Journal of Advanced Research in Embedded System

Volume 5, Issue 3 - 2018, Pg. No. 1-6

Peer Review Journal
Research Article

Return on Investment (ROI) for Asset

(Tools) Tracking
Deepak R Chandran
Iris Energy LLC, United States.
DOI: https://doi.org/10.24321/2395.3802.201801

Abstract
The rapid proliferation of technology is impacting all aspects of the data centric age and spanning the present
Industrial Revolution 4.0, especially within the IoT (Internet of Things) domain. It is getting a way trickier to
justify and get your project or budget approved by the CFO. The objective of this paper is to demonstrate
an ROI method and the process of its computation using a common use case as example. The paper also
contains the explanation of a mechanism for computing ROI on deploying an Asset (Tools) Tracking system,
and the losses in not having such an Asset tracking system, in an organization, which has tools.

Keywords: RFID, UWB, Active RFID, Real time location, Asset inventory tracking, UHF, Tags, Anchors
Tools Tracking System un-quantified costs of their existing situation.

By placing tiny radio transponders on any item, the
movement of those items can be detected; physical
inventories can be accomplished in a fraction of the time;
theft and loss can be prevented; processes can be monitored
and tracked; and critical items can be located and utilized
more efficiently. Any company that needs to keep track of
a highly valued asset or a large volume of “things” must
certainly evaluate the merits of a Tools Tracking System.
Most companies have some kind of a manual or automated
Inventory or Asset tracking system as one of the software
components. Such a system provides, primarily, details
of the asset acquisition cost, their replacement period,
maintenance, and warranty. None of these systems,
however, help or aid in trying to ascertain the location of
an asset in “near” real time, or compute the losses in not
having a particular tool, due to the “loss” of the tool at
a given point of time, through its effects and impacts on
performance of a work.
Despite the intuitive benefits perceived from having
greater visibility over one’s assets, companies struggle with
determining whether there is truly a financial benefit in
implementing an asset tracking system and, if so, how much
is the benefit. Due to the complex nature of their processes,
companies find it difficult to determine the ROI from an
asset tracking system and, perhaps more specifically, the
E-mail Id: cdr22@me.com
Orcid Id: https://orcid.org/0000-0001-9417-8093
How to cite this article: Chandran DR. Return on Investment (ROI) for Asset (Tools) Tracking. J Adv Res Embed Sys 2018; 5(3): 1-6.
Most of the current asset tracking solutions primarily use
some kind of Radio Frequency Identification (RFID), which
has been the most widely adopted and used technology
candidate. While several RFID/RTLS ROI calculators can
be found on the internet, it will not be appropriate to use
them as a general calculator as the metrics and assumptions
will be entirely different for each industry, based on its size
and nature of operations. It is therefore highly imperative
that potential users should factor their own unique issues.
This paper will act as a guideline on factoring unique
organizational characteristics, for those organizations
considering process or performance improvements using
a Real-Time Locating System (RTLS).
Quantification of the Current Problem
The current problem can be different for different
stakeholders. For example, if solving the lost items issue
is the objective, it is one thing to know that items can’t
be found, it is another thing to know how frequently they
get lost, and yet another to assign a realistic value to the
cost of finding those items when they are needed. In some
cases the cost may not be limited to the wasted human
labor of the person looking for the item. There may be
an impact on the production efficiency or quality, with a
cascading effect. Therefore, it becomes important to know
another dimension of an asset- its “location”. Knowing the

