requested by the participants in Deliverable 7.2, the involved parties agreed after mutual
discussions on a set of key performance indices (KPIs) that would be
appropriate for the peculiarities of each pilot to depict the benefits
achieved after the deployment of RFID platforms with hard data (numbers). It is a totally different approach to gather the perception of
the final end-user in the form of “likert curves of satisfaction” in
questionnaires – where the subjective dimension and probably the different levels of strictness per respondent could be interpreted with
deviations – than to set specific targets with hard numbers (KPIs) and see
whether these were accomplished or not during the course of the
deployment. For instance a measured 10% decrease in operational costs, measured using the exact same method, before and after RFID
deployment, is an objective and quantitative measure that cannot be
doubted or misinterpreted. Satisfaction of the customer is always very important – but mere opinions are not of much use when attempting
financial analyses and projections about the future. Moreover, Likert
scales may be subject to distortion from several causes. Respondents may avoid using extreme response categories (central tendency bias); agree
with statements as presented (acquiescence bias); or try to portray
themselves or their organization in a more favorable light (social
desirability bias). On the contrary, KPIs are simple and undoubted. In that sense, the questionnaires set up for the business evaluation of
deliverable 7.2, included a table of mutually agreed KPIs, (between end-
users, integrators and analysts of the deliverable), including their predefined method of measurement and two columns of numbers (before
and after)1. Finally, a last column mentioned the desired result (set in
1 Mutual agreement on the KPIs was reached in the scope of the evaluation workpackage of the project, following the development and integration of each pilot projects. Hence, the agreed KPIs are in some case different from the KPIs
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advance as a target) so that it would be undeniable when comparing the
before versus after values to conclude whether the expected result was obtained or not. Note also that specific KPIs also give to the integrator a
good sense of the peculiarities of the project and where to focus in
particular.
2.1.2 Investment Analysis with multiple indices
The evaluation of an investment is more or less a well elaborated matter
in the business and academic world as far as the metrics used are concerned. In particular, an investment evaluation is more an issue of
selecting the appropriate tools to gather and validate results. Given the
critical assumption that the data inserted are as accurate as possible (when referring to projections for the future), and by simply gathering the
incurred costs, cash inflows and outflows, formulas simply take over to
yield globally accepted financial indices.
First of all, all investment metrics, (rates of return etc) take as a basis for
comparison the Weighted Average Cost of Capital (WACC), which can
be significantly different among countries, industries, companies, external economic environment conditions and time periods. We hence required
the end-user companies to provide their WACC as kept by the respective
finance department of each company for the basis of our calculations.
We assumed a calculation period of 5 years from the first cost incurred,
since this is a rather logical time frame; neither too long to risk
projections, nor too short for the investment and the platform in general to mature and deliver its full potential. Given the nature of the ICT world
running at such a fast pace, this is deemed an appropriate time span. It
should be noted that depreciation was calculated using the linear method over the same period, which is also assumed for calculations to be
the useful life (despite the fact that everyone agrees that the hardware
and software installed can by no means be considered totally void or
technologically obsolete after these 5 years).
After number tabulation, the following were calculated:
Net Present Value (NPV) analysis with the discounted cashflows using
the WACC as well known around the world.
Internal Rate of Return (IRR) identically as above
Payback Period (as in years required for the cash flow to reach break
even)
Accounting Rate of Return (Total benefits - Total Costs -
Depreciation)/Useful Life).
Cost-Benefit Ratio: As the sum of Operational and other financial
(monetary) benefits over the total costs (fixed , variable, sunk etc.)
Profitability index (PI): i.e. PV of Future Cash Flows / Initial Investment
articulated in the scope of the requirements engineering process (in WP1 of the project).
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It should be noted here that as cash flows span through years (for
example EU funding can come in installments through the years, and so can the payments (costs) too for the integrators and equipment), all
numbers are discounted back to the first year.
Basic financial definitions employed above can be found in most introductory Finance books or on investopedia.com
2.1.3 Identification and Segmentation of Cost
Drivers
The correct method for one to follow is to first gather all costs incurred during the project deployment from concept to completion. We always
take the view of the benefited end-user company, hence payments to the
integrating party are considered costs, while benefits and positive cash inflows are considered income (see section below). Cost categories to be
taken under consideration and further broken down into sub-categories
are:
ICT Hardware Acquisition Costs
o RFID Readers
o Networking Equipment
o PCs / Servers
One should note here that non ICT hardware is not included here but is
accounted for below.
Software (either of the shelf or developed)
o RFID Middleware including licensing, software development and
integration
o ERP Modules
o Other 3rd-Party Software
Deployment Costs
o other infrastructure required to support RFID
o Installation Costs
Consumables
o RFID Tags (typical cost driver in such cases)
o Other Consumables
Services to the end-user
o Training
o Consulting
o Support
o Maintenance
In-House Costs and Overheads
o End-User Personnel Costs (for the RFID project)
o Administrative Costs
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o Other Costs (space required, energy consumed etc.)
Assumption made here and issues for consideration are:
Costs can either be one-off during the beginning of the project or
broken into years (for instance RFID tags can be bought at batches
every year)
Costs incurred in the same year as aggregated as one not counting the
month on which they were made
Costs are considered when cash flow appears (not by invoice)
Integrator profit and overhead is included in the sale price (which is
the cost for the end-user)
Administrative costs, as for example man-hours spent from the
proposal stage to the final acceptance are included in overheads.
We differentiate between retrospective and prospective costs and
also between fixed (not dependent on the volume of economic
activity, however measured) and variable (dependent on volume).
Sunk costs as above are gathered too. By definition, sunk costs are
retrospective (past) costs that have already been incurred and cannot
be recovered and these are taken into account in overheads too. Sunk
costs are sometimes contrasted with prospective costs, which are
future costs that may be incurred or changed if an action is taken. The
note here is made because in traditional microeconomic theory, only
prospective (future) costs are relevant to an investment decision.
Traditional economics proposes that an economic actor should not let
sunk costs influence one's decisions, because doing so would not be
rationally assessing a decision exclusively on its own merits. However,
until a decision-maker irreversibly commits resources, the prospective
cost is an avoidable future cost and is properly included in any
decision-making processes. On the other hand, any company even
considering to make an RFID investment, even reading this deliverable
(as we hope prospective RFID investors will), even dedicating
resources in analysis, funding actions etc. are costs non attributable to
a specific project necessarily, yet very valid.
When estimated costs in the future appear, well checked
projections are made, as opposed to already incurred costs which are
definite.
All costs are rounded wherever possible and converted in EUR.
2.1.4 The effect of EU funding
In terms of analysis of the viability of an investment similar to the ones
made in the 8 pilot cases, and for reasons of future reference and/or possible lessons learned, it is deemed important to make 2 sets of
calculations. Namely, we pose the “what-if” question probably most
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important than any other: Could the investment be considered plausible
had the EU funding factor been subtracted? Irrespective of whether the intention, or the available capital or both are concerned we pose the same
question twice. By calculating costs and profits we attempt (for each one
of the pilots) to investigate:
A) The Net Present Value associated with the RFID investment, as an
indication of its profitability.
B) The impact of the EC co-funding on the investment. In particular, the
analysis aims at investigating whether the investment would have
interesting and profitable even without the EC co-funding.
In simple words, this is a crucial question for all such emerging new
technologies. Do they still need nurturing by a higher body, or have they
already achieved a level of maturity (both in technological as well as consulting and design aspects) to be able to sustain themselves as
attractive options for any modern company requiring process
improvement by the means of RFID?
2.1.5 Benefits and Projections of cash flows in the
future
By definition, all intangible (at least to a large extent) investments, such
as process improvement by ICT technologies, and specifically RFID as in
our case, have an inherent uncertainty of results. It is of the utmost importance to use the correct metrics when measuring “profits” due to
process improvement. Despite KPIs properly defined, one should never
lose sight of the fact that RFID costs are not directly attributable to a
project or product in most cases, nor are they directly and strictly “variable” costs in the production of goods or service offering; Not to
mention expected profits or savings. All contributors in each pilot closely
monitor the results in each phase, all have strategically defined what they expect from RFID, all know exactly what they have spent, but they can
only make educated guesses about the final outcome in 5 years from now.
Indeed for the first 2 years, we do have rather accurate data, but the future can only be depicted in projections.
