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05/06/2005
August, 2005
Calculating the ROI of
Open Source: How to
Build Your Own Model
1
Robert M. Lefkowitz (a/k/a r0ml)[email protected]
05/06/2005
the trouble with computers
US productivity declined as
information technology investment
increased
Output per capital dollar declined
from 1960 to 1990
Return on assets decreases as IT
expenditures as percent of revenue
increase
Shareholder returns decreases as
IT expenditures (per employee or as
a percent fof revenue) increases
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the squandered computer
Among top ranking firms only six
percent of the CIOs report directly
to the CEO.
For bottom ranking firms this
number is nineteen percent.
Corporations with large IT budgets
are almost twice as likely to be
among the bottom ranking firms.
Corporations with smaller IT
budgets are more than twice as
likely to be among the top ranking
firms.
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roi?
Return on investment (ROI) is no longer seen as a key indicator of what does
and what does not make technology investments work, a poll of 400 IT and
financial directors in the UK has shown.
The Unisys-sponsored research showed that there is still a significant job to be
done in business to first identify and then understand how the contribution and
success of technology to the business is best evaluated. Brian Hadfield. MD of
Unisys UK told ComputerWire that ROI is best viewed as a "trailing indicator."
http://www.theregister.co.uk/2002/07/09/roi_faulty_as_measurement/
Executives polled for the survey see value in the ability of IT to increase
customer satisfaction, improve information access or allow better knowledge
sharing. Innovation, improved revenue and reduced costs were not seen as
being closely tied to the IT function, however, turning on its head the belief that
technology is best sold on the promise of reduced costs or improved revenue.
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Return On Investment
Investment
The costs (denominator)
Can usually be calculated from current / historical data
Most organizations don�t collect this data
�when asked to calculate their specific Linux and Windows capital expenditure and maintenance costs, 75% on average, could not answer explicit questions.� --(Source: Yankee Group, 2005 North American Linux Windows TCO Comparison Report Part 1, April 2005)
Return
The benefits (numerator)
Usually projections -- and harder to quantify
Most organizations don�t collect this data either
Benefits may be difficult to attribute in retrospect
For technology swaps, benefits tend to be �lower TCO�
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ROI/TCO narratives
cheaper hardware
no licenses
better development methodology
lowered support and maintenance costs
less risk of failures
better staffing
creating a platform
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cheaper hardware
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cheaper hardware
migration from SPARC (or other expensive Unix machines) to low
cost Intel/AMD hardware -- 10x to 30x savings
server consolidation onto the Z-series platform -- memory
utilization
expensive SAN / Warehouse storage replaced by inexpensive
storage clusters
terminal servers / kiosks / POS devices using repurposed aging
machines, or lower-end new machines
PBX / IVR replacement
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Sun�s latest: the NPV of $30/month over 36 months (5%) is $1000.
Hence, an Intel computer can be viewed as a $30/month/desktop expense.
if a help desk ticket is $275/call, then a computer costs the same as one help
desk call / year. Or, the ROI of buying a second computer if it would eliminate
two help desk calls per year is excellent.
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no licenses
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no software licenses
less asset management overhead
http://www.infoworld.com/article/04/03/12/11FElicense_1.html
700 software licenses
�Just doing the annual �true-up� � inventorying apps and making sure Cingular has the right number of licenses for its users � was largely a manual task requiring more than 200 people.�
drop-in replacement for existing licensed product
no licenses required for new applications
ELAs create license overhang
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Everybody Nose
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Bozo Nose Deals
50,000 people x 4 noses/year@ $1 / nose w/ 35% discount
=$130,000/year
saves $70,000/year
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A Nose for Value
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Total Cost
FURLPoUU*
= RR**
* = Full Undiscounted Retail List Price of Units Used
** = R0ML's Ratio
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Who Nose?
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RR > 1 ?
RR = 1 ?
RR < 1 ?
05/06/2005
mainframe to windows
http://search390.techtarget.com/originalContent/
0,289142,sid10_gci1096735,00.html
Lombard, based in Toronto, is in the midst of a company-wide initiative to migrate approximately 15 to 20 applications off z/OS to the Windows Server 2003 operating system and SQL Server 2000. The company estimates the move will save it over $1 million a year as the software licensing slice of its overall IT budget will drop from 12% to 2-4%.
Part of the future Howling envisions includes bringing in new talent, which likely won't have a strong mainframe skill set. "We've outlived and outgrown the mainframe," Howling said. "With [recent] graduates, you start talking mainframe and they're not interested � that's where my talent pool is coming from, and they won't be learning COBOL in universities."
For the Lombard migration, Micro Focus International Ltd. chipped in with software that allowed Lombard to re-host mainframe applications on new boxes. And though the company is working closely with Microsoft, Micro Focus is not hell-bent on driving customers away from the mainframe, said Mike Gilbert, Micro Focus' vice president of marketing and director of product strategy. It's all about choice, he said, and besides, Micro Focus knows that most large mainframe customers aren't migrating anytime soon.
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better development methodology
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better development methodology
spread development costs through collaboration
longer time to market
more eyeballs makes bugs shallower
more costly but better quality
scripting languages are more productive
frameworks are more scaleable
source code management tools are better
building is easier than buying
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Capers Jones: MIS Software Activities
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Activity Effort Percent
Requirements 111 3.66%
Initial Design 100 3.29%
Detail Design 133 4.38%
Coding 555 18.28%
Reuse Acquisition 10 0.33%
Config Management 40 1.32%
Documentation 133 4.38%
Unit Testing 500 16.47%
Function Testing 435 14.33%
System Testing 400 13.18%
Acceptance Testing 286 9.42%
Project Management 333 10.97%
3036 100.00%
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Capers Jones
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Stage Cost/
Capita
Months Defects Producti
vity
Schedule
Assessment $150 3
Management $3,500 9 -10% -10%
Process $3,000 9 -50% 25% -15%
Tools $5,000 9 -10% 35% -15%
Infrastructure $3,000 9 -5% 10% -5%
Reuse $4,500 12 -85% 65% -50%
Leadership $3,000 9 -5% 5% -5%
Reusability has the best ROI of any technology, but effective reuse is not a game
for amateurs. If your quality control is not top notch, then you will be reusing
garbage, and your costs will go up instead of down.
Efforts to reuse only source code do not have a particularly good ROI. Coding is
only the fourth most expensive activity when building large software applications,
and ranks behind the construction of paper documents, defect removal
activities, and even behind meetings and communication for some systems.
05/06/2005
ROI for inspection
software process improvement
inspections reduce maintenance hours.
costs are training, then implementation
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http://www.softwaretechnews.com/stn5-4/inspections.html
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lowered support and maintenance costs
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lowered support and maintenance costs
ubiquitous monitoring
support and maintenance aggregation
using non-commercial resources
market competition
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http://liberty.remedy.com/arsys/magic/magic_roi.jsp
Cost per help desk call:
self help: $5
Level 1: $25
Level 2: $100
Level 3: $275
http://www.diagnosticstrategies.com/benchmarking.htm
help desk
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less risk of failures
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less risk of failures
ability to fix problems
better security through auditability
less vendor risk
product withdrawn
company failure
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better staffing
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better staffing
access to community
the �Summer of Code�
employee benefit
lower training costs
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creating a platform
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creating a platform
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even if you know how, it isn�t easy
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