There’s no easy way to model DevOps ROI
Think you can show DevOps ROI? Think again
“What is the ROI for DevOps?” is a question that has been tossed my way frequently of late. There are numerous reasons why this is at the same time an absurd but also important question.
Modeling DevOps ROI is absurd because predicting the gains and costs of a process, let alone one as new as DevOps, is difficult and dependent on all sorts of unique variables per organization.
However, thinking through DevOps ROI is an important step for adoption because the promises of DevOps are so grandiose and the changes needed sound large and almost impossible to achieve for “normal” people.
That is, DevOps is an unmeasurable process with respect to ROI (it has value, to be sure, but is nearly impossible to measure independently and precisely) and, yet, because “doing DevOps” seems to be such a big change, organizations need assurances that transformation will be “worth it.”
So, if you’re asked to help show the ROI for DevOps, what can you do? Let’s cover three ways to approach the problem. I don’t think any of them are a real answer, but they get closer to satisfying some possible motivations for asking for ROI in the first place.
What is ROI?
First, what is ROI? I misuse economic and accounting terms all the time, but I think of “ROI” as showing the profit you achieve after a given period of time, for our purposes, by doing something new and different with IT: you might buy some new software (running on a cloud platform like Pivotal Cloud Foundry instead of just IaaS), do your software development and delivery differently (like, “doing DevOps”), and so forth.
With ROI, you’re not only interested in the question “does it work,” you’re interested in the question “did this make me money?” Oftentimes, you’re also interested in comparing the costs of competing approaches, or just inflicting vendors with the thrill of “bake offs” and ROI spreadsheet fights.
To figure that basic ROI, you use a brutally simple formula:
(Gain — Cost)/Cost = ROI
You can convert the end result to a percentage if you’re not into the whole decimal thing.
As a simple example, let’s say you sell an app that allows people to track how many apples they eat each day, so they can keep those ravenous doctors out of the way. After it’s shipped for a month, you’ve made $20,000 in sales for the app. To get to that point, it costs them $5,000 in paying for developer time and $5,000 in infrastructure charges (the back-end that analyzes the data, mashes it up with Facebook and Twitter profiles, and then sells that data to the Apple Sellers Association of Tomorrow takes some horse-power and storage!).
So, the ROI for the apple muncher app is:
($20,000 — $10,000)/$10,000 = 100%
A pretty good return on your investment! It’s certainly better than the rate I get on any of my personal investments.
So, what would be the ROI of introducing DevOps to that process? More importantly, how could you predict it? There are many ways to answer the ROI question, including the favorite “that’s a bad question, you shouldn’t want that” which can take on all sorts of subtle and helpful forms. Let’s look at three possible approaches.
1. Bottoms-up ROI: We know everything and have put it in this spreadsheet
If you have clear inputs and outputs — your gains and costs — then things can be realistically simple. This is the favorite approach of ROI spreadsheets: they’ll cost out software license costs, hardware/IaaS costs, and people costs (employees and consultants).
Once you’ve figured out costs, you need to estimate what your gains will be: either based on historic run rates, or, more likely, on a mixture of a prediction and hope for how much you’ll make in the future. Tracking the demand for software can be hard and this estimate is one of the most dangerous parts of this simple method. If all you want to do is track the ROI for saving money, perhaps things are a little easier. And while this implies that you’re not looking to DevOps to support a revenue growth strategy, perhaps that’s good input: if you’re not looking to grow your business, maybe it’s not right for you and will have negative ROI.
You then have to pick a period of time to snap-shot and you just run the math.
Of course, few, if any, of the things you’re costing out here are “DevOps.” You might spend money on a commercial continuous integration tool, on a cloud platform or a DevOps consultant. You’ll certainly spend money on people…but you didn’t really spend money on “doing DevOps.”
You might be tempted to simply ascribe gains to DevOps. “For this release, we were doing DevOps, and we made $30,000 with apple muncher! DevOps brought us $10,000 in new revenue.” But that doesn’t feel right.
Still, if you have a good handle on the costs during some period of time where you were doing DevOps and the gain that resulted from that period of time, you could come up with a bottoms-up ROI analysis. I think it’ll be somewhat dicey since it’s so hard to attribute costs and gains directly to DevOps but, hey, it’s better than either telling people they’re asking the wrong question or its mute cousin: nothing.
