ROI for Software Improvement

Return on Investment (ROI) is used to quantify the financial return of an investment. In more technical terms, ROI is the value developed by comparing program costs to benefits, measuring the magnitude of benefits relative to costs, the net benefit after expending some level of resources, or profit computed by dividing net income by assets used.

A basic model to estimate ROI for software process improvement (SPI) methods, as well as, a complete process to apply these simple equations, are described in an online article by David Rico at: <http://www.tickit.org/ti4q02.pdf>.

The ROI model consists of two basic equations:

1. Benefit/Cost Ratio (B/CR): B/CR is a simple process of dividing the benefits of SPI by the costs.
2. Return on Investment (ROI%): ROI is similar to the B/CR equation, except the costs of SPI are subtracted from the benefits of SPI before dividing by the costs.

The referenced article shows software managers and engineers how to estimate ROI early, quickly, and accurately by applying practical top-down methods for rapidly producing authoritative estimates of ROI for popular approaches to software process improvement (SPI). The methods in the article include:

Inspection: The software inspection process is a highly-structured and facilitated group meeting to objectively identify the maximum number of software defects, with the purpose of improving software quality.

PSP: The Personal Software Process (PSP) is a training curriculum to teach simple, but powerful techniques, in software project management and quality management.

TSP: The Team Software Process (TSP) is an extension of PSP, which introduces group software project management techniques versus the individual focus taught by PSP.

SW-CMM: The Software Capability Maturity Model (SW-CMM) is basically a supplier selection model to evaluate and select software contractors that practice minimum software project management techniques.

ISO 9001: ISO 9001, like the SW-CMM, is a supplier selection model created to evaluate, identify and select suppliers that practice minimum quality management techniques.

CMMI: The Capability Maturity Model Integration (CMMI), the newest version of SW-CMM, is also a supplier selection model to evaluate and select systems engineering contractors that practice minimum systems engineering management techniques.

Based on industry data, Rico calculated these impressive return on investment and benefit/cost ratios:

Improvement MethodROIB/CR
1. Software Inspections3555%37:1
2. Personal Software Process3104%32:1
3. Team Software Process1351%14:1
4. Software CMM1330%14:1
5. ISO 9001  739%  8:1
6. CMM – Integration  425%  5:1