All participants responded to the 3rd and most difficult to quantify section
of benefits due to RFID deployment, and translated them in strict monetary terms as accurately as possible. One has to note that all
projections are rather optimistic, not taking into account disruptive
negative factors, socio-economic slowdown, force majeure, radical negative changes in demand or operations etc. In a sense we see a “good
case scenario” where everything goes according to plan but not the “best
possible case scenario”. Of course, it was stressed to all respondent to
make reasonable and realistic assumptions, yet these are only educated projections “should things go as they do today”. We differentiate here
between “Operational” and “Other Financial” benefits.
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The former vary according to each case and include indicatively:
Sales improvement
Profit per sale improvement
Forms of cross-selling and up-selling formerly impossible
New ways of advertising
Enhancement of Brand Equity
Enhanced of corporate image to customers
More customers served per time unit
Better Visibility of operations and error prevention
Total or partial elimination of errors
Decreased full time equivalent headcount
Decreased administrative requirements
Decreased training requirements
Reassigning or better utilizing human resources
Increased production
Operational Efficiency
Time savings from automation
Decreased employee turnover
Reduction of human errors
Decreasing/eliminating paper costs
The latter include:
Tax savings due to the investment
Interest benefits
Depreciation (also a tax benefit)
Other forms of monetary benefits, not attributable to the core
operations of the premises
2.2 Questionnaires Set-up and Distribution
Before proceeding with the questionnaire setup, the following sources of relevant specific ROI calculators for RFID cases and methods quantifying
benefits were studied:
[1] http://www.insidus.com
[2] http://www.rfid-weblog.com/50226711/the_retail_roi_calculator_
at_rfid_in_fashion_2009.php
[3] http://www.milestechinc.com RFID ROI Calculator
[4] http://www.itbusinessedge.com/itdownloads/rfid-roi-calculator
[5] http://www.rfidlogic.com/roi_page1.html
By combining their calculation formulas (wherever applicable) and adding the usual index formulas of every typical investment analysis as analyzed
in section 2.1.2 the results part of the questionnaire was created.
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By tabulating cost drivers in categories and subcategories as in section 2.1.3, the entry tables for respondents were created and the rest of the
calculator was locked to avoid unintentional alterations. The final
questionnaire was distributed to the respondents together with the
Usability Questionnaire or Deliverable 7.2 which included the KPIs.
We then required from the participants of each pilot project to
cumulatively gather all data (end-users and integrators collaborated) and return them to begin the cycle of feed-back which in some cases was quite
time consuming with several versions.
In search for even better detail we have found that a specific calculator could be very useful because it allows us to delve into RFID operational
details and quantifies small but very important aspects of a manufacturing
environment when RFID is deployed in the supply-chain. The EPC RFID calculator was built based on inputs from manufacturers and retailers who
participated in a study that was conducted jointly by the Stanford Global
Supply Chain Management Forum and MIT and was sponsored by EPCglobal. It addresses issues such as:
Out of Stock (OOS)
Shrinkage
Product Diversion Counterfeiting
Reconciliation and Deduction
Obsolescence Production Planning
VMI / Direct Store Delivery Activities
Promotions Management Operational Efficiency
Track and Trace
We chose to distribute this focused calculator as well to participants and require them to fill in (where applicable) these sections too so that more
details could be derived on supply-chain specific processes. This is a
calculator that is only applicable for manufacturing and logistics environments as it assumes a linear structure of supplier, production
facility, warehouses and retailer store, and it was deemed applicable only
for half of the pilots under consideration. The results of this questionnaire follow in a separate paragraph of each pilot analysis.
2.3 Data Aggregation
Filled-in questionnaires that were returned by RFID-ROI-SME partners
were processed iteratively as follows:
Step 1: Data validation in order to ensure that the questionnaires
are complete, answers are logical, indices are reasonable and amounts
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clear, and that the number questionnaires received is the expected
one. Step 2: Feedback and questionnaire exchange in case of
discrepancies to reach desired level of completeness as well as
clarifications in “grey areas” or indices and that needed explanation.
Gathering of business assumptions and sources of potential profit or cost reduction. Replacement of older version with newer when re-filling
with corrections was needed, to avoid double entries.
Step 3: Coded insertion of data received in master data table, divided by pilot, category (cost driver, benefit type etc).
Step 4: Creation of additional data, such as category identifiers,
data for the creation of graphs, intermediate calculations of cash-flows
etc. Step 5: Follow-up exchange of information and collaboration
with the partners engaging in the evaluation process, with a view to
discussing finding, trends, relevant improvements, as well as conclusions.
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3. Numerical Indices - KPIs The respective KPIs, as mutually agreed among participants, were properly included in questionnaire Q4 (Business Evaluation) which was
also used in some of its parts for the business evaluation section of
Deliverable 7.2. (there, we had the perceived business improvement by the end-user management, while here we have the hard data of KPIs and
whether these were achieved by means of RFID deployment). Tables
including KPIs, target values and measurements follow for each pilot.
These measure in a sense whether the RFID deployment achieved its business goals for the end-user companies.
3.1 CABLECOM
The following KPIs were cumulatively defined after several business issues
were considered between Cablecommerce (CABLECOM) and Balkan:
(%) Utilization of Cables.
Faster Order Completion.
Better Roll Cutting.
Faster Location of the Right Drum.
Being an industrial environment, these are specific operational targets that presented difficulties and big costs for management before RFID
deployment.
Indeed, as the table below shows, the results were very encouraging. All
targets were achieved above the expected threshold:
Table 1: Numerical Values for KPIs associated with the CABLECOM pilot
3.2 PICDA
The following KPIs were cumulatively defined after several business issues
were considered between ALU group and PICDA, focusing in the
production efficiency and reduction of errors causing significant costs:
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Reduction in the Number of Bags that must be destroyed (i.e. featuring
wrong materials).
Reduction in the Number of Manipulation Mistakes (i.e. coils taken by
mistake).
Reduction in the Number of lost coils (coils that cannot be found).
Reduction in the % of Orders out of Time.
As the table shows, the targets were exceeded by far giving very
successful results following RFID deployment.
Table 2: Numerical Values for KPIs associated with the PICDA pilot
Destroyed bags were reduced to less than 25%, manipulation mistakes
and lost coils were reduced to 1/3 approximately and % of orders out of
time, although already at a good state were still reduced. One has to note
that as integrators stated in the relevant form, the results will be even better in a few months as: “..the system is working only at less than 50%
of its possibilities in the old warehouse…”.
3.3 KOSKINIDIS
The following KPIs were cumulatively defined after several business issues were considered between SENSAP and KOSKINIDIS. The KPIs, focus on
the operational efficiency of the plant, both warehousing and production.
Accurate Forecasting of Required Materials.
Accurate Estimation of Costs Parameters of Finished Goods.
Improved Inventory Accuracy / Reduction of Inventory Errors .
Improved Utilization of Manufacturing Assets (Materials, Machines).
We also have to note that RFID provided great visibility and faster reporting for management as properly explained in the relevant sections
of Deliverable 7.2.
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Indeed, KPI measurements before and after provide very encouraging
results. Maybe not to the very optimistic level of initial targets but still all were significantly improved:
Table 3: Numerical Values for KPIs associated with the KOSKINIDIS pilot
Bearing in mind the extension of scope and addition of a lot more
functionalities to the system compared to what was initially planned, and
the overall satisfaction of the new customer requirements as these were explained in the relevant section of deliverable 7.2, which are not depicted
here with the KPIs alone, we remain very satisfied for the outcome. One
has to remember that this pilot scored one of the highest scores of all
pilots in the business evaluation section as the end-users rated it.
3.4 STAFF Jeans
The following KPIs were cumulatively defined after several business issues
were considered between SENSAP and STAFF. The KPIs, focus on the
operational efficiency of the store leading to important cost cutting: Reduction of Stolen Items
Higher Inventory Accuracy
Time to Return Items
Reduction in the Average Time required for Customer Check-out Stock Reduction in the Retail Shop
Table 4: Numerical Values for KPIs associated with the STAFF pilot
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Indeed the numbers are very encouraging. First, stolen items were measured (items counted) indicating a reduction above 50% (105 to 48).
Inventory accuracy not only improved but reached 100% because of RFID.
A drastic improvement to customer service can be seen by time to return
items (5 times less because of RFID deployment) and time for checkout (4 times less). Finally due to unavailable data, stock reduction could not be
calculated prior to deployment for comparison, but end users stated that a
clear improvement has been noticed. Obviously, this is a very successful case as KPIs where reached and sometimes targets were even exceeded.
3.5 DUF-rejser
The following KPIs were cumulatively defined after several business issues
were considered between DUF Reijser and RFID Spezialisten:
Sale increase per destination.
