Cost benefit analysis is a good tool to estimate the ROI based on investment in software. It is a simple formula that says
Cost/Benefits Ratio = Benefits of the Solution-Product / Service Cost of investment.
This simple looking formula enables ones to calculate the cost of investment against the benefits of the investment.
Let’s say we have two competing product line items one of them being revamping our click and install strategy and the other one being upgrading to a new application server. Let’s say the click and install strategy brings to the table the benefits of a literally one click install and there are no ambiguous things in the installation and every thing that the customer/ install engineer needs to do at site or on the target box is well defined and crystal clear. This is an area which involves folks from different modules to collaborate and provide their inputs to the installation team.
Overall what does this involve : Individual teams ( collect all your artifacts and hand them over to the install team) , install team ( collects these artifacts and includes them in their batch installation process/software reorganizing what comes first and second and so on). Now this simply means two teams at work one team is simply a provider of data having very little to do from their side at least at the start of the program to enable the grand vision of a one click install. The other team is busy with the data obtained from teams and busy fine tuning their install elements and getting the software installation in place. Lets say individual teams put together spent 5 developers ( 2 days ) to flesh out the details and around combined effort of 2 man months ( 5-6 developers from each team fixing the the changes for the single click install – this could have further broken down into consultants / developer partners and members of the company – aggregate the numbers here and total them into man months and convert them to a FTE and say you arrive at 2 man months of effort. If we calculate an 8 hour work week then if the charges are around 300$ per day by some outsourcing company and let’s say the cost to company of a in house developer is 100$ ( minus salary / training / benefits etal) . To keep things simple we say 2 man months was the combined time taken across teams to release this feature meaning a shippable product with rounds of QA thrown in adequate measure.
Cost of spend on one click install = 2 man months * 60 days ( holidays included) * 450 ( Average rate of internal and external teams) = 54,000 $
Lets say check benefits of one click install :
Banks operational staff is cheerful with rolling releases / bug patches and defect fixes. They talk good about your product with other vendors who are SI at a particular engagement.It takes only one of the usual Joe’s to fix and avoids 4-5 people late at nights on friday weekends. ( This is tangible direct revenue can be associated with this / weekend / late night allowance included in happier times else it is sheer push that works from one and all to get the rollout ).The support team uses less cuss words and your effort begets good karma. Wait and watch. Apple effect to follow.Earlier if the rollout took combined effort from several teams for a stretch of days on end and finally breathe easy now you can probably do it in much less time . Tangible value here as well.
On the other hand let’s say the application server install let’s say took 2 people from 5 teams to finish the work internally without outsourcing in 3 weeks time and this adds up to 2 (developers)* 650 (per day rate) * 5*15( days) = 97500 $
Cost of spend on application server migration = 97,500 $ + 50,000$ License fee of the product certified.
Now if you have the product rolled out in different markets then cross sell , up sell opportunities can also add up to revenue. Can this could make up for sunk capital on this feature. But again this would be from a pure financial gain point of view.
Benefits of migration to application server migration :
You are seen as leading technology changes from the front. Customer gets to know from you directly instead of he having to ask you to migrate because the rest of his surround system is already on the new platform and having to pay recurring license on an off the shelf product is becoming expensive and illogical. As you grow bigger your problems are bigger. There was a case in point when someone wanted a feature to be turned OFF in the product, that was in itself a project and not justifiable. Here again technical debt , software craftsmanship and other in the fraternity come in handy if you were pally with them initially.All of this call for a definite method in the madness approach. Do you have teams who look at software delivery like a relay or more like a close knit game were all are involved from start to finish.
Now coming back to the question of tangible benefits it would less memory footprint , better resources and more value for money spent on the hardware boxes. CTO heard less of our investment in X9000 series machines with Y investment still chokes on wednesday at 11.00 am every week. Less memory footprint would indirectly increase CPU responsiveness and provide more head room for multiple applications to work along side without peaking and frozen behaviors. You can arrive at some benefits here in terms of saving and additional hardware resources or if you are in the cloud already think of less pay as you use cases. Some tangible benefits. Attaching precise X dollars is again a challenge as many factors would be involved.
Lets say you have brainstormed internally with your teams and arrived at cost benefit analysis for three solutions at a prototype level and are stuck at which one to pick. Then the following calculation would be useful. But there is usually more to it than just the financial aspect to it as we saw above.
The above is a cost benefits analysis for three competing solutions and solution Y has the maximum benefit to the cost incurred if we were to consider from a pure financial point of view. Most often technology folks are immersed deep down in technology issues and challenges and at times do not see this side of the story. But the decision makers and people who approve the cost of spend on technical projects would need this and additional mechanisms such as PERT ( where probability or chance of success also is a parameter in the calculation ) to arrive at or narrow down the choices before sponsoring the projects. At times we even have rational such as we have some additional folks on bench so lets kick start this project on the side and add value along the turns. In such instances we incur benefits once the software is delivered value realized and when we are able to push the product out there in the market.
There is also the story of twitter , you tube which for the longest time were funded with out any benefits in sight in such cases the above rationale does not hold much weight except of course for making decisions which eventually made up the twitter or you tube. Anyways it is nice to be equipped with this knowledge at some point of time and if you are continuously innovating then obviously the value is hard to calculate and benefits are bound to flow. So know when benefits need to be applied and when innovation culture precedes all then benefits although intangible is an immediate after effect.
Use calculations with the knowledge that you have on systems and then benefits would become easy to comprehend and calculate. So the question remains at large although answered on some fronts.