IoT to add up to 11.1 trillion to global economy by 2025

19 October 2015 Consultancy.uk

The value of the IoT has been hyped over the past years, with widely varying predictions from futurist and business alike. To get a grip on the potential benefits of the technology, McKinsey and Company performed a comprehensive economic study of its potential benefits. According to the consulting firm, the total economic benefit in 2025 could hit between $3.9 trillion to $11.1 trillion, with the high estimate equivalent of 11% of world GDP in 2025. The technology still has some ways to go however, and both technical and privacy issues need to be carefully considered.

Recent research from McKinsey & Company’s Global Institute explores the potential value of the Internet of Things (IoT) on the global economy. As there is a considerable amount of hype around the technology, the consulting firm sought to find out how much of that hype is likely to eventuate, in terms of the economic impact. The resultant report, titled ‘The Internet of Things: Mapping the Value Beyond the Hype’, looks at the value generated from business applications, as well as the potential surplus value for consumers.

Building on earlier research into the IoT, the consultancy analysed more than 150 potential applications of the technology globally. Then, using a bottom-up economic modelling approach, estimated the kinds of benefits and the economic value of the IoT, including productivity improvements, time savings, and improved asset utilisation, as well as an approximate economic value for reduced disease, accidents, and deaths.

Economic surplus of IoT

Technological development
In its analysis of the potential benefits, McKinsey finds that the IoT has a potential economic impact of between $3.9 trillion and $11.1 trillion per year in 2025. The combined result of the wider ecosystem of the technology – which includes consumer surplus – is equal to around 11% of the global GDP in 2025. A large amount of the benefit will be for consumers. Consumer value is expected to be at $2.6-7.6 trillion by 2025 and consumer surplus at $1.0-2.8 trillion.

Different segments will come to generate different kind of value however. The consulting firm projects that the value created in health and wellness could be between $170 billion and $1,590 billion. Retail environments could see economic benefits of between $410 billion and $1,160 billion. It is particularly industrial applications, or what has been called industry 4.0, that could see the greatest economic benefit of the technology of between $1,210 billion and $3,700 billion in 2025. Cities are expected to see the second largest gain from the introduction of the technology, benefiting in the range of between $930 billion and $1,660 billion.

Economic impact by sector of IoT by 2025

Barriers remain
Although the technology is shown to create a considerable economic benefit to the global economy, a number of issues remain before the technology can be effectively deployed and used. One of the potential problems is the cost of components. In the past five years, the cost of micro-electromechanical system sensors dropped rapidly to between 30-70% of their original cost. However, the same cost reductions in radio-frequency identification tags will need to eventuate to make IoT tracking practical for low-value, high-volume items in package delivery and retailing. Low cost battery technology also remains an issue. Furthermore, to leverage the information gained through the sensors, advances in computing power and storage may be required, as well as improvements to the visualisation of results.

Interoperability, whereby devices come to communicate with each other in a way that provides synergies, is also seen as a difficulty. The researchers note that up to 40% of the value of the IoT may be lost without improvement to the interoperability of data. Thus up to $4 trillion is dependent on IoT systems working together. A further issue with the IoT is that much of the information gathered is currently not interpreted. For instance, only 1% of the information gathered by oil rigs IoT is currently used, with multiple issues holding back the complete use of the data. The overlarge part of what is leveraged is used merely for maintenance, rather than predictively.

Unused oil rig data

Privacy issues may also hold back the deployment of the IoT. Privacy advocates are increasingly concerned about the constant and uninterrupted tracking of people through a wide range of situations and the potential risks for manipulation and control that come with complete behavioural modelling. Issues around the way data is used, collected and stored will need to be carefully considered in light of more than just profit incentives.

More news on

×

Project management industry adds £156 billion of value to UK economy

15 April 2019 Consultancy.uk

Project management has grown into one of UK’s largest areas of business over the past decade, amid the increasing ‘projectification’ of work. With the gross value added to the UK economy by project management estimated to be £156 billion, this trend is likely to continue in the coming era.

Despite the huge success of project management in recent years, until now there has been relatively little data available on the size of project activity. As a result, there has been a great deal of debate on things like the number of people involved in the sector, the number of projects, and how it contributes to economic output. Due to this need for clarity, APM, the UK’s professional body for project management (the largest organisation of its kind in Europe, with 28,000 individual members) commissioned economists from PwC to shed light on the industry's economic impact.