Reduction in irregularity of reports.
Reduction of admin cost per travel.
Increase in motivation.
The table depicting methods of measurement and targets follows:
Table 5: Numerical Values for KPIs associated with the DUF pilot
This pilot is a special case (comparing to others), since it has a seasonal
character (i.e. actual pilot operations can only occur during the summer
period). Hence, we cannot provide any KPI measurements in March, because there were no guests in that period, (cyclical nature of travel and
leisure services). Thus KPIs can be derived from the three month summer
season (June-July-August), and no figures from last year were available at the DUF management. Still, DUF management has noticed an increase in
the sale on the destination, and the after sale reporting has been better
this year. We expect to see that the goals to be fulfilled on the destination
not involved in the project this year but on year after that. Indices were reported for reasons of completeness in October 2011 and were noted
down on questionnaire Q4 (Business Evaluation) as submitted.
We can claim that the first three KPIs were promptly achieved at a higher level compared to the original target, while the 4th (which is quite
subjective, in the sense that motivation as measured by questionnaires is
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rather prone to misinterpretations) still yielded a significant increase as
perceived. In the business sense, the project has achieved its targets despite the difficult nature of travel services and the weaknesses in
achieving proper measurement as a result of the seasonal character of the
pilot.
3.6 Sovereign Security
The following KPIs were cumulatively defined after several business issues were considered between SERO and Sovereign Security. One has to note
that the nature of sovereign’s business allows for improvements in quality
of services and time response mainly, so these were deemed to be the
most appropriate ones. Sovereign had a very fast response time and accuracy even before RFID due to the critical nature of their business, but
still RFID helped them improve the situation. As far as visibility of SLAs is
concerned, although not directly measurable, it was considered by end-users that this factor was greatly improved (numbers are just indicative).
Especially the generation of time-sheets was extremely fast after RFID.
Table 6: Numerical Values for KPIs associated with the SOVEREIGN pilot
The results are overall satisfying, bearing also in mind the overall
satisfaction of the customers as depicted in the relevant business
evaluation section of deliverable 7.2. The management’s comment was: “We have much more capability to manage our business and provide real
evidence”.
3.7 C.N.A. MODENA
SATA and C.N.A. had in hand one of the most difficult tasks as they had to deploy the RFID project is short time, as a result of the late entry of CNA
Modena in the project (in order to replace earlier RFID-ROI-SME partner
RETE). The results finally achieved were some of the best from all the
pilots, and the KPIs defined clearly indicate the potential that RFID has in improving operations in document management systems. The full list of
KPIs included:
Reduced Interactions with Customers.
Reduced time to prepare a folder tax computation.
Reduced time to search/find a folder.
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Faster Inventory.
Accelerated Completion of the Tax Declaration Process .
As management stated in the relevant forms “Reduced interaction with
customers and faster inventory, especially for old declarations stored in the long-term document warehouse, are the key business factors.” Indeed
the results show drastic improvements in a “record” deployment time as
the table shows:
Table 7: Numerical Values for KPIs associated with the CNA Modena pilot
One has to note that the final measurements were not made in October as
initially planned but during January 2012 for the reasons mentioned above. These are some of the most encouraging results we received from
all pilots and time was dramatically reduced in all cases.
3.8 BRIDGE 129
SATA and BRIDGE, after serious consideration of the peculiarities of smart
pole and the added value expected to be given to final customers, ended up using the following KPIs (focusing on fast and accurate recognition of
events):
Improved Speed/Timeliness towards recognizing authorized people.
Improved Speed/Timeliness towards recognizing authorized
machines/trucks.
Reduction in notification times of the control room.
All indices (KPIs) did not just improve, but they even reached a lower scale of measurement as a whole (seconds as opposed to tens of seconds
before). This indicates clearly the potential of RFID in such cases of
premises security.
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Table 8: Numerical Values for KPIs associated with the BRIDGE 129 pilot
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4. Investment Analysis As outlined in the previous sections, RFID deployments can lead to business benefits, while also gaining general customer satisfaction (as
illustrated based on the analysis of likert scale measures and presented in
deliverable 7.2). Thus, SMEs have serious incentives to engage in the deployment and adoption of RFID systems and solutions. It is however
important to assess the cost at which these benefits come i.e. whether the
benefits are financially attractive or not. We hereby answer the question
performing an in depth investment analysis as described in the methodology. We analyze: cost, financial non operational income,
operational income, cash flows and all known financial indices for
investment evaluations to reach our conclusions.
4.1 CABLECOM (Cable Trading Logistics)
Following the financial and business data gathered on behalf of
Cablecommerce and submitted centrally by Marketing Manager Mrs.
Emilia Belova, we present the following conclusions:
4.1.1 Cost Drivers and Cost Breakdown
The table of costs is as follows:
Table 9: Overview of costs associated with the CABLECOM pilot
deployment
Analysis shows that 85% of the costs incurred appear in the first 2 years
of deployment.
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Figure 1: Costs breakdown per year associated with the CABLECOM pilot
A breakdown in the main categories as analyzed in the methodology reveals the following pie-chart:
Figure 2: Cost breakdown per category for the CABLECOM pilot
By delving deeper into the sub-categories of costs, we obtain the following
breakdown:
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Figure 3: Cost breakdown per sub-category for the CABLECOM pilot
4.1.2 Assumptions and Projections for income
Management projects the expected income (operational) from the following main sources (due to RFID deployment as compared with the
previous non-RFID situation):
Better utilization of cable left-overs.
Faster order collection.
Faster choice of right drum.
Faster localization of the chosen drum.
Especially the first is a major production cost driver, which is drastically improved as a result of the RFID deployment.
Operational benefits as projected, and broken down per year of operations from kick-off are shown below:
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Figure 4: Operational Monetary Benefits for CABLECOM
Note that monetary benefits are not restricted to operational ones, since
financial benefits are of equal importance. These include EU Funding, Tax and depreciation benefits for the investment, other financials etc. These
are depicted below (in this case no other financials except tax and
depreciation was identified by end-users, but these two are substantial even compared to funding benefits-here projected to come in installments
in a 3 year period):
Figure 5: Non-Operational Financial Benefits for CABLECOM
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A cumulative graph of the above two categories of projected benefits is
shown as follows:
Figure 6: Cumulative Monetary Benefits per year for CABLECOM
Notice that here operational benefits are cumulatively almost 2.5 times more compared to financials.
4.1.3 Cashflows – Investment Viability with or
without funding
Having analyzed costs and income, we can now present the expected cash
flows (both per year and cumulative) and distinct between the EU funded and the EU non-funded case
Tabulated cash flows:
Table 10: Cash flows for the CABLECOM pilot
Charts per year in both cases:
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Figure 7: Cash Flow per year for the CABLECOM pilot (including the EC
funding)
Figure 8: Cash Flow per year for the CABLECOM pilot (without the EC
funding)
PAYBACK PERIOD Notice that both cases are financially viable, since we get break-even
between 2nd and 3rd year with EU funding, but still break even in the
beginning of the 4th year without funding.
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4.1.4 ROI – NPV and other Financial Indices
Calculations of investment indices yield the following results (we provide
both the real case where EU funding exists, and the “what-if” case had the
EU funding not been present).
For a Weighted Average Cost of Capital for Company (WACC %): 9.00%,
Initial Fixed cost (for Depreciation): 28.637€, and Depreciation over 5
years,
Table 11: NPV and other Financial Indices for the CABLECOM pilot
Notice that:
1) Internal Rate of Return is above WACC even without funding, making
the investment attractive
2) Indices based on NPV are formally more appropriate for cases where
costs (negative cash flows) span in more than one year.
Hence, this proves to be a very interesting investment that would be attractive for CABLECOM even if EU funding was absent. All indices are
significantly positive.
4.1.5 Risks-Robustness-Conservative scenario
As with every project, we wish to take into account a more conservative
scenario (what–if some things go wrong) to make sure that the significant profitability as explained above is sturdy enough. Factors that are safe in
our analysis remain as they are while uncertain factors are considered at
minimal values. Deviations are accounted for in a rather “pessimistic” way.
In our case the whole assumption for cost saving (and hence project profitability) is operational efficiency in the form of:
Better utilization of cable left-overs.
Faster order collection.
Faster choice of right drum.
Faster localization of the chosen drum,
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which have already been tangibly improved as analyzed through KPIs.
