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Management wants "ROI" numbers. Now what?

Dreamer
Dreamer
You've done your homework and you know you've come across a great solution (namely Polarion ALM or Polarion Requirements!) that would be a major benefit to your organization. But management wants you to show them the "Return on Investment" ("ROI" in execu-speak). What? You manage development projects, you're not a number juggler. You know Polarion is worth every (Euro or US) cent, but how do you get that across to the boss? Never fear... help is at hand! Polarion has a handy online tool that will help you deliver solid justification for investing in Polarion solutions, and this article will tell you everything you need to know about how to use it. So let's get down to it.

Understanding ROI

Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment and compare it to alternative investments. ROI tells you how and how soon an investment pays back, and how much total return you end up with. In essence, it's a way of gauging BENEFIT in concrete terms. But benefit is different with different investments. For example, suppose you invest in a spiffy new sports car. The only benefit is fun, and the benefit kicks in immediately when you sit in the driver's seat with an empty highway before you. The only person to question the investment is you. (Well, some spouses/"significant others" may have something to say about it too.) But in business, the benefit accrues not to you personally (although your workday may well improve as a result) but to the entire organization, and payback typically takes some time. That's enough background to go on. Let's move on to Polarion's Online ROI Calculator and learn how to use it to justify your proposed investment in Polarion lifecycle management solutions.

Where is it?

The Polarion® ALM™ ROI calculator is here: www.polarion.com.roi/ (Yes, you should bookmark it now!) UPDATE: We now also have a Requirements Management ROI calculator! It works pretty much the same as the ALM ROI calculator described in this article and shows you your potential return on investment with Polarion® Requirements™. Visit http://www.polarion.com/roi/roi_rm.php.

How to Calculate ROI

Start by selecting a currency. Euro (EUR) is the default, but you can switch to US Dollar (USD) by clicking the currency switcher icon at the top. Just click on the currency you want to see. Currency Switcher Now comes the fun part: data entry. An old dusty rule applies here: no output without input. So, please go out and gather numbers to fill out the few data fields of the ROI Calculator. Here's what you need:
  1. Team size by roles. If you don't have exact numbers, use your best guess. In smaller organizations where some people may fill more than one role, just pick one role for them. Team Size
  2. Average daily cost of a person in a specific role. Again, if you don't have exact figures make you best estimate, or use our presets, which are based on an average experience with different industries. Average Daily Cost
  3. Total number of working days per year. Your company's internal accounting department generally should know this for your organization. The number of working days varies among countries and companies. 200-210 is a good number to start with. It reflects an average for Western countries.Working Days
  4. Expected productivity gain. Choose an item from the list. Some explanation is in order for this one. Application Lifecycle Management embraces a number of disciplines or processes, like bug tracking, requirements management, task management etc. The ALM Level expresses how many of those disciplines have already been implemented and integrated with each other in your organization, resulting in some productivity gains. ALM Level Productivity Gain Now, you'll probably ask why Polarion Software is claiming that a broader coverage of ALM disciplines results in higher productivity? My experience in numerous rollout projects with real companies in different industries brought us to this schema of different ALM Levels and productivity gains. Level 3, with an implementation of Requirements and Test Case Management is the default because the majority of our new customers start in this level.I'll explain more details on this subject in a future article. (Please subscribe to our Twitter channel to keep track on postings from Polarion Software - http://twitter.com/PolarionNews)

Push the Button!

After the sweat job to get all the numbers and fill out the fields it's time to harvest the fruits of your effort. Click the “re-calculate” button. Recalculate The inner wheels turn, the numbers crunch, and the tasty results are served up on the calculator page. Let's look at them and understand what we're seeing.

What the results mean

The ROI Calculator presents some numbers, based on your company's current ALM Level, that your management might be interested in. License Cost ROI at ALM Level 2 It's pretty clear that the rows show what kind of return the company is looking at for the first through third years. Let's look closer at what each of the columns means.
  • Cost / user The cost per user, which breaks down the total investment in licenses and maintenance to a single user level. Who would have thought? Based on our named user license prices for the Polarion ALM Enterprise license.
  • Total cost Same number again, but related to enter organization. You will see a big leap in ROI from the first to the second year, when maintenance will be the only investment. Bring this to your management's attention!
  • EPG Expected Productivity Gain for the year when you invest and subsequent years. The numbers scale from lowest to highest limit defined through selected ALM Level. Polarion assumes that you increase your productivity each year by moving more and more ALM disciplines under Polarion ALM’s blanket.
  • Ø Prod. gain/day Average productivity gain per day shows you how much cost your organization saves per day across all roles involved in your development. Bring this number to your management’s attention.
  • Prod. gain total Productivity gain total expresses how much cost your organization saves annually. Show your management this number!
  • ROI Return on Investment is a result derived from the column “Productivity Gain Total” and your annual investment in Polarion ALM. Really push this number to your management’s attention!
In the example shown, in the first year alone you already generate a profit of €25.200 above your total initial investment of €150.570. Profit in the following years is significantly higher. That's some serious benefit to the old Bottom Line that ought to make even the most tight-fisted manager sit up and take notice!

Need a hand talking to the boss?

Once you crunch your numbers and convince yourself, if you're still not comfortable presenting this kind of information and would like some help convincing your management- just let me know. I and my team of engineers have years of experience working with with all kinds of companies in a variety of industries, and we'll be glad to give you a hand. Just write to sales at polarion.com or call one of our offices to get started.
About the Author Robert Neher is Polarion's VP Sales. He has extensive experience helping a wide variety of companies in different industries acquire information technology solutions that help them become more efficient, productive, and profitable. You can read Robert's management profile at http://www.polarion.com/company/people/index.php
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2013 at 7:38 am... » Management wants ?ROI? numbers. Now what? - Polarion Software Weblog...