ROI elements of requirements management tools
Requirements Management tools can increase staff productivity, decrease operation costs which leads to better sales performance. Those are general statements but let’s look at the ROI elements of Requirements Management tools.
How Can Requirements Management Tool Pay for Itself at Your Company?
Return On Investment (ROI) is a popular method of measuring the success of process improvements and IT investments. The simplest method is the Benefit to Cost Ratio; this is obtained simply by dividing the benefits by the costs.
In case of Requirements Management tools the following cost-benefit elements can be considered:
|Cost Sources||Benefit Sources|
|IT investments including server, licenses and maintenance costs||Increase sales due to better requirements management, that leads to higher customer satisfaction|
|Training cost of staff||Retention of sales (otherwise have been lost)|
|Consulting, customization, on-site services provided by the vendor||Cost savings, due to time and effort savings – increased staff productivity|
|Cost of implementation of new IT processes and IT staff training for smooth IT operation||Eliminate process risk and inefficiencies caused by not recorded requirements, lost notebooks and lost data.|
How a simple calculation looks like for measuring the efficiency and savings of a better Requirements Management process? (This model is originating from Dean Leffingwell’s: More Effective Requirements Management.)
First you have to count the staffing cost per project, which for our example is 2.400.000 USD. Then count with an industry average of rework as % of project total cost. It is usually 30%, results 720.000 USD. The requirements related rework of the total rework is usually 70%. The cost of requirements had been reworked due to inefficiencies is 504.000 USD.
If we consider that the minimum improvement ratio is 10% after implementing a good Requirements Management tool that the cost saving is 50.400 USD (504.000 USD x 10%). If you divide the cost saving by the investment (purchase price of the Requirements Management tool) you can simply calculate the ROI. However, the investment cost of the tool can vary depending on the vendor pricing strategy.
There are models which are more complex for ROI calculation considering the following factors as well:
- How many pages of requirements can be created within an hour per person?
- How many of the described requirements are finally implemented?
- How inefficient is the staff (lost data, lost notebooks, not saved work etc.)?
It is generally said that the ROI of implementing a good Requirements Management tool is dependent upon the size of the project, the number of involved staff, and the number of requirements that has to be managed with the tool within the time period of 3-12 months.