Especially the first accounts for the biggest part of cost saving. There is no indication that Cablecom will stop benefiting in the future from better left-
over utilization with RFID in place. The scenario is quite robust.
4.1.6 In Depth Analysis – Focused Calculator
The case of Cablecommerce is an indicative manufacturing and Logistics
case where the EPCRFID Focused Calculator is applicable and the participants of the pilot kindly filled in a series of data to yield useful and
detailed results. Namely calculations for the benefits of RFID deployment
were made for the following options:
Out of Stock (OOS).
Shrinkage.
Reconciliation and Deduction.
Obsolescence.
Production Planning.
Operational Efficiency.
Track and Trace.
We hereby briefly present the results obtained.
General input (CABLECOM):
Table 12: General Input provided by CABLECOM for ROI/NPV calculation
For a total number of Warehouses: 6 and a given rate of adoption as
follows:
Specific costs by the calculator were estimated as:
Table 13: CABLECOM costs used in the scope of the ROI calculator
Production planning benefits calculated: 207,967€
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Operational Efficiency calculations due to RFID were as follows:
Table 14: Quantification of Operational Efficiency in the scope of the
CABLECOM pilot
Total calculated Benefits due to RFID in the optimal case can become:
Table 15: Total Benefits Calculated for CABLECOM (NPV Calculation)
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4.2 PICDA (Manufacturing of Plastic Products)
Following the financial and business data gathered on behalf of PICDA
and ALU and submitted centrally by Project Manager Miguel Ángel Molina, we present the following conclusions:
4.2.1 Cost Drivers and Cost Breakdown
The table of costs is as follows:
Table 16: Overview of costs associated with the PICDA pilot deployment
Analysis shows that 94.8% of the costs incurred appear in the first 2 years
of deployment.
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Figure 9: Costs breakdown per year associated with the PICDA pilot
A breakdown in the main categories as analyzed in the methodology
reveals the following pie-chart:
Figure 10: Costs breakdown per category for the PICDA pilot
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By delving deeper into the sub-categories of costs, we obtain the following
breakdown:
Figure 11: Costs breakdown per sub-category for the PICDA pilot
4.2.2 Assumptions and Projections for income
Management projects the expected income (operational) from the
following main sources (due to RFID deployment as compared with the
previous non-RFID situation):
Additional annual profit due to higher revenues (Margin*Add. Rev)/(1+
Margin).
Benefit due to reduction in costs.
Especially the second is a major factor justifying the financial viability of
the solution as we can see. Operational benefits as projected, and broken
down per year of operations from kick-off are shown below:
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Figure 12: Operational Benefits (in monetary terms) for the PICDA pilot
(per year)
Monetary benefits are not restricted to operational ones, since financial
benefits are of equal importance. These include EU Funding, Tax and
depreciation benefits for the investment, other financials etc. In our case
only funding was taken into account and tax-depreciation was not calculated (this would have made the investment even more attractive).
Figure 13: Financial Non-Operational Benefits for the PICDA pilot (per
year)
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A cumulative graph of the above two categories of projected benefits is shown as follows and clearly indicates that operations ameliorated and
cost reduced due to RFID are the most important factor:
Figure 14: Cumulative Monetary Benefits (Financial vs. Operational) for
the PICDA pilot (per year)
Notice that here operational benefits are cumulatively almost eight times
more compared to financials.
4.2.3 Cashflows – Investment Viability with or
without funding
Having analyzed costs and income, we can now present the expected cash
flows (both per year and cumulative) and distinct between the EU funded and the EU non-funded case.
Tabulated cash flows:
Table 17: Cashflows associated with the PICDA pilot
Charts per year in both cases:
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Figure 15: Cash Flow per year for the PICDA pilot (including the EC
funding)
Figure 16: Cash Flow per year for the PICDA pilot (excluding the EC funding)
PAYBACK PERIOD
Notice that both cases are financially viable, since we get break-even between 2nd and 3rd year irrespective of EU funding, proving that the
investment yields indeed very important cost savings for the end-user
(had the project been funded by EU or not).
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4.2.4 ROI – NPV and other Financial Indices
Calculations of investment indices yield the following results (we provide
both the real case where EU funding exists, and the “what-if” case had the
EU funding not been present).
For a Weighted Average Cost of Capital for Company (WACC %): 4.00%,
Initial Fixed cost (for Depreciation): 98,522.80€, and Depreciation over 5
years.
Table 18: NPV and other Financial Indices for the PICDA pilot
Notice that based on the projections for cost savings in the future:
1) Internal Rate of Return is huge and way above WACC even without
funding, making the investment extremely attractive
2) Indices based on NPV are formally more appropriate for cases where
costs (negative cash flows) span in more than one year.
Hence, this proves to be a very interesting investment that would be attractive for PICDA even if EU funding was absent. All indices are
significantly positive.
4.2.5 Risks-Robustness-Conservative scenario
As in the CABLECOM project, alternative more conservative scenarios
(deviating from the basic one) were considered. In the PICDA case the whole assumption for cost savinga (and hence project profitability) is
operational efficiency which has already been tangibly improved as
analyzed through KPIs and cannot be questioned. Even if we assume that sales will not improve, these represent a very small fraction of the total
benefits. With such high IRR index, in the worst case it can be reduced but
it will still remain largely positive.
4.2.6 In Depth Analysis – Focused Calculator
PICDA is a clear manufacturing case where the EPCRFID Focused Calculator is applicable and the participants of the pilot kindly filled in a
series of data to yield useful and detailed results. Namely calculations for
the benefits of RFID deployment were made for the following options:
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Shrinkage
Production Planning
Operational Efficiency
We hereby briefly present the results obtained.
General input (PICDA):
Table 19: General Input provided by PICDA for ROI/NPV calculation
For a total, Number of Production Facilities (Factories):1, a Total Number
of Warehouses: 1, and a given rate of adoption as follows:
Specific costs by the calculator were estimated as:
Table 20: PICDA costs used in the scope of the ROI calculator
Shrinkage Results:
Shrinkage as percent % of revenues was considered to be 4%.
Items lost while in distribution: 7% Expected Shrinkage after RFID/EPC : 3.72%
Reduced costs after RFID are estimated at: 155,780 €.
Production planning benefits calculated where as follows:
Table 21: Quantification of Production Planning benefits in the scope of
the PICDA pilot
Operational Efficiency calculations due to RFID were as follows:
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Table 22: Quantification of Operational Efficiency in the scope of the
PICDA pilot
Total calculated Benefits due to RFID in the optimal case can be:
Table 23: Total Benefits Calculated for PICDA (NPV Calculation)
4.3 KOSKINIDIS (Intelligent Manufacturing)
Following the financial and business data gathered on behalf of
KOSKINIDIS and SENSAP and submitted centrally by Operations Manager Karkazi Argiro, we present the following conclusions:
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4.3.1 Cost Drivers and Cost Breakdown
The table of costs is as follows:
Table 24: Overview of costs associated with the KOSKINIDIS pilot
deployment
Analysis shows that 78% of the costs incurred appear in the first 3 years of deployment.
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Figure 17: Costs breakdown per year associated with the KOSKINIDIS
pilot
A breakdown in the main categories as analyzed in the methodology
reveals the following pie-chart:
Figure 18: Costs breakdown per category for the KOSKINIDIS pilot
By delving deeper into the sub-categories of costs, we obtain the following
breakdown:
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Figure 19: Costs breakdown per sub-category for the KOSKINIDIS pilot
It is very important to note here that:
For RFID Middleware, software is (expected to be) licensed annually as
Service.
Regarding services: Training was 600€ once off while Consulting,
Support and Maintenance were Included in the Middleware Annual
License Agreement (that is why services appear almost 0%).
Personnel Costs (for RFID) are 20x PM including overheads.
Administrative Costs are 4x PM including overheads.
Other Costs (space, energy etc.) are calculated as overheads.
4.3.2 Assumptions and Projections for income
Management projects the expected income (operational) from the following main sources (due to RFID deployment as compared with the
previous non-RFID situation):
Stock Monitoring Accuracy.
Cost Calculation & Forecasting Accuracy.
Raw Materials & Ready-Made Products Traceability.
Quality Assurance.
Marketing Effects.
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These are projected flat during the entire duration and were considered as
not very optimistic (they can be somewhat higher). Operational benefits as projected are shown below:
Figure 20: Operational Benefits (in monetary terms) for the KOSKINIDIS
pilot (per year)
Of course monetary benefits are not restricted to operational ones, since
financial benefits are of equal importance. These include EU Funding, Tax
and depreciation benefits for the investment, other financials etc. In our case only funding is assumed in two equal installments.
