Calculating Software Process Return on Investment (ROI) (Elective)

This tutorial covers the Elective area of the Test Management Body of Knowledge (TMBOK) required for the Certified Test Manager (CTM) certification. This tutorial also covers the Elective area of the Certified Software Test Professional requirements.

Concepts

Money is the language of business.  Ultimately, software processes need reliable financial measures to show the value of what’s being done and to make supportable business decisions about alternatives.  Yet, software organizations often don’t know how to identify, calculate, or communicate a process’ or project’s REAL ROI™ (Return on Investment).  Traditional ROI calculations increasingly are being criticized for telling only part of the necessary story. The difficulty is not unique to but often is greatest in areas like IT, where benefits may seem intangible and frequent overruns impact estimates’ credibility.  This interactive workshop shows how to identify full-story key effects on revenue and expense variables, reliably quantify tangible and intangible costs and benefits, and convincingly communicate the business value of current processes and proposed investments.  Exercises enhance learning by allowing participants to practice applying practical techniques to a real case.

WHO SHOULD ATTEND: This course has been designed for process and quality specialists, managers, analysts, designers, programmers, testers, auditors, and users who are concerned about the efficiency and effectiveness of software development and support.

Participants will learn:

• The financial information that business decision makers need and demand
• ROI and related calculations, strengths and weaknesses
• Using ROI Value Modeling™ and Problem Pyramid™ to fully identify relevant costs and benefits
• Quantifying intangibles, risk, flexibility, and opportunity
• Calculating financial measures of both current processes and proposed investments
• Professionally presenting credible business value measurements so people pay attention.

Outline

• WHAT MONEY HAS TO DO WITH IT
  • Situations demanding ROI, their issues
  • Difficulty of making convincing arguments
  • Linking ROI to the business case
  • Value Modeling™ Relationship Diagram
  • Investment vs. expense
  • Justification vs. objective analysis
  • Meanings of “It costs too much”
  • Total Cost of Ownership (TCO)
  • Costs and benefits, revenues vs. expenses
  • Return on Investment (ROI) calculations
  • Net present value, discounted cash flow Payback period, annualized return
  • Internal rate of return (IRR), hurdle rate
  • Issues with typical ROI usage
  • Scenario approach to showing benefits
  • Measuring current and proposed processes
• DETERMINING MEANINGFUL BENEFITS
  • Why it’s important to find the benefits first
  • Treacy’s model of 5 revenue categories
  • Problem Pyramid™ to find requirements
  • Decision variable clarification chain
  • Putting a dollar value on intangibles
  • Opportunity, innovation, and flexibility
  • Mandates, project with no apparent benefits
• ESTIMATING CREDIBLE COSTS
  • Problem Pyramid™ ties costs to value
  • Basing costs on implementation of design
  • Business case framework
  • Basic formula for estimating costs
  • Main causes of poor estimates
  • Top-down vs. bottom-up techniques
  • Risks that afflict ROI calculations
  • Three measurable ways to address risks
  • Best-, worst-, most-likely-case scenarios
  • Sources of parameter sizing assumptions
  • Defining a reasonable scenario for success
  • Getting reliable cost and revenue amounts
• REPORTING AND MONITORING
  • Single vs. multiple scenario presentation
  • Scenario assumptions and parameters
  • No change vs. proposed scenarios’ ROIs
  • Measuring intangibles’ monetary effects
  • Continual, step-wise, and one-time changes
  • Percentage-likelihood impact adjustments
  • Presenting with spreadsheets
  • Caution about commercial ROI calculators
  • Dashboard and scorecard-type notification
  • Capturing, calibrating with project actuals
  • Adjusting appropriately during project