Between the Poles

Benefit-cost analysis for estimating ROI from GIS for local government

At the GITA Pacific Northwest Annual Conference in Mukilteo, Washington, Greg Babinski, Finance Manager for the King County GIS Center (KCGIS), gave an overview of benefit-cost analysis of the financial value add of GIS.  The study was lead by Professor Richard Zerbe of the Benefit-cost Analysis Center at the University of Washington Evans School of Public Affairs. Professor Zerbe has developed a methodology for determining the costs and benefits of a variety of things that municipal and other governments are responsible for.

Some of the areas that the KCGIS is reponsible for include mapping, public information delivery, growth management and planning, property assessment, land development permitting, site selection, simulating environmental conditions, emergency response planning, crime analysis, transportation planning, bus and van routing, road maintenance management, public health service delivery, service center location analysis, E911 operations, airport sound abatement, boundary management (legislative districts, voter precincts, tax unit boundaries), and so on.

According to Greg, the study was jointly funded by the Oregon Geospatial Information Officer (Cy Smith) and King County.  Both Cy and Greg have been involved with a URISA effort to quantify the benefits of geospatial data and technology in the context of local government.  The New Zealand study on the value of geospatial information to the New Zealand economy was an inspiration to try to do something similar at the local government level.

The approach used by Professor Zerbe was to estimate the cost of providing these services with and without GIS.  The study involved a literature survey and about 30 qualitative interviews with agency heads and key employees to set the stage for 200 quantitative interviews with employees and managers all across the Kong County government.  The quantitative questionnaire solicited quantitative estimates of the benefits that have been realized across different groups of users of GIS applications, as opposed to what these users would have done in the absence of GIS applications.  By comparing the “with and without” scenarios, the study team was able to estimate the added value provided by the GIS applications.  Fortunately King County had maintained very good records of the expenditures on GIS hardware, software, and staff over the past 18 years so there was a lot of confidence about the cost side of the analysis.  Interview and survey results were compiled by output type, agency, and productivity levels. Results were then monetized.

Examples of the type of questions employees were asked to answer

• How many units of this output do you personally produce? Choose # of units:
• How many units of this output do you personally produce Per Unit of Time:
• What percent of your time do you spend producing each output now? (%)
• What percent of your time do you spend producing each output now:  Per Unit of Time:
• Number of Employees in your workgroup (including you) currently producing this output:
• Total FTEs in your workgroup (including you) currently producing this output:

The report found that GIS expenditures of about $215 million provided a conservative estimate of net benefit of about $775 million in net benefits over the 18 year period 1992 to 2010.  (The estimated net benefit ranged from a very conservative $775 million through almost $5 billion.)

The use of GIS at an annual cost of about $15 million, compared to not having a GIS, had a net benefit of about $87 to $180 million for the year 2010.  That's a return on investment (ROI) of between 6 and 12.  The benefits were broken down into cost-savings due to more efficient production of original output and benefits generated from increased productivity beyond the original production level.

This type of study, which can be expressed as a return on investment, is critical for geospatial projects because governments increasingly are using ROI as a way of prioritizing the allocation of scarce resources.  Typical ROIs are in the range of 2 to 4, so if a GIS project is projected to generate an ROI in the range of 6 to 12, all other considerations being equal, it will tend to get funded before a project with a lower ROI.  KCGIS offers a URISA certified workshop for IT Directors/Managers, GIS Managers, decision makers and operational personnel on quantifying return on investment.

ROI of up to $21 per dollar invested in improving accuracy of geolocation of underground utilities

I blogged recently about a remarkable effort by the City of Las Vegas to create an accurate 3D model of the underground infrastructure of the city.  An important question is what are the quantified benefits of improving the reliability of the geolocation and condition information about underground utilities ?  As part of an effort in Australia to improve the reliability of information about underground utilities, the standards committee investigated the available evidence for quantified benefits.

Australia Subsurface Utility Engineering Information Standard

In May 2010, Standards Australia Committee IT-036, Subsurface Utility Engineering Information began developing a new Australian Standard, AS 5488—201X, Classification of Subsurface Utility Information (SUI).