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Figure 21: Financial Non-Operational Benefits for the KOSKINIDIS pilot
(per year)
A cumulative graph of the above two categories of projected benefits is
shown as follows and clearly indicates that operations ameliorated and cost reduced due to RFID are the most important factor:
Figure 22: Cumulative Monetary Benefits per year for KOSKINIDIS
Notice that here operational benefits are rising almost steadily every year
while financials flat out and are significantly less.
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4.3.3 Cashflows – Investment Viability with or
without funding
Having analyzed costs and income, we can now present the expected cash
flows (both per year and cumulative) and distinct between the EU funded
and the EU non-funded case.
Tabulated cash flows:
Table 25: Cash flows for the KOSKINIDIS pilot
Charts per year in both cases:
Figure 23: Cash Flow per year for the KOSKINIDIS pilot (including the EC funding)
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Figure 24: Cash Flow per year for the KOSKINIDIS pilot (excluding the EC
funding)
PAYBACK PERIOD
Notice that even without EU funding we get break-even right after the 3rd year, while early payment of an EU funding installment near the start of
the main costs as they were invoiced almost gave a few months of total
payback time. This is proving that the investment yields indeed very
important cost savings for the end-user (had the project been funded by EU or not).
4.3.4 ROI – NPV and other Financial Indices
Calculations of investment indices yield the following results (we provide
both the real case where EU funding exists, and the “what-if” case had the
EU funding not been present).
For a Weighted Average Cost of Capital for Company (WACC %): 8.00%,
Initial Fixed cost (for Depreciation): 35,000€, and depreciation over 5
years,
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Table 26: NPV and other Financial Indices for the KOSKINIDIS pilot
Notice that based on the projections for the large cost savings analyzed
above in the near future:
1) All investment indices are very positive
2) Internal Rate of Return is huge and way above WACC even without
funding, making the investment extremely attractive
3) Indices based on NPV are formally more appropriate for cases
where costs (negative cash flows) span in more than one year.
Hence, this proves to be a very interesting investment that would be attractive for KOSKINIDIS even if EU funding was absent.
4.3.5 Risks-Robustness-Conservative scenario
As with every project, we wish to take into account a more conservative
scenario (what–if some things go wrong) to make sure that the significant profitability as explained above is sturdy enough. Factors that are safe in
our analysis remain as they are while uncertain factors are considered at
minimal values. Deviations are accounted for in a rather “pessimistic” way.
In our case the whole assumption for cost saving (and hence project
profitability) is operational efficiency in the form of 5 different factors (analyzed in section 4.3.2). These have already been tangibly improved as
analyzed through KPIs and cannot be questioned. Even if we assume that
sales will not improve, even if some of these fail in the future the others still remain. With such high IRR index, in the worst case it can be reduced
but it will still remain largely positive.
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4.4 STAFF Jeans (Retail-Apparel-Warehouse)
Following the financial and business data gathered on behalf of STAFF
and submitted centrally by Operations Manager Mr. Arsenis
Apostolakopoulos, we present the following conclusions:
4.4.1 Cost Drivers and Cost Breakdown
The table of costs is as follows:
Table 27: Overview of costs associated with the STAFF pilot deployment
Analysis shows that 77% of the costs incurred appear in the first 2 years of deployment.
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Figure 25: Costs breakdown per year associated with the STAFF pilot
A breakdown in the main categories as analyzed in the methodology
reveals the following pie-chart:
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Figure 26: Cost breakdown per category for the STAFF pilot
By delving deeper into the sub-categories of costs, we obtain the following breakdown:
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Figure 27: Cost breakdown per sub-category for the STAFF pilot
4.4.2 Assumptions and Projections for income
Management projects the expected income (operational) from the
following main sources that combine cost cutting through efficiency and
sales increase due to marketing actions and customer satisfaction (because of RFID deployment as compared with the previous non-RFID
situation):
Less Stolen Items
Better Customer Service
Marketing Results
Time Saving In Receiving Goods Process 1 PM per Year
Better Stock Replenishment Procedure
No Usage of Extra Anti-Theft Equipment
Time Saving In Check out and Returning Goods Procedures 1 PM per
Year
In-house Experience for Future Installations in all company shops
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Especially the first is a major cost driver, while the second is a crucial
factor for any business as it addresses customer satisfaction, and both are drastically improved as a result of the RFID deployment.
Operational benefits as projected, and broken down per year of operations
from kick-off are shown below:
Figure 28: Operational Monetary Benefits for STAFF
Note that monetary benefits are not restricted to operational ones, since
financial benefits are of equal importance. These include EU Funding, Tax
and depreciation benefits for the investment, other financials etc. These
are depicted below:
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Figure 29: Non-Operational Financial Benefits for STAFF
A cumulative graph of the above two categories of projected benefits is shown as follows:
Figure 30: Cumulative Monetary Benefits per year for STAFF
Notice that here operational benefits are cumulatively almost 2.5 times more compared to financials.
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4.4.3 Cashflows – Investment Viability with or
without funding
Having analyzed costs and income, we can now present the expected cash
flows (both per year and cumulative) and distinct between the EU funded
and the EU non-funded case Tabulated cash flows:
Table 28: Cash flows for the STAFF pilot
Charts per year in both cases:
Figure 31: Cash Flow per year for the STAFF pilot (including the EC
funding)
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Figure 32: Cash Flow per year for the STAFF pilot (without the EC
funding)
PAYBACK PERIOD
Notice that both cases are financially viable, since we get break-even in the 3rd year with EU funding, but still break even in the beginning of the
6th year without funding.
4.4.4 ROI – NPV and other Financial Indices
Calculations of investment indices yield the following results (we provide
both the real case where EU funding exists, and the “what-if” case had the EU funding not been present).
For a Weighted Average Cost of Capital for Company (WACC %): 12.00%, Initial Fixed cost (for Depreciation): 47.500€, and Depreciation over 5
years,
Table 29: NPV and other Financial Indices for the STAFF
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Notice that:
1) Internal Rate of Return is below WACC (2.79% vs 12%) without
funding, and NPV, ARR are negative. This is not making the investment
necessarily un-attractive as it eventually breaks even, but still it is a lot
more attractive since EU funding assists a lot with cash flows.
2) Indices based on NPV are formally more appropriate for cases where
costs (negative cash flows) span in more than one year.
Hence, this proves to be a very interesting investment for STAFF but if EU
funding was absent it would struggle to marginally yield profit. All other indices are positive.
4.4.5 Risks-Robustness-Conservative scenario
As with every project, we wish to take into account a more conservative
scenario (what–if some things go wrong) to make sure that the significant profitability as explained above is sturdy enough. Factors that are safe in
our analysis remain as they are while uncertain factors are considered at
minimal values. Deviations are accounted for in a rather “pessimistic” way.
In our case the whole assumption can deviate only in the “marketing” and
“customer service” benefits which are subject to variations. (Operational efficiency has been achieved without question). These account for
approximately 11000 EURO per year in the extreme case. Should these
fail or turn out to be smaller, the indices will be altered (but it would take quite a large deviation from projections to make them negative).
4.5 DUF-rejser (Electronic Ticketing – Tourist
Relationship Management)
Following the financial and business data gathered on behalf of DUF and
submitted centrally by RFID Specialisten Manager Mrs. Rita Westergaard, we present the following financial conclusions:
4.5.1 Cost Drivers and Cost Breakdown
The table of costs is as follows:
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Figure 33: Costs breakdown per year associated with the DUF pilot
Analysis shows that 68.8% of the costs incurred appear in the first 2 years
of deployment.
Figure 34: Costs breakdown per year associated with the DUF pilot
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A breakdown in the main categories as analyzed in the methodology
reveals the following pie-chart:
Figure 35: Costs breakdown per category for the DUF pilot
By delving deeper into the sub-categories of costs, we obtain the following breakdown:
Figure 36: Costs breakdown per sub-category for the DUF pilot
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4.5.2 Assumptions and Projections for income
Management projects the expected income (operational) from the
following main sources (due to RFID deployment as compared with the previous non-RFID situation):
Sales increase
reduction in irregularities
reduction of administrative cost
increase in motivation (resulting in higher performance)
Operational benefits as projected, and broken down per year of operations from kick-off are shown below:
Figure 37: Operational Benefits (in monetary terms) for the DUF pilot
(per year)
Of course monetary benefits are not restricted to operational ones, since
financial benefits are of equal importance. These include EU Funding, Tax
and depreciation benefits for the investment, other financials etc. These are depicted below (in this case funding dominates comparably the
numbers):
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Figure 38: Financial Non-Operational Benefits for the DUF pilot (per year)
A cumulative graph of the above two categories of projected benefits is
shown as follows:
Figure 39: Cumulative Monetary Benefits for DUF
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Notice that here operational benefits are cumulatively almost triple
compared to financials.