Copyright (c) 2018 Journal of Advanced Research in Embedded System (ISSN: 2395-3802)
Chandran DR
J. Adv. Res. Embed. Sys. 2018; 5(3)
location of an asset on a real-time basis is now possible,
and is attractive from the CFO down to the plant operator.
Though technology exists for determining the location, but
narrowing it down to less than a square meter is what is
more exciting and enabling and enhancing the value of the
asset tracking system.
The key is to discern what are the most critical points of the
current problem, and to come up with a definable economic
impact. The following questions help in identifying the
critical issues and determining their economic impact.
• If, for example, the critical point is “tools,” is it only
tools of a certain type or value, assigned to a certain
department or a project, or the entire set of tools?
• Another way to address this key issue is to ask “How
many times per day/week/month can something not
be located out of all of the times that it is needed?”
• When assigning monetary figures to anything, ask
“What would be the cost impact of losing or not being
able to find this item?” In some cases (e.g., a human
life), the ‘item’ may be priceless.
• What are the current costs for managing these items?
What is the cost impact of, for example, one person
Table 1.Assumptions Calculator
Assumption
On the most basic level a calculation can be as follows
where Perceptibility Error is the percentage of total
items that are lost, stolen, or cannot be found.
While everyone desires a 100% reduction in costs for
any project, the reality is that the final result will most
likely be something less than 100%. It still is wise to
set a target for improvement. Run the calculations at
various percentage level to determine different cost
scenarios, which will be helpful in formulating the ROI of
a technology adoption. It has been found that even with
less than 100 percent improvement the costs savings
has been tremendous.
ISSN: 2395-3802
DOI: https://doi.org/10.24321/2395.3802.201801
2
spending 10 hours per week searching for items, at a
cost of $X per hour? Are physical audits a routine to
maintain inventory accountability?
• In addition to the direct costs of managing the items,
what are the other costs associated with losing
or misplacing those items? How does it impact
manufacturing or assembling when the tools are not
available when the raw material is on the shop floor?
In the US where SOX (Sarbanes- Oxley) reporting is
required, it also becomes important to determine
the lack of visibility due to impact on deprecation
accountability and related departments.
One of the challenges in calculating a return on any
technology such as RFID or the newer RTLS is that the
costs associated with the existing system are often hard to
describe monetarily. The costs such as in reduced customer
satisfaction, or lesser productivity, which are of important
value but often difficult to translate to dollars makes any
effort to state the returns on asset tracking systems in
monetary terms. However, these factors cannot be ignored
while arriving at a proper ROI analysis of an asset tracking
system. One may have to make various assumptions while
determining the cost of such hidden factors.
Metric
Quantity of Items ___________
(Annual Depreciated Value) x __________
(May be Average Intrinsic Value)1
Total Value of Items ___________
Perceptibility Error
(1- accuracy%) x
Cost of Management/yr+
Other Costs/yr2
Annual Current Costs ____________
 Chandran DR
3 J. Adv. Res. Embed. Sys. 2018; 5(3)

ABC Use Case: An application
Let us now apply the assumptions to a use case, which
represents a very common scenario in organizations. The
assets in the use case has the following characteristics:
• All the items move from place to place throughout the
course of normal business operations.
• There is a definable cost for each item.
• All items have a downstream attribute dependent on
them ( like WIP (work in process), logistics etc.)
• All the devices have a location attribute (where they
are supposed to be at a given time)
• All the above assets are handled by an operator
A key contributor to the shrinkage or “missing” of the
assets is the loss or theft of a certain percentage. There
are several other costs which can be attributed to the
shrinkage or missing that the RTLS solution will address:
Substitution or Replacement Costs. When an item is
“shrunk or missing” they need replacement. More often
this replacement costs is higher for near finished goods, or
for important and special tools. Missing of the tools may
be due to several causes, like accidently left in another
workshop or a different department, or accidently taken by
fellow workers and or simply lost or stolen. In such scenarios
the replacement cost could translate into meeting the
cost of the expedited sales or replacement of the missing
inventory or, at times, requesting inventory at expedited
shipping costs from a different plant or location etc.
Sales Delivery Delay/ Shipping Delays/Cancellation of
Orders. In an Engineering environment, a delay can result
in many consequences in the entire manufacturing and
supply chain. Inter department work and job schedules, or
a third party process based on a committed schedule can
get cancelled, and the effects lead to a chain of disruptions,
resulting in cost over runs, dissatisfied customers, and
lower morale within the departments.
Manufacturing Downtime. There may be other engineering
departments waiting for a particular materials (which is now
pending) due to a specific tool not available to tighten at
a specific torque level, or is a specific task material passed
down to another process using non specified tightening
within the specified torque level using a “available tool.”
It may be the fork lift waiting to transfer the inventory to
another department because of a specific tool not being
found. One needs to examine various such costs (of fuel,
wages, overtime) for “waiting” for the needed items to
complete the task. These related costs can be trimmed if
a proper real time location as well as tracking is available
of the specific assets.
Inventory Search Time. Companies often underestimate the
loss of productivity and the need for periodically counting
inventory and its accuracy. RTLS will enable reduction in
the time to do so. One needs to calculate the amount of
wages spent on these processes and how effectively the
time might be better spent.
All inventory may not have a same “shrinkage rate.”
Typically, the items with high “shrinkage rate” or an
item used frequently and with limited quantities should
be evaluated first, to determine its inventory accuracy.
One may then add and quantify the costs as shown in
the example in Table 2, below. The Example-1 uses the
assumptions that the manufacturer loses 3% of tools inventory
each year and the loss results in a periodic need to rush
manufacturing and expedite shipments.

