Measuring the value of smart cities
A new research initiative by ESI ThoughtLab, aims to create the first comprehensive global study of smart city return on investment
Although the smart city landscape is evolving, with more and more cities shifting out of pilot projects and into more mature stages of deployment, there is one aspect of the ecosystem that is missing — reliable numbers on the impact of smart city projects. Individual schemes may be able to talk about the benefits they have accumulated, but when trying to assess ‘industry standard’, or make a like-for-like comparison with a complete project to provide an indicator of expected value, there is precious little data available.
Now, a new research initiative from thought leadership and economic research company ESI ThoughtLab, is aiming to assess the return on investment of smart cities, and create a set of benchmarks that can be applied by cities around the globe.
“People and cities are desperate for this information, because it will allow them to really understand where to make their investments for the best outcome,” commented Lou Celi, CEO of ESI ThoughtLab.
The multi-faceted study, will benchmark 100 participating cities, assess investment and ROI in key city spheres, measure the impact of emerging technologies, and create a cost-benefit model of smart city investments. The study also aims to create a playbook that will help urban leaders identify the technologies and data solutions that will provide the greatest social, economic, and business benefits to citizens and companies, along with an index of the cities in the study.
Under the title of ‘Building a Hyperconnected City: Business models, use cases, and benchmarks behind high performance,’ the project is currently finalising the cities to be studied, with the intention to complete the research and present the results at the Smart City Expo World Congress in Barcelona in November.
Understanding Return on investment
With so many smart city programs underway, Celi said that the research aims to provide timely answers to key question for city leaders — what is the ROI of all their efforts?
“The study is a multi-client program, to tackle an issue which is really very important to leaders of cities that are trying to introduce smart city programs, and that is, what is the business case behind smart cities? What are the economic, business and social benefits of investing in a smart city?
“That information is still very unknown by city leaders. They know smart cities have a vision for the future, which usually revolves around technology, but they are not exactly sure where to invest, or when to invest to get the best returns,” he added.
“This is a very good time to do this exercise, because many cities have been undertaking smart city programs for a number of years. Cities like Dubai, Singapore, Stockholm, Copenhagen and New York, have had years of experience with smart city programs, and they are starting to collect the data, on where they are investing, the kind of benefits they are seeing, the short- and long-term benefits… but there is no mechanism for cities to see all this information.”
In order to create a comprehensive, global study, ESI ThoughtLab has created a coalition of private sector companies, academic research institutions and other stakeholders, which will work with ESI ThoughtLab’s own team to conduct the research including gathering publicly available data, surveying the cities, and conducting indepth interviews.
The coalition includes Deloitte, Oracle, Eaton Lighting, NTT Group, Stantec, Pennoni, Nokia, Cognizant, and Visa; and research institutions such as the Organization for International Economic Relations (OiER), the Penn Institute of Urban Research, the IESE Business School Cities in Motion, MetroLab Network, Viable Cities, the Smart Cities Council, Renaissance Urbaine, ANBOUND, the Re-Imagining Cities Foundation, and others.
Global index and deep-dive studies
Daniel Miles, Chief Economist for ESI ThoughtLab and research director for the Hyperconnected Cities project, explained that the research will follow several tracks.
“There are a couple of different levels of analysis that we plan on doing with the data. First of all we are doing a survey of 100 cities, we are asking very detailed questions about what they are doing in various key areas, whether it is transportation, public safety, the environment, energy and sustainability.
“We are asking them what activities are they doing, how long have they been doing those activities, and for the ones that are in large-scale deployments, we are asking them to estimate what sort of return they have seen from those. That is our first level of analysis.
“Then we are also doing ten very deep-dive case studies, in various areas,” he added. “One of those areas is going to be smart lighting — we will pick a couple of the cities that have done a lot in smart lighting, we will interview them, and collect very specific data from each.
“Then we are going to develop very detailed cost-benefit models where we will attempt to use data directly from each of those leaders in smart lighting, to estimate what have the benefits been and what is the ROI that they have seen. We will do that across a number of areas.”
This indepth analysis will be used to compile a playbook, that can be used as a best practice guide by cities in each of the focus areas, so that they can leverage the same benefits as the sector leaders.
Calculating value in a complex city environment
One of the challenges of determining the true ROI of a smart city, is the complexity of the project and the fact that one project can have an impact across different aspects of a city, Celi explained, going beyond a simple cost saving or efficiency gain.
“It is challenging to do, because you need to look at the use of technology across the whole urban landscape, everything from mobility and transport to energy and the environment,” he said. “Technology can be used to transform each of these elements, and to interlink them all, so that alone is complex.
“For example, an indirect benefit of smart lighting is that it will reduce crime, or that the use of smart buildings will improve the health of citizens, so it gets a little tricky to try to measure all of those benefits — that is what we aim to do.
Celi added: “To understand how the benefits cascade and present themselves as economic, and business and social benefits, can be even more complicated. Some of these benefits are direct, some are indirect, and some are induced and others are even catalytic.”
The multiplier effect of smart cities was the subject of a previous study by ESI ThoughtLab, he noted. The ‘Smarter Cities 2025:Building a Sustainable Business and Financing Plan’ report found that smart investments can trigger a virtuous cycle of economic growth for a city, by generating capital for further investments, and through attracting more businesses, residents, tourists and talent to a city.
For a city that is just beginning its smart city journey, ESI ThoughtLab said that on average, the catalytic impacts associated with becoming a smarter city have the potential to increase GDP per capita by as much as 21%, and population growth by 13% over five years.
The challenge of assessing ROI is also further complicated by the potential of the more advanced smart cities to begin connecting up projects in different areas, in a ‘hyperconnected’ model that realises more benefits as projects build on the platforms of other projects, leverage combined data sources or shared infrastructure and so on.
“Using technology to make street lights smarter, or to make buildings smarter, is only really the first part of this process of becoming a truly futuristic city,” Celi said. “The power is then to interconnect these areas, so your smart grid connects to your buildings, and you are able to get the full benefit from the interconnectivity.
“It is important that when you think about your smart city program, you take a holistic view on how it is all going to come together. When departments start working together, that is when you get multiple benefits, and you get the multiplier effect, that leads to even greater economic and social benefits.”
Miles added: “That is one of the things that we hope to answer with this study — are there any cities that have cracked the code of becoming hyperconnected?”
Celi said that while some cities are further along in their smart journeys, creating a global study and a global index will give a much better idea of how much progress has been made in hyperconnectivity and interlinking of city efforts.
By creating an index of 100 cities, including scorecard metrics like city GDP, carbon emissions, population growth and crime rate, ESI ThoughtLab aims to get a wide spread of cities of different sizes and types that will enable city leaders to make a like-for-like comparison with similar cities worldwide.
“Clearly no two cities are exactly alike, however we are going out to 100 cities or maybe more,” Celi said. “We are going to the cities that are most advanced in smart city programs, the ones to watch, that already have the experience and the results, so [cities] will be able to benchmark themselves against others and see what has worked and what could work in your city.
“This is information that everybody really wants, and I believe that if we get it, and I’m sure that we will, that this is going to help accelerate smart city development.”