4.5.3 Cashflows – Investment Viability with or
without funding
Having analyzed costs and income, we can now present the expected cash
flows (both per year and cumulative) and distinct between the EU funded
and the EU non-funded case:
Table 30: Cash flows for the DUF pilot
Figure 40: Cash Flow per year for the DUF pilot (including the EC funding)
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Figure 41: Cash Flow per year for the DUF pilot (excluding the EC
funding)
PAYBACK PERIOD
Notice that both cases are financially viable, since we get break-even
between 2nd and 3rd year with EU funding, but still break even in the beginning of the 4th year without funding.
4.5.4 ROI – NPV and other Financial Indices
Calculations of investment indices yield the following results (we provide
both the real case where EU funding exists, and the “what-if” case had the EU funding not been present).
For a Weighted Average Cost of Capital for Company (WACC %): 7.30%, Initial Fixed cost (for Depreciation): 20.800€, and Depreciation over 5
years,
Table 31: NPV and other Financial Indices for the DUF pilot
Notice that:
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1) The only slightly negative (approx. -1000€) index is the accounting
rate of return in the excluding funding case.
2) Internal Rate of Return is above WACC even without funding, making
the investment attractive.
3) Indices based on NPV are formally more appropriate for cases where
costs (negative cash flows) span in more than one year.
Hence, this proves to be a very interesting investment that would be
attractive for DUF even if EU funding was absent.
4.5.5 Risks-Robustness-Conservative scenario
In the DUF case the whole assumption can deviate only in the “sales
increase” benefits, which is subject to variations. (Reduction in
administrative cost has been achieved without question already). Sales increase has been projected quite safely to start from year 3 and accounts
from 7000 to 12000 EURO per year in the extreme case. This is already a
conservative scenario but even if these numbers are not achieved, there is still room for significant profit with an NPV almost five times as much. IRR
might not be that large but it will still be significantly positive.
4.6 Sovereign Security (Security Systems Pilot)
Following the financial and business data gathered on behalf of
SOVEREIGN and SERO and submitted centrally by Manager Darren Brooks we present the following conclusions:
4.6.1 Cost Drivers and Cost Breakdown
The table of costs is as follows:
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Table 32: Costs breakdown per year associated with the SOVEREIGN pilot
Analysis shows that 56% of the costs incurred appear in the first year of deployment and 70% during the first 2 years.
Figure 42: Costs breakdown per year associated with the SOVEREIGN
pilot
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A breakdown in the main categories as analyzed in the methodology
reveals the following pie-chart:
Figure 43: Costs breakdown per category for the SOVEREIGN pilot
By delving deeper into the sub-categories of costs, we obtain the following
breakdown:
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Figure 44: Costs breakdown per sub-category for the SOVEREIGN pilot
It is important to note here that a large amount was spent initially on
Blackberry 99003 x 50 pieces +Data packages.
4.6.2 Assumptions and Projections for income
Management projects the expected income (operational) from the
following main sources (due to RFID deployment as compared with the previous non-RFID situation):
Operational savings.
Reduced man hours.
Travel costs.
New Added services to customers.
Prospective Sales increase.
These are projected almost flat during the entire duration. Operational
benefits as projected are shown below:
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Figure 45: Operational Benefits (in monetary terms) for the SOVEREIGN
pilot (per year)
Of course monetary benefits are not restricted to operational ones, since
financial benefits are of equal importance. These include EU Funding, Tax
and depreciation benefits for the investment, other financials etc. In our
case funding is assumed in two installments.
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Figure 46: Financial Non-Operational Benefits for the SOCEREIGN pilot
(per year)
A cumulative graph of the above two categories of projected benefits is
shown as follows and clearly indicates that operations ameliorated and cost reduced due to RFID are the most important factor:
Figure 47: Cumulative Monetary Benefits for SOVEREIGN
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Notice that here operational benefits are rising almost steadily every year
while financials flat out and are significantly less.
4.6.3 Cashflows – Investment Viability with or without funding
Having analyzed costs and income, we can now present the expected cash flows (both per year and cumulative) and distinct between the EU funded
and the EU non-funded case.
Tabulated cash flows:
Table 33: Cash flows for the SOVEREIGN pilot
Charts per year in both cases:
Figure 48: Cash Flow per year for the SOVEREIGN pilot (including the EC
funding)
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Figure 49: Cash Flow per year for the SOVEREIGN pilot (excluding the EC
funding)
PAYBACK PERIOD
Notice that without EU funding we still get break-even right after the 5th year, while with EU funding payback time is 4 years. This is proving that
the investment yields indeed important cost savings for the end-user (had
the project been funded by EU or not).
4.6.4 ROI – NPV and other Financial Indices
Calculations of investment indices yield the following results (we provide both the real case where EU funding exists, and the “what-if” case had the
EU funding not been present).
For a Weighted Average Cost of Capital for Company (WACC %): 7.00%, Initial Fixed cost (for Depreciation): 98,500€, and Depreciation over 5
years,
Table 34: NPV and other Financial Indices for the SOVEREIGN pilot
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Notice that based on the projections for the large cost savings analyzed above in the near future:
1) All investment indices except accounting rate of return are positive
(numbers in parentheses are negative according to the accounting
convention)
2) Internal Rate of Return is 7.69% (marginally above WACC: 7%) even
without funding.
3) Indices based on NPV are formally more appropriate for cases where
costs (negative cash flows) span in more than one year.
4) EU funding helps an otherwise “marginally” profitable investment
become very profitable.
Hence, this proves to be a very interesting investment for SOVEREIGN
especially given the difficult nature of security services.
4.6.5 Risks-Robustness-Conservative scenario
Similar to the cases of the previous projects, we also examine the effects of more conservative assumptions associated with the cost savings and
revenue generation drivers for SOVEREIGN. With reduction in
administrative cost already in place as witnessed in the first year, the whole assumption can deviate only in the “sales increase” and “New
Services Offered” (which can bring more customers) benefits as analyzed
above, which are subject to variations. These are projected to reach up to 50% of the total benefits yet it would take a very pessimistic scenario to
expect a negative IRR. The project is a quite robust case bearing in mind
the total budget.
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4.7 BRIDGE 129 (Security/Surveillance – Safetyin
Construction Worker Sites)
The BRIDGE project has provided the following financial numbers after
careful work between Mrs. Paola Monari of SATA and Mr. Marco Artioli of BRIDGE. The numbers are based (as far as the financial projections are
concerned) on these assumptions:
Selling the integrated solution can be priced at 12000 € per unit (net
income after taxes).
We begin projections at year 2012 with the EU Funding already
received.
We follow a simple projection rule of 1,5,7,10,20,30,40 (that is the
multipliers in each case for each project sold). All relevant numbers are
based on that, hence costs are multiplied by the same factor and so
are sales (hence the income). This is based on the optimistic
assumption that sales of units can be projected by these numbers.
The only cost that is falling instead of rising as years pass by is
marketing expenses (placed under the section “Other Costs”) which is
quite reasonable as the platform will become more well known and less
effort will be required per sale.
Following the same chapters as above with the other pilots, we can
conclude:
4.7.1 Cost Drivers and Cost Breakdown
The table of costs is as follows (we only present the first year as all other are assumed as multiples of that as explained):
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Figure 50: Costs breakdown per year associated with the BRIDGE129
pilot
With the difference that Marketing expenses (Other Costs) is projected as
follows:
This gives the following break-down in categories:
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Figure 51: Costs breakdown per category for the BRIDGE129 pilot
By delving deeper into the sub-categories of costs, we obtain the following breakdown:
Figure 52: Costs breakdown per sub-category for the BRIDGE 129 pilot
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4.7.2 Assumptions and Projections for income
Management projects the expected operational income to come from sales
throughout the years as explained.
Financial income (non operational) comes only from EU funding (paid in
one installment) as in this case Tax Benefits and Depreciation were not factored in by respondents (this would have helped to get even faster
payback).