The motivation for this standards effort was the lack of reliable information during design and construction activities that can result in costly conflicts, delays, utility service disruptions, redesigns, personal injuries to workers, and even lost lives.  The fundamental problem is that the location of subsurface utilities often appears on design plans, but they are based on notoriously unreliable as-builts.

To address this issue Standards Australia (SA) began developing an Australian Standard for the practice of Subsurface Utility Engineering (SUE).  SUE is an engineering process that combines civil engineering, geophysics, survey and CADD/GIS and provides much more accurate information on the location and condition of subsurface utilities than has been traditionally available.

As part of this effort SA committee researched the quantifiable benefits attributable to SUE.  They found three studies that attempted to quantify the return on investment in improving the quality of subsurface utility data, including location and condition of assets.

USDOT - ROI of $4.62 per $1.00 invested

According to a USDOT sponsored survey conducted by Purdue University in 1999 (Cost Savings on Highway Projects Utilizing Subsurface Utility Engineering), two broad categories of savings emerged from using SUE — quantifiable and qualitative savings. The Purdue study quantified a total of US$4.62 in avoided costs for every US$1.00 spent on SUE. Although qualitative savings (for example, avoided impacts on nearby homes and businesses) were not directly measurable, the researchers believed those savings were significant, and arguably many times more valuable than the quantifiable savings.

Ontario Sewer and Watermain Contractors Association - ROI of $3.41 per $1.00 invested

In 2004 in Canada, the Ontario Sewer and Watermain Contractors Association commissioned the University of Toronto to investigate the practice of using SUE on large infrastructure projects in Ontario. This study, entitled Subsurface Utility Engineering in Ontario: Challenges and Opportunities, determined that the average rate of return for each dollar spent on SUE services on those projects that could be quantified was $3.41.

Pennsylvania DOT - ROI of $21.00 per $1.00 invested

In 2007, the Pennsylvania Department of Transportation commissioned Pennsylvania State University to study the savings on Pennsylvania highway projects that used SUE in accordance with the mapping provisions of the American standard. In their unpublished report, Subsurface Utility Engineering Manual, Pennsylvania State University found a return on investment of US$21.00 saved for every US$1.00 spent for SUE when elevating the quality level of subsurface utility information using SUE. This significantly higher return on investment when compared to Purdue and Toronto studies is thought to be a result of maturation of process and possibly a consideration of the qualitative savings noted above.

Not referenced in the Australian study, in 2010 a 12-month study conducted by researchers at the University of Toronto took an in-depth look at 9 large municipal and highway reconstruction projects that developed an enhanced depiction of buried utilities. Based on this analysis, a cost model was proposed that takes into account both tangible and intangible benefits. All projects showed a positive return-on-investment (ROI) that ranged from $2.05 to $6.59 for every dollar spent on improving underground utility location data.

Image courtesy of VTN Consulting.

Economic value of big geospatial data could reach $700 billion/yr by 2020

McKinsey Global Institute published a report Big data: The next frontier for innovation, competition, and productivity that analyzes the state of digital data, how it is used in different domains in both the private and public sectors, and offers suggestions for policy makers. In addition to looking at big data as a whole, the report examines five areas in detail including personal location data.

Real-time location data generated by mobile phones and other devices has created an entirely new set of location-based services from navigation to pricing property and casualty insurance. Personal location data is a new horizontal application domain that includes industry sectors from utilities to insurance to transportation. The growing smart phone market is creating an exponentially growing volume of location-aware data.  McKinsey sees this domain as a hotbed of innovation that has the potential to create significant value for consumers.  For example, use of real-time  traffic information for navigation will create a quantifiable consumer benefit by saving time spent traveling and fuel consumption. McKeinsey expects the economic value these innovations create to far exceed the revenue generated by service providers.

