Analytics for the Internet of Things (IoT)

The value formula

A formula to guide decision making compares the cost of allowing a failure to occur versus the cost to proactively repair the component while considering the probability of predicting the failure:

Net Savings = (Cost of Failure * (Expected Number of Failures - Expected True Positive Predictions)) - (Proactive Repair Cost * (Expected True Positives + Expected False Positives))

If the cost of failure is the same as the proactive repair cost, even with a perfect prediction model, which we know from Chapter 10, Data Science for IoT Analytics is highly unlikely, then there will be no savings. Make sure to include intangible costs into the cost of failure. Some examples of intangible costs include legal expenses, loss of brand ...