Tech Views: Return-On-Investment: The Return Comes Later, The Investment is Now

by Tom McGibbon, DACS Director

In my 20+ years of experience of software development and dealing with executives of software companies, there are three things that I've observed:

1. Executives are motivated by their compensation and bonuses (as are most of us). Executive's compensation is tightly tied to their organization's performance this year, not next years or the year after. Any proposed improvement that requires an investment in which the return does not materialize on the bottom line for several years is viewed negatively compared to proposals with more immediate returns.

2. Executives have more proposed investments than they can fund. Any software process improvement proposal needs to stand out positively compared to the alternatives.

3. Technically oriented people do not know how to justify investing other people's money. We, as technical people, know intuitively that software process improvement makes sense. We know it will improve the quality of our and our fellow software developer's software and will produce a product that we will all be proud of. So why don't the executives see that it is intuitively obvious that these improvements make sense? Why do I have to go through this exercise?

   The above observations suggest to me that we in the software industry need to be able to deploy process improvement in such a way that returns are observed sooner than later. Second, the returns have to be huge and obvious - they can not be subtle. We have to be able to say to senior management something like "If we make this software weigh less by using modern and more reliable software materials, we will save thousands of dollars per copy for every software ounce removed." And third, technically simple Return-On-Investment (ROI) tools and models are needed for building the business case for any proposed technical improvement.

   Obviously we are a long ways from being able to do any of this - software is still a very intangible entity to many. But I believe that we need to begin the dialog between the technical, management, and business people to come to a common understanding and appreciation of process improvement in the software industry.

   Since I published my "A Business Case for Software Process Improvement" report (www.thedacs.com/techs/roispi2/), many people have expressed interest in additional Return-On-Investment (ROI) from software process improvement (SPI) data. A general problem is the lack of publicly available data on the benefits from SPI that people can apply to their own situation. A limited amount of data is available in the open literature, as noted by the authors of articles in this issue.

   However most of the data is very sensitive, proprietary information and thus will never end up in the open literature.

   In This Issue

   This particular issue of the DACS Software Tech News is an attempt to begin the dialog between technical and business people on understanding ROI from SPI. We also want to raise the technical communities awareness of cost benefit analysis as it relates to SPI so that technical people can begin to justify improvement to their management.

   The article "Benchmarking the ROI from SPI" describes some additional positive results of SPI from real benchmark data. This article highlights the need for additional data I alluded to above.

   The article "The Definitive Paper: Quantifying the Benefits of Process Improvement" presents exciting results from a new case study of SPI benefits. It discusses the benefits realized from the use of product lines and systematic reuse. The point about the sensitivity of data I discussed earlier is apparent from this article.

   The article "Making Investment Decisions for Software Process Improvement" provides a framework for evaluating, from an ROI perspective, process improvement proposals. It demonstrates that we need to understand the business person's perspective.

   "How to Estimate ROI for Inspections, PSP^sm, TSP^sm, SW-CMM,^sm ISO 9000, and CMMI^sm" shows that the benefits of process improvement are very impressive. It provides a step-by-step "How-To" for ROI and benefit calculation.

   Please pass a copy of this newsletter on to your senior management and business people. This is not a newsletter just for the technical folks.

   We at the DACS look forward to your feedback on this important software business issue. Please provide any comments through the DACS website Comment Formor contact me.

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   Author Contact Information

   Tom McGibbon
   DACS Director
   775 Daedalian Dr
   Rome, NY 13441

   Phone: 800.214.7921
   E-mail: [email protected].

   Other ROI Resources In This Issue

   • DACS Data Call for ROI data from Software Process Improvement (SPI) projects. In this newsletter there is a data call from the DACS. The DACS has included a ROI from SPI data collection survey. Anyone participating in this survey will gain access to a searchable database DACS ROI from SPI database. In addition all participants will receive a FREE copy of the DACS CD-ROM entitled "ROI from SPI Products". This excellent resource sells for $50 and includes the DACS ROI database, a working spreadsheet model that allows users to model the cost benefits achievable through SPI, and two technical reports. This first report is A Business Case for Software Process Improvement (Revised): Measuring Return-On-Investment from Software Engineering and Management. This report examines the details necessary to demonstrate the benefits of improved Software Management using SPI techniques from business, profit and loss, and senior management perspectives. The second report, Cost Benefit Analysis for Software Process Improvement, examines a cross-section of popular SPI methods and approaches, prioritizing them by their costs and benefits.

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