These aren’t the ROI’s you’re looking for, or, “ROI: ¯\_(ツ)_/¯”

I have a larger piece on common objections to “cloud native” that I’ve encountered over the last year. Put more positive, “how to get your digital transformation started with a agile, DevOps, and cloud native” or some such platitudinal title like that. Here’s a draft of the dread-ROI section.

The most annoying buzzkill for changing how IT operates (doing agile, DevOps, taking “the cloud native journey,” or whatever you think is the opposite of “waterfall”) is the ROI counter-measure. ROI is a tricky hurdle to jump because it’s:

  1. Highly situational and near impossible to properly prove at the right level — do you want to prove ROI just within the scope of the IT department, or at the entire business-level? What’s the ROI of missing out on transitioning Blockbuster to Netflix? What’s the ROI of a mobile app for a taxi company when Uber comes along? What’s the ROI for investing in a new product that may or may not work within three years, but will save the company’s bacon in five years?
  2. Compounded by the fact that the “value” of good software practices is impossible to predict. Drawing the causal lines between “pair programming” and “we increased market-share by 3% in Canada” can be a hard line to draw. You can back-think a bunch of things like “we reduced defects and sped up code review time by pairing,” but does that mean you made more money, or did you make more money because the price of oil got halved?

In my experience, when people are trying to curb you on ROI, what they’re asking is “how will I know the time and money I’m going to spend on this will pay off and, thus, I won’t lose time and money? (I don’t want to look like a fool, you see, at annual review time)”

What they’re asking is “how do I know this will work better than what I’m currently doing or alternatives.” It also usually means “hey vendor, prove to me that I should pay you.”

As I rambled through last year, I am no ROI expert. However, I’ve found two approaches that seem to be more something than nothing: (1.) creating a business case and trusting that agile methods will let you succeed, and, (2.) pure cost savings from the efficiencies of agile and “cloud native.”

A Business Case

A business case can tell you if you your approach is too expensive, but not if it will pay for itself because that depends on the business being successful.

Here, you come up with a new business idea, a product, service, or tweak to an existing one of those. “We should set up little kiosks around town where people can rent DVDs for a $1 a day. People like renting DVDs. We should have a mobile app where you can reserve them because, you know, people like using mobile. We should use agile to do this mobile app and we’re going to need to run it somewhere, like ‘the cloud.’ So, hey, IT-nerds, what’s the ROI on doing agile and paying for a cloud platform on this?”

In this case, you (said “IT-nerds”) have some externally imposed revenue and profit objectives that you need to fit into. You also have some time constraints (that you’ll use to push back on bloated requirements and scope creep when they occur, hopefully). Once you have these numbers, you can start seeing if “agile” fits into it and if the cost of technology will fit your budget.

One common mis-step here is to think of “cost” as only the licensing or service fees for “going agile.” The time it takes to get the technology up and running and the chance that it will work in time are other “costs” to account for (and this is where ROI for tech stuff gets nasty: how do you put those concerns into Excel?).

To cut to the chase, you have to trust that “agile” works and that it will result in the DVD rental mobile app you need under the time constraints. There’s no spreadsheet friendly thing here that isn’t artfully dressed up qualitative thinking in quantitate costumes. At best you can point to things like the DevOps reports to show that it’s worked for other people. And for the vendor expenses, in addition to trusting that they work, you have to make sure the expenses fit within your budgets. If you’re building a $10m business, and the software and licensing fees amount to $11m, well, that dog won’t hunt. There are some simple, yet helpful numbers to run here like the TCO for on-premises vs. public cloud fees.

Of course, a major problem with ROI thinking is that it’s equally impossible to get a handle on competing ways to solve the problem, esp. the “change nothing” alternative. What’s the ROI of how IT currently operates? It’d be good to know that so you can compare it to the proposed new way.

If you’re lucky enough to know a realistic, helpful budget like this, your ROI task will be pretty easy. Then it’s just down to horse trading with your various enterprise sales reps. Y’all have fun with that.

Efficiency

Focus on removing costs, not making money.

If you’re not up for the quagmire of business case driven ROI, you can also discuss ROI in terms of “savings” the new approach affords. For things like virtualizing, this style of ROI is simple: we can run 10 servers on one server now, cutting our costs down by 70–80% after the VMware licensing fees.

Doing “agile,” however, isn’t like dropping in a new, faster and cheaper component into your engine. Many people I encounter in conference rooms think about software development like those scenes from 80s submarine movies. Inevitably, in a submarine movie, something breaks and the officer team has to swipe all the tea cups off the officer’s mess table and unfurl a giant schematic. Looking over the dark blue curls of a thick Eastern European cigarette, the head engineer gestures with his hand, then slams a grimy finger onto the schematics and says “vee must replace the manifold reducer in the reactor.”