Table 2.Calculation of Current Cost of Missing Assets- Example 1

Number of Items 50,000 / year
Perceptibility Error 0.03
Shrunk Inventory 1500/ year
Average Depreciated value $ 100
Missing Inventory Value $ 150,000
Managerial Costs/ Year
Add: Cost of Substitution or Replacement @ $ 10 more /item $15,000
Add: Expedited Shipping /Supply Chain Costs @ 7 more /item $ 10,500
Add: Costs for Searching/Audit (3 hours/week@ $20)X52 $ 3,120
Other Costs/ Year
Add :Lost Orders/ Penal Charges $ 15,000
Add: Annual Inventory Audit /Checking Costs (100 man hours@$25 $ 2,500
TOTAL COSTS $ 196,120

ISSN: 2395-3802
DOI: https://doi.org/10.24321/2395.3802.201801
Chandran DR
J. Adv. Res. Embed. Sys. 2018; 5(3) 4

The figures in Table 2 reflects the current costs of operations Tracking costs: Despite workers’ best intentions, asset
due to the shrunk inventory based on the current practices. movements are often not recorded, and even large assets
Let us now examine the same case example with the use of can go missing – especially assets that are not used frequently.
an RTLS, which will reduce the shrinkage costs by two thirds The time spent in searching for these items can be long, and
to 1% and eliminates the need for an annual inventory. may often be done by highly paid staff.
Table 3.Calculation of Cost of Missing Assets under RTLS system- Example 1
Number of Items 50,000 / year
Perceptibility Error 0.01
Shrunk Inventory 500/ year
Average Depreciated value $ 100
Missing Inventory Value $ 50,000
Managerial Costs/ Year
Add: Cost of Substitution or Replacement @ $ 10 more /item $5,000
Add: Expedited Shipping /Supply Chain Costs @ 7 more /item $ 3,500
Add: Costs for Searching/Audit ( 1 hours/week@ $20)X52 $ 1,040
Other Costs/ Year
Add :Lost Orders/ Penal Charges $ 5,000
TOTAL COSTS $ 64,540

