When facing an investment we many times have the justified fear of losing money, or worse, wasting it. This dread usually grows when investing in things one does not fully understand and we therefore try to analyse the investment, almost exclusively, in economic terms. While we all know there is much more than just money behind most investments, the truth is money generally makes the decision, which is why ROI (Return on Investment) plays a leading role in any investment discussion…and technology is no exception.
The problem with technology (or with segregated ROIs) often comes when defining the variables to calculate its ROI. What revenue or savings can indisputably be related to the technology solution? This question is extremely important when analysing the full hotel, as a project, as the revenue stream (or savings) assigned to a part of the project can only be assigned once or has to be weighted to avoid jeopardizing the whole analysis. As a “tech guy” with economic education, I often face the question “what is the ROI of your solution?” with some scepticism.
I will focus on the room and building control technologies, as those are my fields of expertise, to try to provide a reasoned answer, which I believe can then be applied to most technology investments:
The first thing to bear in mind is the fact that our solutions are focused in savings, mainly energy savings, rather than in generating revenue, so the ROI we are after will be easier to understand if addressed in time rather than percentage. The question could then be rewritten as “In how much time does your solution pay back?”.
Secondly, if lacking the actual data, we need to make some assumptions regarding energy consumption for each of the controlled elements (air conditioning, heating, lighting, ventilation, water, gas…) and define the best way of operating them, focusing, not only in energy consumption, but also in guest’s comfort. Looking at the above, the next question that arises is, what would the alternative be? Is it an absolute lack of control over those elements, where a guest can simply leave the AC on all day whether or not he is in the room; or is it some type of reduced control, say for example the use of cardholders, where a guest can just leave the card inserted and again, leave the AC on all day whether or not he is in the room.
With the basics covered, some details should also be taken into account; information on room occupancy, for example, would help discern between energy waste and the energy that’s indeed being consumed for guest comfort. Assuming we have indeed been able to isolate the room energy waste and considering a close to 100% reduction of energy waste with our solutions, we could calculate a preliminary payback period by just knowing the cost of the energy and the cost of the solution.
The truth is we would be missing a huge part of the solution, from the massive reduction in maintenance costs due to the constant monitoring of the building to the guest experience contribution which would, indirectly, translate in higher revenue but it is just easier to stick to the things we actually know.
In the end, it all comes to experience, customer feedback and the aforementioned assumptions for a given project in a given location. Based on those and the specifics of the Zennio hotel solution (as every control solution is different), it could be said to have a potential payback period of just under four years.
This is the reason why “tech” people, such as myself, many times fail to answer the ROI question. We probably want to explain too much…
Javier Aguirre holds a Bachelor Degree in Industrial Technologies Engineering and a Master in Financial Management and has committed his entire professional career to the building automation industry. He joined Zennio in 2019 with the mission to support the UK market and is currently one of Zennio’s UK branch directors.