2. Were the efforts to change worth it? That is, DevOps is all cost
As you might be teasing out, one of the problems with ROI is that it doesn’t really take time into account. You need to draw clear lines around the time period in which you’re including the factors that create your gains and costs. (If you’re interested in an approach that does take time into account, check out Rex Morrow’s suggestion to use IRR instead of ROI.)
Using this lack of time problem as a generative constraint, you could instead study the ROI of changing to DevOps. What did switching over to DevOps cost us? What did it cost us compared to maintaining our current process state?
Here, you’re taking whatever your regular ROI calculation is and just adding the one-time cost of time and money it took to change to DevOps. Figuring out what your gain is will be problematic. Again, what you’ll be gaining are new capabilities (to deliver software faster and increase your uptime in production); how those contribute to gains is still left as a mysterious exercise to the reader.
Still, if you want to run the numbers on something like “they tell me it will take three months and $50,000 in training and consultants to ‘do the DevOps’” this might satisfy your ROI craving. Again, you’ll need to have a pre-existing ROI at hand to simply plug your DevOps costs into.
3. Pain avoidance and remediation
In the “DevOps is all cost” ROI scenario, we avoided ascribing gain to changing to DevOps. Again, while this is overly simplified, the deliverables of DevOps are to provide a continuous delivery process for your product and ensure that your product has excellent uptime (that is, “it works”). How could you account for the gain of those two desirables? You could create a way of assigning value to the knowledge you gain from weekly iterations about how to improve your product. You could also calculate the savings from avoided downtime.
It’s fun to model-out placing value on the first part, “knowing,” but most people asking for ROI will likely look at that as a “soft” metric and, therefore, not really useful to their “hard”-centric minds. Including money saved (or generated?) by avoiding downtime could be interesting in a point in time (if a trading system goes down, money is lost when no one can trade), but how do you account for it ongoing?
The issue with including DevOps in this “easy” type of ROI calculation is figuring out how much gain and cost to attribute to DevOps.
As with uptime, sometimes it can be easy: before we did DevOps, the system was down two hours a day, now it’s only down five –10 minutes a day, if at all. If there’s a pain you’re seeking to remove, then perhaps this model will work.
Your pain might also be “it takes us too long to deliver software,” which is a common problem for DevOps adopters. If you know how to measure the gain of time to market, for example, then you can do one of these bottoms-up ROI cases: “We were able to deliver a third release of apple muncher in two weeks instead of the six it had been taking. This means we could start charging for the new in-app purchases sooner, gaining us $5,000 more over that two week period.”
If you like this kind of figuring, check out Zend’s suggestion for how to do continuous delivery ROI for some inspiration. Like all “good” ROI calculations, it requires changing ROI around slightly to fit what’s measurable…and some good estimating.
So, can you send me a spreadsheet with all this in it?
I’ve deftly avoided actually giving you anything actionable here. Calculating ROI is a very numbers-, spreadsheet-friendly exercise and any answer should really include at least a starter spreadsheet to get you calculating things. However, as the above hopefully shows, it is indeed the case that asking for “DevOps ROI” is the wrong question. The “ROI” is getting the process and tools in place to create a better product. Obviously, as you rack up the costs associated with DevOps (both in money and time spent), you can start to model the overall ROI of the project versus the revenue and profit you generate, but there’s little DevOps specific about that.
Beyond such obvious answers, when I see people asking for “DevOps ROI,” what we can offer them is over-thinking like the above and examples of it working at organizations. Examples like Allstate and Humana are good mainstream cases, and you can listen in to more on the excellent Goat Farm podcast.
Additionally, I would suggest focusing on looking at DevOps as a continual improvement initiative rather than trying to predict ROI. Much of the problem with figuring out ROI is in having to predict costs and gains. Instead I would try to focus on tracking and trying to improve how you’re doing things in short intervals. In my experience, most organizations devalue the idea of continuously learning and trying to improve their process. Focusing on that might be a better use of time than summoning up a solid case for DevOps ROI.
I’d love to see examples of how you did an DevOps ROI case…or avoided it all together. If we can accumulate enough after-the-fact studies, then at least we could make a “rule of thumb” collection. Leave a comment below!
(I originally wrote this July 2015 for FierceDevOps, a site which has made it either impossible or impossibly tedious to find these articles. Hence, it’s now here.)