An annual savings of over $130,000, exclusive of the RTLS Replenishment costs: Items which are lost needs to be
systems cost is evident in the given use case example. We replenished, and emergency replacement costs are expensive,
will now address the cost of an RTLS system to check if it and time consuming. As these assets have a depreciable
makes economic sense to implement such a system. value, accounting their loss needs more effort with additional
financial record correction and making changes in the
Asset Tracking Enterprise software.
Increased Downtime: If machines are idling for want of proper
Assets differ from inventory in that they are permanently
tooling, or appropriate pallets missing, or containers missing,
owned items, which are used in the production or transit of
or not available, it can be quite expensive. The costs associated
inventory or for the general operations of the company. Assets
with such issues can be reduced, with a proper knowledge of
may include tools, computers, pallets, molds, and special tools,
the location of the assets.
and often have the following characteristics:
There are many assets and tools which are in excess of $1000
• They are often capital assets and have a depreciable value
a piece and the loss of some of them can result in costly
• They are mobile assets but usually have a home location
replenishment. To ascertain these assets or the loss of any
• Their existence is necessary for the daily conduct of the
assets which can stop a production line or an assembly line it
business
is important to determine the following: a) Item which have
• Misplacing or losing of these items can be expensive and
an high depreciable value; b) assets or tools which have high
jeopardize the operations of a task or order resulting in
loss rates; and c) assets which have the greatest impact on
costly and irreparable costs.
production cycles. Ascertaining the above information will help
Many such fixed assets can be found in a typical manufacturing in determining the assets with the highest associated costs.
environment, have a depreciable value, and often need to be
Let us now examine the effect of introducing an RTLS in
located, and the inability to locate them in a timely manner
tracking the high value tools/ assets. The example used is of
can lead to serious financial and production impacts. Often an
a manufacturer, spending several hours in searching for high
item missing, or which is due for calibration can have serious
value tools that are shared among various departments in
impact in the measurements in, or functioning of an assembly
its workshop. The assumption is that the adoption of RTLS
line. Hand held gauges and computers contain historic and
can result in a reduction of the search and replacement
statistical data and their loss can hamper production. The
costs by 80%.
most common definable costs of loss of assets are:

ISSN: 2395-3802
DOI: https://doi.org/10.24321/2395.3802.201801
 Chandran DR
5 J. Adv. Res. Embed. Sys. 2018; 5(3)

Table 4.Calculation of Current Cost of Missing Assets- Example 2

Number of Tools 500
Average Depreciable Cost $1,000
Total Asset Value $ 500,000
Number of Items permanently lost/year 10
Number of man hours searching/ week 20
Replacement Cost of lost items $ 10,000
Management Costs/ year
Add: Incremental Replacement Costs/ Expedited order costs $ 2,000
Add: Search/ audit costs (20 man-hours/week @$ 50/hr) x 52 $ 52,000
Ancillary Costs/ year
Add: Production Idling costs $20,000
Add: Capital written off of lost items (assuming 20%) $ 2,000
Total Costs $ 86,000/ year
Number of Tools 500
Average Depreciable Cost $1,000
Total Asset Value $ 500,000
Number of Items permanently lost/year 10
Number of man hours searching/ week 20
Replacement Cost of lost items $ 10,000
Management Costs/ year
Add: Incremental Replacement Costs/ Expedited order costs $ 2,000
Add: Search/ audit costs ( 20 manhours/week @$ 50/hr)X 52 $ 52,000
Ancillary Costs/ year
Add: Production Idling costs $20,000
Add: Capital written off of lost items (assuming 20%) $ 2,000
Total Costs $ 86,000/ year
Table 5.Calculation of Cost of Missing Assets under RTLS system- Example 2
Number of Tools 500
Average Depreciable Cost $1,000
Total Asset Value $ 500,000
Number of Items permanently lost/year 2
Number of man hours searching/ week 4
Replacement Cost of lost items $ 2,000
Management Costs/ year
Add: Incremental Replacement Costs/ Expedited order costs $ 400
Add: Search/ audit costs ( 20 manhours/week @$ 50/hr)X 52 $ 10,400
Ancillary Costs/ year
Add: Production Idling costs $4,000
Add: Capital written off of lost items ( assuming 20%) $ 400
Total Costs $ 17,200/ year

In the above example-2, it is evident that the savings per is not factored, it very much appears that the proposed
year is over $ 68,000. While the cost of the RTLS system annual savings is significant.