Economic value

Mobile phones with GNSS chips have created a revolution will continue over the next  decade. This personal location domain offers the potential for huge new value creation over the next ten years that McKinsey estimates at more than $100 billion/yr (about 0.14% of world GDP) in revenue to service providers and as much as $700 billion/yr (about 1% of world GDP) in value to consumer and business end users. Realizing this value will require investment in technology, infrastructure, and personnel as well as appropriate government action.

McKinsey's detailed analysis of the major applications of personal location data finds that, in ten years’ time, these applications could create value of $100 billion/yr or more for service providers  primarily from sales of navigation hardware and revenue from LBS, mobile LBS premiums, and geo-targeted advertising.

McKinsey estimates that by 2020 the benefits (difference between willingness to pay and the cost of applications) that customers, consumers and businesses, will enjoy from location-based applications will reach as as $700 billion/yr. Most of this, about 70 %, will be the consumer benefit from time and fuel saved by using GNSS navigation systems including those with real-time traffic information and mobile LBS applications. The remaining 30 % of the benefits will be through location-enabled applications such as geo-targeted mobile advertising.  Smart navigation applications are estimated to provide $500 billion in value to global consumers in time and fuel saved by 2020. Geo-targeted advertising could represent more than 5 percent of total global advertising spending by 2020.

For comparison, a recent study prepared for Google by Oxera Consulting Ltd in the UK estimated global revenues from geospatial products and services to be $150-$270 billion per year.  The geospatial industry is estimated to be growing by 13% per year through 2016.  These numbers were estimated using a different methodology to McKinsey's. The lower estimate of $150 billion/year was estimated using a bottom-up approach based on the Bloomberg BICS classification of companies worldwide and assumptions about allocating the revenue from companies that provide geospatial in addition to other services such as Trimble.  The $270 billion number was estimated by scaling up the US revenue estimated by Boston Consulting Group to come up with a world estimate.

Personal location data

McKinsey includes sources of personal location data that locate an individual to at least within a couple of city blocks in an urban settingin its analysis.

• Credit and debit card payments from cards processed at point-of-sale (POS) terminals and  automated teller machines. In 2008, there were 90 billion to 100 billion transactions of this type worldwide.
• Mobile phones - the location of such devices can be triangulated from cell-tower signals.  In 2011 there were about 6 billion of these.
• Smartphones with GPS - about 600 million devices in 2010 and the number is growing at about 20 % per year. Many smartphones also have Wi-Fi networking capability, which can be linked to a physical location of a Wi-Fi network.

In the future McKinsey expects indoor location to become more important.  They mention Shopkick, which allows merchants to track their customers from when they walk into a store, and Path Intelligence, which can track foot traffic within malls or amusement parks.

McKInsey's research estimates that the global pool of personal location data was at least 1 petabyte in 2009 and that this pool is growing by about 20 % a year. 

Location data generated by smartphones is growing at double the average rate of growth for all location data.  Asia is the leading region for the generation of personal location data because so many mobile phones are in use there. In 2010 the regions with the largest number of cell phone users were

• China 800 million
• India 650 million
• North America 300 million.

Applications of personal location data

McKInsey has identified three major categories of applications of personal location data.

• Location-based applications and services for individuals including smart routing, automotive telematics, and mobile-phone based location services
• Organizational use of individual personal location data that includes geo-targeted advertising, electronic toll collection, insurance pricing, and emergency response.
• Macro-level use of aggregate location data that includes urban planning and retail business intelligence.

Barriers to use of personal location data

Concerns about privacy and security was identified by McKinsey as a major barrier to future expansion of the use of personal location data. Laws are unclear about who owns that data and how it can be used.  McKinsey believes that a policy and legal framework that clearly describes the permissible and prohibited use of these data would be beneficial for all stakeholders.

For policy makers, McKinsey sees that a priority is incentives for innovation are in place including developing an up-to-date framework for intellectual property rules and rights, funding R&D in potential breakthrough areas, and ensuring that the infrastructure, including spectrum policies, is optimal.

Methodology

By looking at the value chain of location-based applications, McKinsey examined both the amount of data generation and the potential to create value.  McKInsey estimated the amount of personal location data generated in each category of application orsource device and in different geographic regions using the installed base of devices, usage behavior, and the frequency with which data are generated. To assess the potential value that data can generate, McKinsey estimated the economic value of each application to end users—individual consumers, enterprises, and government organizations.

