Calculating ROI on your Investment in Requirements Management Tools

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Summary:

There's no question that a commercial Requirements Management tool is very useful; but, can it pay for itself at your company? In this article we'll look at a model to help you calculate ROI on Requirements Management tools.

Overview of ROI
Return On Investment (ROI) is a popular method of measuring the success of process improvements and IT investments. It is a measure of the dollars returned on dollars invested. As Jeffery E. Payne points out in his article "Quality Meets the CEO: How to Get Management Buy-in," ROI is an effective approach for arguing the need for, or demonstrating the success of, process improvements and IT investments.

Though there are a number of methods of calculating ROI, one straightforward, simple to understand method is the Benefit to Cost Ratio, which is simply dividing the benefits in dollars of process improvement or IT investment by the costs. Benefit to Cost Ratio = Benefits/Cost. So, a Benefits to Cost Ratio of say, three, would mean that for each $1 spent on the cost of process change and IT, $3 in benefits were realized.

In doing an ROI assessment, typical sources of cost include:

  • IT investments, including ongoing maintenance
  • Training staff in new processes and IT tools
  • Consulting needed to assist process change and IT installation
  • Recurring cost associated with new process and IT

Typical benefits that are considered in an ROI assessment include:

  • Increased revenue, e.g. increased sales, or sales margins
  • Retention of sales that would otherwise have been lost
  • Reduction in operating expense, e.g. daily time savings, eliminated rework

Let's look at how to do a Benefit to Cost model for process change and IT investment of putting a requirements management tool in place at your company. Though this model was developed in conjunction with the rollout of a commercial tool, it should be readily adaptable to development and rollout of "home grown" tools.

Requirements Management Tools
Requirements Management tools are to requirements what Defect Tracking Tools are to defects. They provide an environment for, and database approach to, managing large numbers of requirements related in potentially complex ways (traceability). Requirements tools provide continuity through time, across projects, through staff changes, and through company re-orgs. They are a corporate memory for requirements.

In a project, setting a Requirements Management tool is used in a number of contexts:

  • Planning the scope of a release, or a series of releases (key in iterative, incremental projects)
  • Managing plan execution: who is responsible for what, when
  • Tracking project status
  • Change control of scope, particularly in evaluating the impact of proposed changes (this is where traceability of requirements is critical)

For a large company, dealing with thousands of requirements, moving to a database approach to managing requirements, allows a metrics-based management of requirements that is simply not practical with paper document-oriented approaches.

Calculating the ROI
No question that a requirements management tool is very useful, but can it pay for itself at your company? In his paper Calculating Your Return on Investment from More Effective Requirements Management , Dean Leffingwell advances this model for estimating ROI (numbers are from his example):

One can then make an argument that if the requirements management process was improved by say 10%, that is a cost savings of $504,000 x 10% = $50,400. If the cost of process improvement (e.g. training), plus tool purchase was a total of $19,900 (again, numbers from his example) then the Cost to Benefit Ratio is $50,400 / $19,900 = 2.53.

The model I will present here is a bit different from Leffingwell's; it will provide specific improvements one might expect from installing a requirements management tool. I will then try to quantify the benefits from that perspective. The model is based on one I developed for a company of about 500 R&D staff, 1000 employees overall. The tool, a commercially available

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User Comments

1 comment
Moshe Suberri's picture

Your ROI assumptions include the cases in which requirements are not written down and are not circulated between the stakeholders. <br/><br/><br/><br/>What do you think an RMS ROI will be in a company that is using using ms-word/excel, e-mail, and document management system to specify, distribute, store, and track requirements?<br/><br/><br/><br/>Moshe Suberri

May 21, 2008 - 3:40pm

About the author

Richard Denney's picture Richard Denney

Richard Denney is the author of Succeeding with Use Cases: Working Smart to Deliver Quality, part of Addison-Wesley's Object-Technology Series. Richard has 25 plus years experience in software development and process management. He's also has experience as a principal in process improvements for some of the oil industry's largest software solutions suppliers: the Texas State Office of the Attorney General, and several Fortune 500 companies as a consulting affiliate of TeraQuest Metrics (software process component of Borland) and SAIC.

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