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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This deliverable contains original unpublished work except where clearly indicated otherwise.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.





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





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.

RFID-ROI-SME: Pilot RFID Deployments and ROI Studies for SME using Open Source Middleware and Tools

WP7- Evaluation and Progress Assessment Deliverable D7.3: “ROI Studies for RFID-ROI-SME Pilots”

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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


4.6 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


4.8 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


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


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


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:



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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breakdown:

Figure 11: Costs breakdown per sub-category for the PICDA pilot


Management projects the expected income (operational) from the

following main sources (due to RFID deployment as compared with the


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.


without funding


flows (both per year and cumulative) and distinct between the EU funded and the EU non-funded case.


Table 17: Cashflows associated with the PICDA pilot




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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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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



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.


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)


KOSKINIDIS and SENSAP and submitted centrally by Operations Manager Karkazi Argiro, we present the following conclusions:



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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



Figure 18: Costs breakdown per category for the KOSKINIDIS pilot


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.


Management projects the expected income (operational) from the following main sources (due to RFID deployment as compared with the


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)


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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without funding


flows (both per year and cumulative) and distinct between the EU funded

and the EU non-funded case.


Table 25: Cash flows for the KOSKINIDIS pilot


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).






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.






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:



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





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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



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


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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without funding



and the EU non-funded case Tabulated cash flows:

Table 28: Cash flows for the STAFF pilot


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.



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.



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.






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:





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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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Figure 35: Costs breakdown per category for the DUF pilot


Figure 36: Costs breakdown per sub-category for the DUF pilot



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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)



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)


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.


without funding



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.



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.



Hence, this proves to be a very interesting investment that would be

attractive for DUF even if EU funding was absent.


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)


SOVEREIGN and SERO and submitted centrally by Manager Darren Brooks we present the following conclusions:





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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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Figure 43: Costs breakdown per category for the SOVEREIGN pilot


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.



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)



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)


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



Table 33: Cash flows for the SOVEREIGN pilot


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).


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


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.



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.


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:


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


Figure 52: Costs breakdown per sub-category for the BRIDGE 129 pilot



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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):


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.


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.


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.



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.


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 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


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





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Figure 56: Costs breakdown per category for the CNA Modena pilot


Figure 57: Costs breakdown per sub-category for the CNA Modena pilot



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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.


without funding





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.




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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.




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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.


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.



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.


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




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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

http://www.rfidupdate.com/

http://www.rfidjournal.com/

http://www.aimglobal.org/technologies/rfid/

http://www.idtechex.com/

http://www.rfidgazette.org/

http://www.bitpipe.com/

http://www.rfidworld.com/

http://www.insidus.com/

http://www.rfid-weblog.com/50226711/the_retail_roi_calculator_%20at_rfid_in_fashion_2009.php

http://www.rfid-weblog.com/50226711/the_retail_roi_calculator_%20at_rfid_in_fashion_2009.php

http://www.milestechinc.com/

http://www.itbusinessedge.com/itdownloads/rfid-roi-calculator

http://www.rfidlogic.com/roi_page1.html

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