The research concluded that the profession makes a more significant contribution to the UK economy than the financial services sector. 2.13 million full-time equivalent workers (FTEs) were employed in the UK project management sector, generating £156.5 billion of annual gross value added (GVA). In comparison, the financial services sector contributes £115 billion, and the construction industry adds £113 billion.

Gross value added to UK economy

Commenting on the discovery, Debbie Dore, Chief Executive of APM said, “Project management runs as a ‘golden thread’ through businesses, helping to develop new services, driving strategic change and sector-wide reform.”

Who is a ‘project manager’?

To reach these estimates, PwC’s researchers used detailed models to map out the value of project management activity. They ultimately defined relevant ‘projects’ as “temporary, non-routine endeavours or rolling programmes of change designed to produce a distinct product, service or end result… [with] a defined beginning and end, a specific scope, a ring-fenced budget, [and] an identified and potentially dedicated team with a project manager in charge.”

Building on this, they then went on to define what the act of project management actually is. The job consists of applying “processes, methods, knowledge, skills and experience” so that clients can meet their objectives and bring about planned outputs or outcomes. The analysts added that this includes “initiating the project, planning, executing, controlling, quality assuring and closing the work of an identified and dedicated team according to a specified budget and timeframe.”

Importantly, it should be noted that the profession is not exclusive to only roles explicitly labelled as ‘project manager’, but to any role where specialist project management skills are used. This means that across sectors these roles can have very different titles, from the self-explanatory contract managers of procurement, or the campaign managers of advertising, to the likes of festival co-ordinators in the events sector, and many more. The roles in question also span all strategic levels of the profession, from strategic to tactical and operational positions.

Gross value added of project management profession

From a sector perspective, the financial and professional services, construction and healthcare industries make up almost two-thirds of the total project management GVA. At the same time, understandably, the UK Government has a huge project portfolio, which further drives the size of the GVA the sector contributes, thanks to megaprojects like HS2 and Crossrail.

Commenting on this to the report’s authors, Oliver Dowden, Minister for Implementation remarked, “Project delivery is at the heart of all Government activity, whether it’s building roads and rail, strengthening our armed forces, modernising IT or transforming the way government provides public services to citizens. Getting these projects right is essential if we are to ensure that we build a country that works for everyone.”

Throughout 2019, 26 major government projects were delivered, representing a fifth of the overall Government Major Projects Portfolio (GMPP) of 133 projects. According to the IPA annual report 2017-18, these represented a whole life cost of £423 billion. In addition to this were a plethora of smaller scale projects, and those in early development.

Elsewhere, with the increasing digitalisation of the economy impacting entities of all shapes and sizes, IT and digital transformations tended to dominate the projects of the UK scene alongside new product development projects, with a respective 55% and 46% of organisations in the research sample having undertaken these types of project in the past year. At the same time, this varied across sectors, and unsurprisingly, in the construction and local government sectors, fixed capital projects were the main project type undertaken.

Outlook

Looking to the future, 40% of business leaders expect project management will grow in the coming years due to the increased use of projects – or the ‘projectification’ of the UK. In a trend that has been witnessed elsewhere, organisations have to rapidly and continuously change in the digital age of business, driving the need for project management.

Outlook for project management services

An increased focus on value over cost – especially in the construction sector – and a forecast increase in the number of international projects are predicted to be key drivers of growth, according to the expert contributors. However, this will not happen in the absence of challenges; more than half of organisations expressed concern over the perceived impact of political uncertainty in the UK. Skills and capability shortages were also cited as a potential barrier by a third of organisations.

With regard to budgets, meanwhile, a third of those surveyed by PwC said they expect the size of project budgets will increase in the coming three years, while 40% anticipate a growth in project size. As the profession continues to mature, and as the recognition of the importance of good project management grows, it is expected that a greater proportion of project work will gain more distinct attribution to the profession itself, giving more recognition and appreciation to the role of the project manager.

Speaking on the findings of the study, Sandie Grimshaw, a Partner at PwC, concluded, “The project management profession is relatively new compared to some other professions, such as lawyers, teachers and doctors. However, as project management is a core competence vital to organisations in the UK, the profession is critical and will continue to grow in stature.”