How To Avoid the Challenges of Measuring Engineering ROI
A couple of weeks ago, we discussed why an engineering leader should consider adapting the ROI calculation to demonstrate the impact of engineering on the business. Engineering teams like GitHub’s (as discussed in a recent webinar) have seen a number of benefits from reporting on the ROI of their engineering teams. But adopting an ROI approach takes time. Teams are likely going to face some challenges along the way, but these challenges should not stop teams from experiencing the benefits seen by Github and others like them. In this follow-up post, I’ll discuss some of the most common challenges leaders have measuring ROI, and how they can begin to address them head on.
And for a comprehensive overview on all topics related to engineering ROI, be sure to download the recently released Engineering Leader’s Guide to Measuring ROI.
Finding the Right Proxy for Value
First, the biggest challenge that most leaders face is figuring out what to measure so that they best represent their team’s work. But if you look at the normal ROI calculation, it doesn’t exactly appear “engineering friendly.”
When people think of measuring ROI, they normally think of measuring it in terms of dollars ( or revenue). But a simple unit of measure like this can have its limitations when evaluating engineering’s efforts. For example, revenue is impacted by so many other organizations such as sales and marketing. It would be impossible to assign a weight to engineering’s influence on revenue. Ideally, we’d use another unit of measure that engineering more directly impacts.
Specifically engineering needs a value proxy that is both quantifiable and valuable to the business. The revised equation would look something like this:
This version of the calculation lets engineering use proxies for revenue and allows for engineering to select outcomes they more directly influence with their feature work.
So how do you select the right proxies for your team? It’s about connecting specific feature work to strategic business objectives. Before considering what you can measure, it’s important to understand the strategic objectives of your business. For example, maybe your business is trying to increase the amount of time customers spend in your company’s application. There might be features that increase customers’ frequency of use of your product. In this specific example, you can likely easily measure the average session time of your users before and after certain feature work within the application. By applying this calculation to applicable feature work, you can begin to assess what features are driving desired business outcomes.
This is not only helpful for quantifying the impact of your team, but also in the prioritization of feature work in the future.
The other common challenge that most leaders face is in measuring the costs of the work on specific features. The costs in ROI calculation come from the engineering resources that you dedicate to the feature work being measured. The amount of engineering work dedicated to a strategic priority is measured by a metric called Allocation. Companies that measure Allocation manually usually have to dedicate full-time employees to do this. To do this accurately, your team needs to be diligently keeping records and tagging the work with the appropriate tags in work tracking systems (like Jira).
But costs of engineering dedicated to specific feature work can be measured automatically through an Engineering Management Platform (EMP). EMPs process signals from tools your development teams are already leveraging, put those signals into business context, and then provide a comprehensive view to show what engineers are working on and when. If you’re struggling to measure the costs and/or alignment of your engineering resources to certain features, an EMP could help simplify that problem.
Getting Started with ROI
Despite these two common challenges, it’s important to note that neither of these should stop you or your organization from taking an ROI approach to measuring engineering. As mentioned, every organization will find their value proxies over time. When you do find the right proxies for you, your engineering organization will benefit from clear prioritization, increased alignment to priorities, and meaningful impact on the business. Engineering leaders play a critical role in ensuring that the value of their team’s work is understood by the business. ROI is an invaluable tool in communicating this value.