ISSN: 2395-3802
DOI: https://doi.org/10.24321/2395.3802.201801
Chandran DR
J. Adv. Res. Embed. Sys. 2018; 5(3)
Estimating the Costs of Implementing RTLS
Once the savings are identified, it becomes necessary to
calculate the cost of a proposed solution. RTLS solution is
usually combined with a mix of RFID /BLE Tags, and can
vary greatly in configuration. Most RTLS solutions consist
of the following: Hardware (Tags and Anchors), Software,
and Services. Organization normally seek out a specific
RFQ from a qualified System Integrator. Let us examine the
basic costs of a solution, to arrive at the ROI calculations.
The hybrid RTLS tags can vary between $20-80 per tag,
The Anchors can vary between $ 800-1500 per anchor (A
set of 4 is minimum required at any given point of time).
Determining the ROI of a RTLS Solution
There exists a number of equations or accounting formulas
which may be used to quantify a certain ROI. In our example,
we will consider the Net Present Value method for arriving
at the ROI, due to its apt nature and precision for the
given case.
Net Present Value (NPV) is defined as the difference
between the present value of cash outflows and present
value of the cash inflows over a period of time. NPV is
used in capital budgeting to analyze the profitability of a
projected investment or project. A positive net present
value indicates that the projected earnings generated by
a project or investment (in present dollars) exceeds the
anticipated costs (also in present dollars). Generally, an
investment with a positive NPV will be profitable, and an
investment with a negative NPV will result in a net loss.
This concept is the basis for the Net Present Value Rule,
which dictates that the only investments that should be
made are those with positive NPV values.3
Where
t- The time period you want to evaluate the life of the project
i-The interest rate that could be earned on an investment
in the financial markets with similar risk
Rt- The net cash flow, i.e. cash inflow - cash outflow at time
If we consider the Example 2 in the Asset tracking case
study, and if we make the following assumptions:
1. The cost of the required hardware, software, and
services is $ 150,000 and fully depreciated evenly over
5 years ($ 30,000/year)
2. Recurring tags cost equal $ 5,000 per year
3. Market Interest rate is projected to average @ 7% over
the 5 year project life
ISSN: 2395-3802
DOI: https://doi.org/10.24321/2395.3802.201801
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then the NPV of the project would be the total of the
present value of the all the future savings – the current
outflow on account of the investment. The future cash
inflows per year would be equal to the savings of $ 68800 –
recurring cost of tags of $ 5000 = $ 63,800. On discounting
this future cash flows at the rate of 7% per annum would
give us the PV of these future cash flows. The PV of future
cash flows from the project is as per the Table 6 below:
Table 6.Present Value of Cash Inflows
Year Cashflow Present Value
0 -150000 -150000
1 63800 59626
2 63800 55725
3 63800 52080
4 63800 48673
5 63800 45489
The NPV of the project being the total future cash inflows-
initial cash outflow ($ 261,593 - $100,000) would be $
111,593. Thus the project would have a positive benefit
to the organization, saving them ($ 111,593) over five
years (assuming the interest stays at 7%). This investment
can be compared against other investments to determine
relative worth.
Conclusion
As one can see that the calculation of the ROI of an
RTLS solution is not difficult if we have at true and
fair understanding of the existing process and its cost
implications. One must also keep in mind that investment in
an RTLS solution will enable the organization to open newer
avenues in obtaining and gathering data from locational
intelligence, and this investment will be more of a long
term investment due to the nature of the assets often
spanning 10-15 years.
Notes
1. The Intrinsic value may be defined as an actual value
of an asset based on perception of a true of vale of a
business including its tangible and intangible factors.
This value need not be as per the current market value.
2. Other Costs: Could be any other costs which are directly
or indirectly attributed to establish the cost of finding
or determine the items in questions, and this may
include lighting costs, HVAC costs, non managerial
people costs etc.
3. Refer https://www.investopedia.com/terms/n/npv.asp
Date of Submission: 2018-06-28
Date of Acceptance: 2018-06-29