Calculating Software Process Improvement's Return on Investment

Abstract Many organizations and firms invest in software process improvement (SPI). They do this in order to satisfy business goals for customer satisfaction, time-to-market, cost, quality, and reliability. Return on investment (ROI) is a traditional approach for measuring the business or monetary value of an investment. As such, it can be used for measuring the economic benefit of investing in SPI. Measuring the ROI of SPI is still in its early infancy, in spite of the fact that ROI has been around for many decades and the discipline of SPI itself has also been popular for at least 20 years. It is important to note that ROI is a metric that can be used before and after an investment in SPI. ROI can be used to evaluate (a priori) investment opportunities and make a proper selection and ROI can be used to evaluate (a posteriori) the extent to which an investment was legitimate. Although the value of using ROI for SPI calculations seems self evident, using ROI in practice often proves difficult. In this chapter we provide an overview of how to apply ROI calculations to enhance decision making processes involving SPI. We approach these calculations from two dimensions: modelling and measuring. For each of these dimensions we provide pragmatic approaches for real-life decision making, all illustrated with actual case studies. The chapter contains guidelines, approaches, and experiences on how to do this in practice. It supports making simple but sound financial evaluations when using SPI to improve organizational performance. The main message of this chapter is that ROI can and must be calculated for most SPI investment decisions as a means of ultimately satisfying business goals and objectives. ROI can and should be an explicit part of software management and engineering decision making processes when it comes to SPI, which can minimize effort, costs, and financial investments. Software managers and engineers should include financial considerations such as ROI in their decisions, as well as technical ones, in order to satisfy business goals and objectives for SPI.