Chapter 4. Making the ROI Case

One of the first things that is asked of any new project in a modern IT department is that a cost benefit analysis be created to determine if the investment of time and resources makes sense. This takes many forms, but at many companies the idea of return on investment, or ROI, is king.

Management's goal in asking for an ROI analysis is simple: explain why an open source project (or any other project) is going to help the organization succeed by increasing revenue or saving money. Technologists frequently are annoyed by the request to analyze ROI, for several reasons:

• It is hard to create a defensible approach. The results of almost any ROI analysis can be changed massively, by adjusting assumptions.

• Intangible benefits, such as flexibility or creating a simpler architecture, are frequently undervalued or are not included.

• Besides reducing technical costs, technologists have difficulty making reasonable estimates about how the new technology will increase revenue.

Despite these difficulties, ROI is here to stay, and almost every IT department that intends to use open source must figure out a way to determine the ROI of open source. Reasonable managers will not give open source a pass on faith. This chapter will provide an informal guide to analyzing the ROI of using open source.