4.3 BenefitCost Ratio

Methods for return on investment (ROI) include benefit, cost, benefit/cost ratio, ROI, net present value, and breakeven point. ROI methods in general are quite easy, indispensable , powerfully simplistic, and absolutely necessary in the field of software process improvement (SPI). It is ironic that ROI methods are not in common practice. The literature does not abound with ROI methods for SPI. The ROI literature that does exist is very hard to locate, appears infrequently, and is often confusing. There are dozens of very complex processes, methods, steps, formulas, terms, and concepts to absorb . In addition, ROI literature never fails to randomly select from dozens of formulas and present them in a haphazard manner. This only confounds the practice of ROI in the field of SPI. However, it is important to note that there are only a few significant formulas. They are small in number, and they are extremely simple to apply. They, of course, include benefit, cost, benefit/cost ratio, ROI, net present value, and breakeven point. In fact, these ROI formulas do not involve more than one or two significant terms or inputs. There are, however, some remaining challenges that must be addressed, and those happen to be the individual terms of these simplistic formulas, namely benefit and cost. Benefit is perhaps the most elusive input into the overly simplistic ROI formula. SPI literature does not abound with hard economic evidence of the benefits of SPI. Many believe there are no benefits, though they are convinced that SPI must plow forward. Most refuse to quantify the costs of SPI, because they are afraid of them. ROI formulas are simple, benefits do exist, and costs must be counted.

4.1 Benefit

Benefit is the amount of money which results from a SPI method. Benefit is the economic value resulting from a new and improved software process. What? Does this mean software processes have an economic value? Yes. Software processes have economic value.

Let's examine a common software process. How about software testing? Software testing is a process of evaluating a software product at the end of a software life cycle. It is done for the purpose of determining whether it satisfies its requirements. For example, let's say that the software is supposed to print a page. You look for the print function and invoke it (e.g., pull down the menu and release the mouse button on the print option). Your laser printer prints the page, and your software passes the test. That seems simple enough. What happens if the software does not print? Well, you have just found a problem, and the software does not pass the test. The requirement is not satisfied.

Does the process of software testing have economic value? Yes. Let's say that the printer problem takes 10 hours to find and fix. The economic value of your printer test is thus $1,000 at an hourly rate of $100. Now let's say that you can find and fix that defect before software testing in only one hour using the Software Inspection Process. The cost is $100. The benefit of the Software Inspection Process is thus $900! It costs $100 to find and fix the printer problem using the Software Inspection Process, whereas it costs $1,000 to find and fix the printer problem using the software testing process. Subtract the cost of the Software Inspection Process from the cost of software testing, and there you have it. While this example may seem overly simplistic, the benefits of the Software Inspection Process get even better. Figure 7 illustrates the formula for benefits.

Figure 7: Formula for Benefits

Benefit is probably the most difficult concept to grasp in the field of SPI. Everything else is simple, including cost. With enough education, experience, and study, even astrophysics can be mastered. Grasp the concept of benefit and you have mastered the field of SPI.