The death of Building Management Systems as we know them

[Tim Kannegieter]

Why would you buy a building management system at a huge upfront cost when you can get one for free, in return for monthly service fees that actually drive down the total cost of ownership? Following is a preview of a webinar on building management systems being run by this community on 6 March. I would be interested in your comments and questions we might ask of the presenter.

The Internet of Things (IoT) is disrupting virtually all industries but it is particularly effective in challenging conventional approaches to control systems. Building Management Systems (BMS) are archetypal control systems with multiple sensors driving actuators to optimally maintain a comfortable working environment. Historically, large commercial and industrial projects have looked to proprietary systems from large vendors, partly because they were initially the only options on the table, and perhaps with a bit of the “if you buy IBM you won’t get sacked mentality”.

However, the IoT is changing all the assumptions which underpinned previous procurement decision making and in particular it is opening up the market to competition from a wide range of start-ups. These start-ups aim to not just innovate the technology, but challenge the entire business model.

The first impact of IoT on the BMS industry has been the dramatic plunge in the cost in sensing, communication and installation. Traditional BMS systems typically have a price tag in the order of AU$5000 per sensor point plus ongoing maintenance, and budgets typically allowed for a small number of devices. One consequence is that a large percentage of BMS systems are just used for alarms.

Moving away from proprietary systems, that price point is now closer the $150 mark per month including maintenance, allowing thousands of sensors to be deployed for the same price.  This opens the possibility of not just a finer level of control in more locations but an increased ability to diagnose system wide issues.

In addition, the advent of new communication technologies in the form of Low Power Wide Area Networks is facilitating cheap secure communication without the need for wiring. The cost of data wiring is prohibitively expensive and wireless connection with low power devices that can run on a battery for years has been a game changer. There are other benefits as well, including LPWAN’s superior performance in building penetration, inbuilt security protocols and much longer battery life.

Large BMS vendors have been responding to the challenge with their own versions of the “Industrial Internet of Things”, opening up their devices to be more interoperable with other systems and trading off their brand recognition to maintain market share. However, the procurement process remains the same with all the associated issues around the lowest cost tendering process and the adversarial relationships arising from dealing with faults during the Defects Liability Period.

With the coming of IoT and all the associated start-ups, the competitive landscape has been radically altered. These challengers are now looking to escalate the challenge by upending the entire business model of the BMS industry – by doing away with set price contracts and delivering BMS as a service.

One such company is Blue IoT, a Melbourne-based company that is now offering building management systems as a service, or more precisely, Software Data Analytics as a service. Blue IoT will be delivering a webinar to the Engineers Australia Applied IoT Engineering Community on 6 March 2018.

Under this startup’s new business model, the client pays no upfront fee for the sensors or whatever associated building services such as HVAC that are included as part of the contract (depending if it is a new install or a refurbishment). Rather, the costs are absorbed in monthly service fees that include all maintenance and optimisation of the system. Importantly the service includes a human layer where data coming back from the system is analysed by electrical, mechanical and controls engineers who specialise in determining root causes of issues and fixing the problem the first time.

The crux of this new business model is a guarantee that the system will deliver specified savings (if the project is a refurbishment) or function at an agreed performance level. If the system does not there are associated penalties for the service provider. Another big change is that the client owns the data and, if it serves out the agreed contract span, it also take ownership of the sensor and actuator hardware which is all non-proprietary. This allows the owner to change service providers if they wish, but of course the service provider will be doing their level best to keep their business.

At the heart of this model is a move away from the adversarial relationships that have plagued the building industry. In an upcoming webinar (see below), Blue IoT founder Bob Sharon will explain how tenders are typically awarded on the basis of lowest price there is typically no margin for error – either in the delivery of the product or in the original specification. What results in buck passing from the lead contractor right down to the smallest suppliers and back to the client if they dare to ask for the smallest change to the original spec. With a service model, the building services integrator is completely incentivised to deal with all the problems and get the system performing at the highest level.

There are a number of beneficial side effects arising from this change in responsibility for system performance. Typically, facility managers would see alerts relating to a particular part of the system, say a pump, and call the relevant contractor to fix it. However, the root cause of the problem may be elsewhere in the system and facilities mangers are not typically experts in diagnosing problems in what are increasingly complicated systems.

However, service providers have the benefit of being able to collate data across the hundreds or thousands of different building management systems and sensors they manage and develop expertise not only in diagnosis but in preventative maintenance. A key game changer in service based IoT solutions is that all data is typically uploaded to the cloud where big data analytics can be usefully deployed to pro-actively monitor and optimise smart buildings and cities. Over time, machine learning will play an increasing a role in analytics, delivering a step change in performance. It is these kinds of IoT technologies that give service providers the confidence to offer performance guarantees.

This paradigm shift of turning products into a service is at the heart of the IoT revolution. We see it over and over again in the most successful IoT startups. Swimming pool filtration systems are now being delivered free in return for a service contract guaranteeing crystal clear water quality. Garbage bins can be delivered free to Councils in return for a service contract guaranteeing they will be emptied just before they reach capacity. Success is rooted not just in technological innovation but in the reimagining of business models.

Dr Tim Kannegieter is the Knowledge Manager at Engineers Australia charged with sharing knowledge around emerging technologies. 

[Heath Raftery]

Yes, it is so often the case that the benefit of a capital purchase is not the presence of capital itself, but the impact of that capital if properly managed. In those cases it doesn't make sense for a customer to purchase something they have no relationship with. BMS customers don't want thermometers, they want efficient climate control. Smart Parking customers don't want an array of sensors, they want data. Farmers don't want to manage ultrasound sensors, they just want to know if their tank has run dry. If you sell a widget, then you're incentivised to sell more widgets, even if that's a non-optimal way to solve the problem. But if you sell a service then you're incentivised to make that as effective as possible.

 

But it does require a bit of future thought from both the customer and the supplier - at least with a capex the customer can say I'm willing to risk $x dollars, hope to break even in y years and after that is a bonus. Where as deciding to sign up for a service means you have a future risk of that service degrading or increasing in price or requiring on-going negotiation. Similarly for the supplier - selling at a margin means you can start at one and grow from there. Selling a service means taking a hit on the first few years until (hopefully) the economies of scale start to work in your favour.

 

I'm starting to think that given the onus on the supplier to maintain service levels, provide updates and continually chase the security rabbit, that offering a service scheme is the only responsible thing to do. And that building in succession clauses that protect the customer from unforeseen changes will begin to be expected.

 

So my question is, how long are you willing to bankroll the customer's purchase to provide a competitive upfront price? And what is your incentive to stick with a non-proprietary solution?

[Tim Kannegieter]

Great question Heath, If you turn up to the webinar you can ask the question yourself. Otherwise i will ask it for you. Cheers Tim

 

[Vince Simpson]

Hey Tim good discussion topic.

It certainly would be an interesting financial analysis comparing the cost of cloud based service versus a well delivered and managed BMS system and or the wired vs wireless solution. The issues we see appear to be predominantly caused by poorly engineered and commissioned systems coupled with maintenance contracts that do not add value. 

Using wireless sensors and other low cost sensing technologies technologies helps with initial capital cost but does not address the poor engineering and commissioning practices. Whilst I agree the sensing costs have dropped dramatically the financial model needs to take into account the fact that a wired point can last 30 plus years. 

Looking forward to the webinar 

Vince