Solving your digital transformation problems is not like swapping “agile” into the reactor. It’s not a component based improvement like virtualization was. Instead, you’re looking at process change (or “culture,” as the DevOps people like to say), a “thought technology.” I think at best what you can do is try to calculate the before and after savings that the new process will bring. Usually this is trackable in things like time spent, tickets opened, number of staff needed, etc. You’re focusing on removing costs, not making money. As my friend Ed put it when we discussed how to talk about DevOps with the finance department:

In other words, if I’m going to build a continuous integration platform, I would imagine you could build out a good scaffolding for that and call it three or four months. In the process of doing that, I should be requiring less help desk tickets get created so my overtime for my support staff should be going down. If I’m virtualizing the servers, I’ll be using less server space and hard drive space, and therefore that should compress down. I should be able to point to cost being stripped out on the back end and say this is maybe not 100% directly related to this process, but it’s at least correlated with it.

In this instance, it’s difficult to prove that you’ll achieve good ROI ahead of time, but you can at least try to predict changes informed by the savings other people have had. And, once again, you’re left to making a leap of faith that qualitative anecdotes from other people will apply to you.

For example, part of Pivotal’s marketing focuses on showing people the worth of buying a cloud platform to support an agile approach to software deliver (we call that “cloud native”). In that conversation, I cite figures like this:

  • Developers [at Allstate] used to spend only 20% of their time coding and now it’s closer to 90%
  • A federal government agency wanted to save money on call-centers by converting the workflow to a web app. They’d scheduled to complete the project in 9 months, but after converting to agile delivered it in 6 weeks.
  • When doing agile, because testing is pushed down to the team level and automated, you can expect to reduce your traditional QA spend. In fact, many shops on the cloud native journey have massively eliminated their QA department as a stand alone entity.
  • ING’s savings from transforming to a more cloud-y IT setup: “Investment of €200m to further simplify, standardize and automate IT; Decommissioning 40% of application landscape; Moving 80% of applications to zero-touch private cloud.” Resulting in savings of €270m starting in 2018.
  • From Orange: “Who isn’t happy to continue working when projects are delivered on average six times faster than with a waterfall approach?”
  • “[R]espondents from a recent government study who have already used PaaS say they save 47% of their time, or 1 year and 8 months off a 3.5 year development cycle. For those who have not deployed PaaS, respondents believe it can shave 31% off development time frames and save 25% of their annual IT budget, a federal savings of $20.5 billion.”
  • 14 months down to 6 months, 16 staff down to 8 staff: “[w]hen planning the first product developed on Pivotal Cloud Foundry, CoreLogic allocated a team of 12 engineers with four quality assurance software engineers and a management team. The goal was to deliver the product in 14 months. Instead, the project ultimately required only a product manager, one user experience designer and six engineers who delivered the desired product in just six months.”
  • “We did an analysis of hundreds of projects over a multiyear period. The ones that delivered in less than a quarter succeeded about 80% of the time, while the ones that lasted more than a year failed at about the same rate. We’re simply not very good at large efforts.”
  • From a 1999 study: “software projects that use iterative development deliver working software 38% sooner, complete their projects twice as fast, and satisfy over twice as many software requirements.”
  • After switching over to “the new way,” one large retailer has already seen 80% Reduction in cycle time and scope and reduced cycle time from 123 days to 23 days.
  • One large insurance company can now manage 1,500 apps with just two operators. There were many, many more before that. Another large bank could manage 145 apps with just 2 operators, and so on.

In most of these cases, once you switch over to the new way, you end up with extra capacity because you can now “do IT” more efficiently. Savings, then, come from what you decide to do with that excess capacity: (a.) doing more with the new capacity like adding more functionality to your existing businesses, creating new businesses, or entering new markets, or, (b.) if you don’t want to “grow,” you get rid of the expense of that excess capacity (i.e., lay-off the excess staff or otherwise get them off out of the Excel sheet for your business case).

But, to be clear, you’re back into the realm of imagining and predicting what the pay-off will be (the “business case” driven ROI from above) or simply stripping out costs. It’s a top-line vs. bottom-line discussion. And, in each case, you have to take on faith the claims about efficiencies, plus trust that you can achieve those same savings at your orginizations.

With these kinds of numbers and ratios, the hope is, you can whip out a spreadsheet and make some sort of chart that justifies doing things the new way. Bonus points if you use Monte Carlo inspired ranges to illustrate the breadth of possibilities instead of stone-code line-graph certainty.

Everything is up when there’s no bottom

As an added note of snark: all of these situations assume you know the current finances for the status quo way of operating. Surely, with all that ITIL/ITSM driven, mode 1 thinking you have a strong handle on your existing ROI, right? (Pause for laughs.)

More seriously, the question of ROI for thought technologies is extremely tricky. In that conversation on this topic that I had with Ed last year, the most important piece of advice was simple: talk with the finance people more and explain to them what’s going on.

That’s the most effective (and least satisfying!) advice you get about any of this “doing things the new way” change management prattle: whether it’s auditors, DBAs, finance, PMO people, or whoever is throwing chaff in your direction: just go and talk with them. Understand what it is they need, why they’re doing their job, and bring them onto the team instead relegating them to the role of The Annoying Others.

Check out another take on this over in my September 2016 column at The Register.

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