Chapter 7. Cost-Benefit Analysis


Analyzing Benefits 115

Types of Benefits 115

Finding the Right Benefit Level 116

Elements of Cost 118

Tags 119

Readers 120

Antennae 120

Host Computer, Middleware, and Host Applications 121

Installation 121

Tuning 122

Integration and Business Process Reengineering 122

Support and Maintenance 123

Cost-Benefit Characterization of Selected Applications 123

Summary 126

Five Questions This Chapter Will Answer

  • What types of benefits can an RFID project provide?

  • How do I create a holistic business case for RFID that balances long- and short-term investments and benefits?

  • What elements should I include in my cost-benefit analysis?

  • Are there some guidelines (characterizations of cost-benefit) for certain applications?

  • Which costs are one-time, and which ones are recurring?


The last two chapters showed how to evaluate RFID deployments in the context of real business problems, and why a dedicated team is needed to ensure successful deployment of RFID. A framework was introduced to provide a practical approach to address these issues. In this chapter, we expand on another consideration critical to a successful RFID deployment: cost-benefit analysis.

Note:

Many of the examples provided in Chapter 5, "Framework for Deployment," Chapter 6, "Organizational Mobilization," and this chapter are derived from the real-life case studies based on interviews with industry practitioners like you. Details on some of these case studies are provided in Appendix A for your reference.


Because the decision to deploy RFID technology in an enterprise is a business decision and not a technology decision, cost-benefit analysis is a key component of this decision. If an RFID deployment cannot be justified in terms of its economic value to the company, it is not likely to help the company; and consequently, it is not likely to remain a viable deployment over the long term. Although the mandates such as the ones issued by Wal-Mart or the U.S. Department of Defense (DoD) require various suppliers to use RFID tags, unless a supplier can figure out how this can be leveraged in its business to improve profit and increase capacity utilization, the net benefit to the supplier can be mediocre or even negative in the long term. Cost-benefit analysis can help a supplier analyze the impact of an RFID project on its business. Based on the analysis, a supplier can make a go/no-go decision, structure the project in a way to capture immediate benefits first (low-hanging fruit), or even modify the scope of the project to maximize benefits. For example, a supplier complying with the Wal-Mart mandate might leverage the same RFID infrastructure in its dealings with other customers (see Chapter 9, "Mandates as Business Catalysts," for a list of other selected mandates) or its own suppliers. This could result in a more timely delivery to its customers or better inventory control of its own supplies. Such moves could increase the benefit of an RFID deployment significantly, making the overall project more attractive.

Many factors play a role in determining RFID technology's costs and benefits. For example, costs can be fixed, such as investment in new tools and processes to install and test tags, or recurring, such as the cost of RFID tags or the cost associated with applying them on cases and testing them. Benefits can be direct, such as reduction in shrinkage and buffer stock, or indirect, such as better customer service due to more detailed and accurate understanding of ship time and date of arrival. In the next several sections, we do the following:

  • Illustrate what type of benefits a company should look forward to and how various components of an RFID deployment can drive overall project costs.

  • Characterize several RFID deployment examples in terms of cost-benefit.



RFID Field Guide(c) Deploying Radio Frequency Identification Systems
RFID Field Guide: Deploying Radio Frequency Identification Systems
ISBN: 0131853554
EAN: 2147483647
Year: 2006
Pages: 112

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