Value of geospatial services to the global economy

Google released a report What is the economic impact of Geo services ? earlier this year prepared by Oxera Consulting Ltd in the UK.

What are geospatial services ?

Oxera incuded all interactive digital mapping and location-based data,  products, and services in its definition of geospatial services.  This includes providers of satellite imagery, digital maps, satellite positioning signals (GPS/GNSS), navigation devices, geographic information systems (GIS), and geospatial expert service providers.  Digital maps include online maps and locally stored maps, but not hardcopy maps.  Geospatial products and services generate direct revenue for companies such as ESRI, Garmen, or Digital Globe.

What is value ?

The study aims to quantify the impact of geospatial services on the world economy and consumer welfare.  It breaks these impacts down into

• direct effects - revenue generated by firms developong and providing geospatial data, products and services
• consumer effects - the benefits that consumers, business and government experience from using geospatial services from geospatial services
• wider economic benefts - productivity and efficiency improvements resulting in cost savings from geospatial services

Economic impact of global geoservices

Direct revenues

Global revenues from geospatial products and services as defined by Oxera is estimated to be $150-$270 billion per year.  The geospatial industry is estimated to be growing by 13% per year through 2016. [ There are important assumptions that led to these numbers.  The lower estimate of $150 billion/year was estimated using a bottom-up approach based on the Bloomberg BICS classification of companies worldwide and assumptions about allocating the revenue from companies that provide geospatial in addition to other services such as Trimble.  The $270 billion number was estimated by scaling up the US revenue estimated by Boston Consulting Group to come up with a world estimate.]

Gross value added (GVA) is the grand total of all revenues ( from final sales and subsidies minus direct taxes ) which are incomes into businesses.  Geospatial services are estimated to have a global GVA of $113 billion/year, which is about 0.2% of the world's GVA of $70 trillion.

Consumer benefits

Geospatial services provide benefits (not including direct purchases of geospatial products and services) to consumers.   For example, enabling consumers to find the nearest Thai restaurant in seconds rather than leafing through the yellow pages and looking up the location on a map saves time.   Finding the fastest route to the nearest hospital saves time and may actually save lives.

Some of the consumer benefts of geospatial services include time savings, fuel savings, emergency response, education, and competition.

Examples of categories of consumer benefits include more efficient navigation, estimated to provide benefits of  $22 billion/year, and educational benefits estimated to amount to $12 billion/year.  Faster emergency response to cardiac arrests is estimated to potentially save 152 lives/year in the UK.

Wider economic impact

Geospatial services also make users more efficient.  For example, a trucking company that has installed GPS trackers on its vehicles and uses location-aware routng software will be more efficient, delivering items faster and more efficiently.  There are also indirect benefits to the general public in improved safety.  By getting things to end users and businesses faster and more safely, geospatial services facilitate economic activity.

For example, GPS/GNSS is estimated to provide $10 billion in cost savings to the global economy.  Geospatial  services are estimated to save 1.1 billion hours of travel time/year and to reduce fuel demand by 3.5 billion liters of gasoline/year.

Thanks to Dr Bob Austin for pointing me to this.

Value of geospatial services to the United States economy

According to a report by the Boston Consulting Group (BCG) the geospatial services industry in the United States generates annual revenues of $75 billion annually.  That is about 0.5 % of the US GDP. The report breaks the geospatial services industry into geospatial data including maps and imagery, geospatial software, applications and devices and geo-expert services.  End users of geospatial services are government, business, and consumers.

For comparison studies of the contribution of the geospatial industry in Australia and New Zealand estimated a contribution of between 0.6 and 1.2% of the GDP in the case of Australia and 0.6 % in the case of New Zealand. 

The BCG report estimates the economic impact of the geospatial services industry on government, business, and consumers is estimated to be $1.6 trillion in revenues (greater efficacy) and $1.4 trillion in cost savings (greater efficiency).

