You can get your DevOps vehicle as fast and fine-tuned as you like, but until you provide an effective business case to the board it will remain in the garage. To get the thumbs up, you have to prove your model is efficient and makes financial sense for the company as a whole.
Do You Need to Make a Business Case for DevOps?
Coherent business cases are needed for companies at various different stages of their DevOps journey, not just those at the very beginning. Ask yourself which one of these scenarios best suits your current situation:
- You/your CIO know(s) the company needs to become more agile, but you don’t know how to quantify the benefits.
- Your teams have started to implement DevOps practices locally and can see the benefits, but you don’t know how to quantify the success to sell it to management.
- Your organization sees the success of DevOps pilots, but need to justify the investment to bring DevOps to an enterprise scale.
DevOps can represent a huge shakeup of the IT department that must be justified clearly and logically. The risk must be outweighed by the projected financial gain. Crucially, this needs to be quantified in language that finance department can relate to. It is referred to as the hurdle rate: the necessary annual or total return of a project to compensate for the risk.
What Should the Business Case Contain?
- Executive briefing
- Required decisions
- Business drivers
- NPV (Net Present Value)
- Strategic options
Hallmarks of a Successful DevOps Business Case
This is the main benefit of DevOps: the ability to deliver applications faster and allow for frequent changes and adoptions all the way into production. But how do we measure and quantify the benefits of agility?
Time Value of Money
The time value of money expresses the fact that money today is worth more than money tomorrow. The more you have to invest early (instead of over time) and the longer it takes to receive the return, the lower the present value of your investment.
The number you receive when calculating the present value of an investment (benefits minus costs) is called NPV (Net Present Value). It tells you what your future investment is worth today.
With agile and DevOps you are able to develop an application and deliver it to your end user in small chunks rather than in big ones; thus, you will improve the NPV (Net Present Value) of your project even if the total amount of investment and output are the same.
Delivering software continuously rather than yearly creates benefits in the same way as receiving interest on your savings account every day rather than just once a year.
The precise time value of money depends on the average cost of capital a company has to bear. For example, a large, publicly traded company has a lower cost of capital than a small, privately owned one. Your finance department will know it.
Cost of Waste
A second aspect, which speaks for agility in a quantifiable manner, is the reduction of waste.
Functionality delivered using non-agile software engineering practices may be irrelevant or outdated once it reaches the end user because of the time gap and mismatches in requirements and expectations. The cost of such waste can be reduced drastically by using DevOps.
Calculate the benefit of waste reduction using available statistics on the average percentage of functionality used without changes in your applications. It may pay off to assess this number for the last two or three releases delivered.
Take into consideration:
- Total cost of development and delivery of these releases.
- Relative efforts of different functionalities delivered by release.
- Cost of change requests that arrived during and after the release date.
- End-user survey on the need and usability of these functionalities.
Combine the benefit of waste reduction and of frequent delivery and add them as positive future cash flows to your calculation.
You also need to calculate the forecasted costs of your DevOps initiative. Consider:
- Investment in build, test, deploy and provisioning and related operating expenses.
- Investment in IT infrastructure.
- Investment to complement skills in development and operations teams.
- Investment in organizational changes.
- Operating expenses for all above.
- Extra cost of non-automated activities in test, release and deploy due to increased release velocity.
As part of your strategic options in the business case, balance your investments in automation with investments in more resources for build, test and deploy for given agility scenarios. The higher the release velocity, the more build, test and deploy activities are required. The more automation, the less of these activities must be done manually. Visualize in diagrams how the investment in more automation starts to pay off with increasing release velocity.
Finally, sum up positive and negative cash flows and use your company’s hurdle rate to calculate your NPV.
About the Author/Michael Schmidt
Michael Schmidt heads DevOps Practice at Automic, a management and technology advisory service established to help Automic customers to prepare for and transform their organizations toward DevOps. Michael spent his carrier as consultant, entrepreneur and in several product-related leadership positions. He has a passion for building lean IT organizations. Michael holds a joint MBA from New York University, London School of Economics and HEC Paris and a Master of Computing Science.