Figure 53: Financial Non-Operational Benefits for the BRIDGE129 pilot
(per year)
We graph below Cost vs Income from Sales in the next section, add the
marketing expenses and add the EU funding in the first year. We follow the 1,5,7,10,20,30,40 units sold rule for overview and get the following
graphs for viability (with or without funding):
4.7.3 Cashflows – Investment Viability with or
without funding
Based on the assumptions above we get the following table of cost vs income:
Table 35: Cash flows for the BRIDGE129 pilot
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Of course if EU Funding is factored in, the investment yields profit from the start (payback = 0 years) and from the very first unit sold.
Figure 54: Cash Flow per year for the BRIDGE129 pilot (including the EC
funding)
If we did not have EU funding, things depend on the total number of sales
and how fast they come in years.
a) Break even comes in 10 units sold (very reasonable) to cover Sales
expenses.
b) If the company keeps at the projected rate, payback period can be
achieved to be quite early before the 5th year
Hence, the project breaks even either way even without funding.
4.7.4 ROI – NPV and other Financial Indices
Calculations of investment indices have meaning only for investments that
at some point (usually the beginning) give negative income (or else cost)
and then start paying back at some point giving profit (hopefully totally higher than the initial investment). In the case that everything is positive
from the very start and keeps yielding profit (a winner case as with
BRIDGE), these indices have no meaning because they become infinity. Moreover, profitability index (PV of Future Cash Flows / Initial Investment)
is not calculated (has no meaning) as we do not have an initial investment
once off. Instead, costs (and profits of course) rise every year as more
sales are made.
For a Weighted Average Cost of Capital for Company (WACC %): 5.00%,
First year investment of: 43,600€, and Depreciation over 5 years, we see that EU Funding makes the whole project extremely attractive, while even
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without funding the numbers can turn out to be very positive as well
(depending on sales as they are projected of course):
Table 36: NPV and other Financial Indices for the BRIDGE129 pilot
Notice that based on the projections for the large cost savings analyzed above in the near future:
1) All investment indices are very positive
2) Internal Rate of Return is very large (71.65%) even without funding.
3) Indices based on NPV are formally more appropriate for cases where
costs (negative cash flows) span in more than one year.
4) EU funding helps the investment to be profitable from year 0 and on.
Hence, this proves to be a very interesting investment for BRIDGE
especially given the difficult nature of surveillance services.
4.7.5 Risks-Robustness-Conservative scenario
More conservative scenarios have been also analyzed taking into account the costs outlined above, but making more moderate assumptions for the
benefits. In our case the whole assumption is sales (both volume and
rate) and if things go “wrong” (highly un-probable since serious research has been made for the projections given, but still it can happen) could
affect the project only in its dynamics (less or slower sales would mean
less rate of expenses and expansion as well) but would not affect
profitability as a whole. As noted the project due to EU funding yields profit from year 0. In the worst case of them all, smart poles can be sold
at some reasonable price and profit can come from the very first items.
The scenario is hence robust enough without deviations.
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4.8 C.N.A. Modena (Document Management)
The C.N.A. pilot project has provided financial numbers after careful
collaboration between Mrs. Paola Monari of SATA and Mr. Andrea Tosi of
C.N.A. Modena. The investment analysis that follows is based on the following business assumptions:
- CNA Modena has about 50 branches, preparing 40.000 tax assessments
per year - Tax assessment requires 45 full time equivalent persons, with an
average personnel cost of 30.000 € (at least)
- According to the preliminary pilot evaluation, 10 over 35 fte persons
could be re-assigned to other tasks, when all the branches will have adopted the RFID application
- This means a (maximum) total saving of 300.000 € per year, or else an
average of 6.000 € per branch per year - We hypothesize the following pace for RFID application adoption:
year 0 (2011) 1 branch
year 1 + 4 branches (5 total branches)
year 2 + 5 branches (10 total branches)
year 3 + 10 branches (20 total branches)
year 4 + 10 branches (30 total branches)
year 5 + 10 branches (40 total branches)
year 6 + 10 branches (50 total branches) Table 37: RFID Adoption Rate within the CNA Modena branches
- RFID application maintenance costs are 3000 € per year plus 500 € per
branch
- Additional tags per year cost 200 € per branch - We assume 1 reader per branch, with a cost of 3200 € of RFID staff per
branch
4.8.1 Cost Drivers and Cost Breakdown
The table of costs as costs progress according to assumptions will become:
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Table 38: Costs breakdown per year associated with the CNA Modena
pilot
Figure 55: Costs breakdown per year associated with the CNA Modena pilot
A breakdown in the main categories as analyzed in the methodology
reveals the following pie-chart:
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Figure 56: Costs breakdown per category for the CNA Modena pilot
By delving deeper into the sub-categories of costs, we obtain the following breakdown:
Figure 57: Costs breakdown per sub-category for the CNA Modena pilot
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4.8.2 Assumptions and Projections for income
Management projects the expected income (operational) from the cost
savings as described above, and these will increase as deployment in
branches progresses. (As always we measure benefit due to RFID deployment as compared with the previous non-RFID situation):
Figure 58: Operational Benefits (in monetary terms) for the CNA Modena
pilot (per year)
Of course monetary benefits are not restricted to operational ones, since financial benefits are of significant importance. These include EU Funding,
Tax and depreciation benefits for the investment, other financials etc. In
our case funding is assumed in one installment (60.000€) and other
financials are neglected. A cumulative graph of the above two categories of projected benefits is shown as follows and clearly indicates that
operations ameliorate and cost is reduced every year due to RFID
expansion in branches.
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Figure 59: Cumulative Monetary Benefits for CNA Modena
Notice that here operational benefits are rising every year, while financials
flat out and are significantly less.
4.8.3 Cashflows – Investment Viability with or
without funding
Having analyzed costs and income, we can now present the expected cash
flows (both per year and cumulative) and distinct between the EU funded
and the EU non-funded case.
Tabulated cash flows:
Table 39: Cash flows for the CNA Modena pilot
Notice that due to funding, even in the first year we never reach negative
cash flow.
Charts per year in both cases:
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Figure 60: Cash Flow per year for the CNA pilot (including the EC
funding)
Figure 61: Cash Flow per year for the CNA pilot (excluding the EC funding)
PAYBACK PERIOD
Notice that even without EU funding, we still get payback in the first year.
4.8.4 ROI – NPV and other Financial Indices
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Calculations of investment indices have meaning only for investments that
at some point (usually the beginning) give negative income (or else cost) and then start paying back at some point giving profit (hopefully totally
higher than the initial investment). In the case that everything is positive
from the very start and keeps yielding profit (a winner case as with
C.N.A.), these indices have no meaning because they become infinity. Moreover, profitability index (PV of Future Cash Flows / Initial Investment)
is not calculated (has no meaning) as we do not have an initial investment
once off. Instead, costs (and profits of course) rise every year as more branches as inserted.
For a Weighted Average Cost of Capital for Company (WACC %): 5.00%,
And investments that range from 8000 € in the first year to 388.200 € cumulatively in the end as analyzed above, and depreciation over 5 years,
indices are as follows:
Table 40: NPV and other Financial Indices for the CNA Modena pilot
Notice that based on the projections for the large cost savings analyzed
above in the near future:
1) All investment indices are very positive.
2) Internal Rate of Return is extremely large (403.21%) even without
funding.
3) Indices based on NPV are formally more appropriate for cases where
costs (negative cash flows) span in more than one year.
4) EU funding helps the investment to be profitable from year 0 and on.
Hence, this proves to be a very interesting investment for C.N.A. Modena, especially when expanded across more branches in order to maximize
benefits and NPV.
4.8.5 Risks-Robustness-Conservative scenario
As with every project, we wish to take into account a more conservative scenario (what–if some things go wrong) to make sure that the significant
profitability as explained above is sturdy enough. Factors that are safe in
our analysis remain as they are while uncertain factors are considered at
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minimal values. Deviations are accounted for in a rather “pessimistic”
way.
With reduction in administrative cost already in place as witnessed in the
first year, the whole assumption can deviate only in the expansion in
other branches (either rate of expansion or total number).This could significantly reduce profits as a whole, maybe also slow down the rate at
which they come but by no means could the project turn negative with
such small initial investment and such large benefits even from the first deployment.
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5. Consolidated Investment Analysis Based on the above analytical findings, we are interested in providing a cumulative analysis of the results. Despite the fact that pilots are
inherently different in many aspects, we believe that useful conclusions
concerning investments on RFID technology can be drawn for future reference. The sample is big and diverse enough for several comparisons.