The BCG study reports that the value that consumers ascribe to geospatial services is about $37 billion per year or about $350 per year for the average U.S. household.

BCG also estimates that more than 5 million employees in the U.S. in a variety of industries use geospatial services as part of their job.

BCG forecasts that the economic impact of geospatial services in three business functions, marketing, logistics, and strategic decision-making will increase by at least 10 percent a year over the next five years. 

BCG forecasts that the geospatial services industry will reach $100 billion in annual revenues over the next five years.  It projects that the efficiency gain in the U.S. economy will reach $2.6 trillion.  But the report cautions that to continue this growth will require sustained public- and private-sector cooperation and partnership, open policies governing collection and dissemination of location-based data and increased technical education and training at all levels.

Thanks to Talbot Brooks for pointing me to the BCG report.

Contribution of geospatial to the Canadian economy

Two countries, Australia and New Zealand, have commissioned studies to estimate the contribution of geospatial data and technology to the national economy.  Canada has just announced the award of a similar project to a team that includes ACIL Tasman, who conducted the Australian and New Zealand studies.

Australia

In 2008 a report The Value of Spatial Information, The impact of modern spatial information technologies on the Australian economy was prepared for the CRC for Spatial Information & ANZLIC – the Spatial Information Council by ACIL Tasman. 

The report found that in 2006/2007 the spatial information sector contributed between $6.4 billion and $12.6 billion to the gross domestic product (GDP), which represents between 0.6% and 1.2% of the GDP.

Secondly, it found that restrictions on access to spatial data reduced productivity in some economic  sectors by between 5% and 15% which could have reduced the GDP by about 7% in 2006-2007.

Thirdly, it projected that with the right policies the contribution of the spatial information sector to the national economy in the medium term had the potential to be up to 50% higher than in 2006-2007.  In other words, instead of a contribution of about 1%, the spatial information sector could have contributed 1.5% of GDP.

New Zealand

In August 2011 a study was released by Land Information New Zealand (LINZ), the Department of Conservation (DOC) and the Ministry for Economic Development (MED) that estimated the contribution spatial information makes to the New Zealand economy.  

According to the report the use of spatial information added at least $1.2 billion, about 0.6% of GDP, to the economy last year through productivity gains, but the report indicates that wider and better use of spatial information could lead to even greater productivity and add another $481 million to the economy.

Canada

Natural Resources Canada’s Mapping Information Branch in collaboration with the Canada Centre for Remote Sensing and the Surveyor General Branch, has announced the award of a contract  to Hickling Arthurs Low Corporation and partners ACIL Tasman, Fujitsu Canada and ConsultingWhere,  to conduct the Canadian study.
 
The primary focus for the study is to understand the current situation and emerging trends in Canadian geospatial activities and their overall direct and indirect economic value and contribution to the Canadian economy.  There are two components to the project.  The first is a geomatics environmental scan to examine the current geospatial information market in Canada and profile the Canadian geomatics sector.  The second is a economic value study that will determine the value of open geospatial information within the Canadian economy and its contribution to competitiveness and innovation in Canada, evaluate geospatial information as a ‘public good’ in the Canadian context, and make recommendations on the future strategic direction for geospatial information in Canada with an emphasis on the roles that can be played by the government, industry and academia.

The study will be managed by the GeoConnections Program of NRCan’s Mapping Information Branch and is scheduled to be completed by March 31, 2014.

FOSS4G: The Value of Spatial Information to National Economies

I blogged previously about the analysis of the contribution of spatial data to the Australian economy and to the New Zealand economy undertaken by ACIL Tasman.  Alan Smart, who spoke this year at FOSS4G, was involved in both studies.  He is a Principal Consultant in ACIL Tasman and works with spatially based economic models and has undertaken projects concerned with the value of and markets for spatial information. In 2007 he led the review of the economic impact of spatial information in Australia and has undertaken a similar project for New Zealand. 

He reported on his analyses for both Australia and New Zealand.  For New Zealand he reported that spatial information contributes 0.6% of GDP to the national economy, but could contribute an additional half a billion dollars if barriers such as pricing were removed.  The increase in GDP would contribute $100 million in additional revenue to government.

Value of Spatial Data to the New Zealand Economy

Sometime ago I blogged about studies in the UK and Australia that attempted to estimate the value of spatial data to national economies.  At the end of August a study was released by Land Information New Zealand (LINZ), the Department of Conservation (DOC) and the Ministry for Economic Development (MED) that estimates the contribution spatial information makes to the New Zealand economy.  According to the report the use of spatial information added at least $1.2 billion, about 0.6% of GDP, to the economy last year through productivity gains, but the report indicates that wider and better use of spatial information could lead to even greater productivity and add another $481 million to the economy. 

Contribution of Spatial Information to the National Economy

I have just returned to Ottawa after attending a GITA Board of Directors meeting in California.  I chanced to chat with Daniel Shannon of Telus about some interesting macroeconomic reports that I had come across. In Australia the CRC-SI has estimated the contribution of spatial information to the national economy,  the reduction in the contribution to the national economy arising from restrictions on access to spatial information, and the potential contribution of spatial information to the economy.  In the UK a much more restricted study estimated the benefit to the UK economy of less restricted access to Ordnance Survey (OS) data.

Australia

The report The Value of Spatial Information, The impact of modern spatial information technologies on the Australian economy was prepared for the CRC for Spatial Information & ANZLIC – the Spatial Information Council by ACIL Tasman in March of 2008, estimated the impact of spatial information on a number of key indicators of the Australian economy for 2006-2007. The report estimates that the spatial information sector contributed between $6.4 billion and $12.6 billion to the gross domestic product (GDP), which represents between 0.6% and 1.2% of the GDP.

Secondly, it estimates that restrictions on access to spatial data reduced productivity in some economic  sectors by between 5% and 15% which could have reduced the GDP by about 7% in 2006-2007.

Thirdly, it estimates that with the right policies the contribution of the spatial information sector to the national economy in the medium term had the potential to be up to 50% higher than in 2006-2007.  In other words, instead of a contribution of about 1%, the spatial information sector could have contributed 1.5% of GDP.

United Kingdom

The report Models of Public Sector Information Provision via Trading Funds by Professors David Newbery, Lionel Bently, and Rufus Pollock all of Cambridge University analyzes six UK trading funds, which for people unfamiliar with this term, are companies wholly owned by the UK Government, but which are expected to be run as a private company and generate a return to their single share holder.  In Canada the closest thing is a Crown Corporation.  The six that were studied are the the Met Office, Ordnance Survey (OS), the UK Hydrographic Office, the Land Registry, Companies House and the Driver Vehicle Licensing Agency.

The study was released in February, 2008.  It estimates the benefits to the UK economy if spatial data were available at no cost instead of the current relatively high cost as compared to the US, for example.  The study estimates that the gross  benefits to the UK economy would be around £168 million a year while a government subsidy to the OS of something between £12 million and £85 million would be required. Overall this implies a net benefit to the UK economy of between £83 to £156 million.  As Ed Parsons, ex-CTO of the OS, points out, turning the OS into purely government agency has risks, witness the USGS, but there are other alternatives.

The Value of Data

Recently I had the opportunity to visit a very interesting company, iMapData, which is now part of ChoicePoint.  These folks started out in the late 90's doing market studies for blue chip commercial organizations.  After 9/11 they started doing studies for federal government agencies.  In the process of doing these studies they acquired large datasets that they researched and cleaned, but with the goal of providing information and analysis for their market studies.

The Value of Data

iMapData is an information company and geospatial is just one aspect of the analytical and reporting capabilities they offer to their customers, who don't need to be aware of what GIS and the underlying geospatial technology is all about. The interesting aspect of all of this is that they soon realized that their data was extremely valuable, in fact,  that customers were more interested in the data than the studies.   About ten years ago iMapData developed a web interface to their databases using MapGuide and data became their primary revenue generating activity.   They currently support 1600 to 1700 different data layers and have become a combined data and software as a service (SAAS) provider.