We have analyzed 8 cases of pilots spanning in the combined sectors of:
Retail
Services
Manufacturing
Logistics
Investments ranged as follows:
AVERAGE TOTAL COST: 379.479€
AVERAGE FUNDED AMOUNT: 75.835€
AVERAGE COST BENEFIT RATIO ACHIEVED: 2.35 (excluding funding) AVERAGE NPV ACHIEVED: 337.344€
These numbers are just averages and do not mean much (after all average NPV seems smaller than average cost although all pilots with no
exceptions are quite profitable, due to some large numbers “shifting” the
averages up-wards). We just mention these for the sake of completeness, but also for an estimation of the level of total benefits achived as part of
this project directly for the SMEs.
Cost-Drivers in categories and sub-categories (defined in methodology)
were as below:
Figure 62: Average Costs Breakdown per category (All RFID-ROI-SME
pilots)
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Figure 63: Average Costs Breakdown per sub-category (All RFID-ROI-
SME pilots)
The initial investment mainly consisted of a combination of Software,
Hardware, Deployment and infrastructure services, while it also included a
significant in-house effort in man-months. We should note that training
and consulting costs yielded the greatest variation among projects.
Total cost of ownership does not only include the above but contains the
recurring cost of consumables (mainly tags) and maintenance-support costs. On average these were 21% of the budget.
We also noticed the following:
Cost break-down in years did not yield a tendency as some projects
incurred most costs up-front while others equally spanned in time or
towards the end (for example as sales increase and deployments
increase with them). We can see this by calculating the first year cost
versus the successive year’s costs as a ratio (no pattern present).
Yet, 5 out of 8 projects incurred 70% or more of their costs within the
first 2 years.
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Funding received from EU, was generally accepted in one or 2 yearly
installments, most cases in advance or very early in the project,
greatly ameliorating the financial situation.
Operational benefits expected from RFID deployment can fall into 2
main categories: Operational efficiency (hence cost cutting) and Sales
improvement (income generation), while many pilots combined both
categories. We saw cases with only one and up to six different income
factors expected to contribute positively to the investment.
Operational benefits were quantified as KPIs from participants and
closely monitored. It is very encouraging to notice that 100% of KPIs
improved after RFID deployment and approximately 70% of them even
exceeded the initial target set.
Income in the form of cost savings or sales (true benefits of RFID) was
by far more important than EU funding or financial incentives (tax-
depreciation benefits etc.) by a factor of 3 to 10 times more.
Such other financial incentives were identified in 4 out of 8 cases.
Payback period was achieved in all cases within the 5-year period,
while a few started breaking even right at the first year. The average
was close to 2 years (although this number does not indicate much,
being just an average).
We consider NPV as the only appropriate measure for this investment
evaluation (IRR is well known to have problems with investments
where positive and negative cash flows appear throughout the total
duration). We also keep Cost-benefit ratio and Accounting rate of
return as indicative metrics for each case.
All projects proved to be financially very profitable, and in almost all
cases they would have still been financially viable even without EU
funding if the projections for sales and cost reductions are proven.
All projects yielded positive NPVs and CB ratios above 1 (both with and
without funding). Accounting rate of return was positive in 7/8 cases if
we include EU funding and 6/8 without it.
Most projects seem quite robust for their profitability projections eben
with a very conservative scenario.
It is not correct to compare totally different cases of investments, with
their peculiarities and special requirements making them quite diverse,
yet we attempt here (only for qualitative overview and by no means
for ranking or comparing) to calculate the following ratio: NPV of each
investment (as a safe measure) over EU funding amount. That is how
much income is expected in each case per funded € from EU (positive
numbers mean profitable cases).
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6. Conclusions This deliverable has presented a detailed financial analysis of the eight RFID deployments that are part of the RFID-ROI-SME project. The
analysis has focused on quantitative evaluation, using Key Performance
Indicators (KPIs), along with capital budgeting tools and techniques. As part of the use of these methodologies, all pilot sites have documented or
estimated their actual costs, while they have also attempted to estimate
the monetary impact of operational and financial benefits that are
associated with the pilots.
In terms of the costs, most of the investments consisted of a combination
of software, hardware, deployment and infrastructure services, while it also included a significant in-house effort in man-months. Furthermore,
the various investments included training and consulting costs as well. The
later yielded the greatest variation among the various projects. In general, most of the pilot sites were able to calculate the costs associated
with the RFID deployment with fair accuracy. Note that five 5 out of the
eight projects incurred 70% or more of their costs within the first two
years, which means that the costs assigned to RFID-ROI-SME gave a significant boost to the investment.
In terms of the benefits, the analysis relied on educated estimated about the expected benefits, based also on results and experiences derived in
the scope of the pilots. As a first step, the benefits associated with each
pilot deployment were identified. These varied for the different pilots and included sales improvement, cross-selling and up-selling, new ways of
advertising, enhancement of brand equity, more customers served per
time unit, better visibility of operations and error prevention, total or
partial elimination of errors , decreased full time equivalent headcount for the completion of specific tasks, decreased administrative requirements,
decreased training requirements , better utilization of human resources,
increased production, operational efficiency, time savings due to automation, decreased employee turnover, elimination of paper costs and
more. Following the identification of these benefits, each pilot site
engaged in the process of converting them into potential monetary
benefits.
On the basis of the various cost and benefits, the net present value (NPV)
associated with the RFID investment has been calculated, along with other financial indicators. These indicators revealed that most of investments
render a positive NPV i.e. they are profitable investments with significant
returns. This is a very positive result for the project as a whole, which validates the merits of RFID technologies for SMEs. Note that the absolute
numbers have pilot-specific significance since they have been calculated
for specific companies and associated business environments. However,
the methodologies used, along with the positive effects observed, are sustainable results of the project, since they could be of interest to other
SMEs in a similar position.
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The evaluation has also explored the role of the EC funding in the scope of the ICT PSP project. This role has in most cases acted as a catalyst for
SMEs to engage in the RFID deployment and accordingly to exploit its
extensibility and sustainability. Overall, EU co-funding was generally
accepted in one or two installments, most cases in advance or very early in the project, thereby greatly ameliorating the financial situation.
However, most of the projects would have been profitable even without
the EC co-funded, which is a positive indicator for the business benefits associated with RFID deployments. This is because for all the projects,
income in the form of cost savings (e.g., due to operational efficiencies or
reduction of errors) or sales (true benefits of RFID) was by far more
important than EC co-funding or other financial incentives (such as tax-depreciation benefits) by a factor of three (3) to ten (10) times more. This
can be very encouraging for SMEs considering the adoption of RFID
technology.
As a final note, the outcomes of this deliverable are perfectly aligned to
the sustainability strategies of the end-user SMEs of the consortium (which have been illustrated in the scope of deliverable D8.3). In
particular, most of the end-user SMEs have opted to sustain and expand
the RFID deployments following the end of the project, in order to achieve
the benefits outlined in the financial analysis (for the coming years). The sole exception has been DUF, for which a technical issue (e.g., speed,
robustness and availability of internet connectivity at various locations)
has acted as a set-back for wider deployment and use. Overall, the results contained in this deliverable serve as a sound basis for the sustainability
of the individual pilot systems, which was among the main objectives of
the RFID-ROI-SME project.
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7. References
[1] Frank K. Reilly , Keith C. Brown “Investment Analysis and Portfolio
Management”, ISBN-13: 978-0538482387 | Edition: 10
[2] Steve Tockey "Return on Software: Maximizing the Return on Your
Software Investment" ISBN-13: 978-0321561497
[3] David F. Rico, “ROI of Software Process Improvement - Metrics for
Project Managers and Software Engineers” ISBN: 1-932159-24-X
[4] Gerald Keller Statistics for Management and Economics ISBN-10:
0324569491
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8. Web Sites Information and Case Studies for the investment analysis has been derived from the following (RFID-related) web sites:
1. http://www.RFIDupdate.com
2. http://www.rfidjournal.com 3. http://www.aimglobal.org/technologies/rfid/
4. http://www.idtechex.com
5. http://www.rfidgazette.org
6. http://www.bitpipe.com 7. http://www.rfidworld.com
Specific ROI calculators for RFID cases and methods quantifying benefits that were studied can be found in the following websites:
[6] http://www.insidus.com
[7] http://www.rfid-weblog.com/50226711/the_retail_roi_calculator_
at_rfid_in_fashion_2009.php
[8] http://www.milestechinc.com RFID ROI Calculator
[9] http://www.itbusinessedge.com/itdownloads/rfid-roi-calculator
[10] http://www.rfidlogic.com/roi_page1.html