What is the ROI on Agile?
Many organisations have adopted agile but how many ask the obvious question: What is the ROI on our investment in Agile and how will we measure it?
There are two ways I’d like to explore this topic: from the perspective of delivering an initiative (a product or project) with agile, and from the perspective of scaling this to an entire organisational (Enterprise Agility).
The ROI of Agile Delivery
On a project or product level, the ROI on agile is without doubt orders of magnitude greater than traditional methods. There have been a number of studies, the most notable by the University of Maryland, all of which provide extremely compelling evidence.
The University of Maryland study found that agile projects were 20 times more productive, had five times better cost and quality and had a 7 times earlier breakeven point. Furthermore, agile projects had an 11 times greater ROI, 11 times higher NPV, and a 13 times higher ROA when expressed as a percentage.
This research has been backed up by several private studies. Without doubt, the ROI on agile projects is compelling and an order of magnitude improvement over traditional methods.
The ROI of Enterprise Agility
Naturally, this has led companies to want to scale these benefits beyond single initiatives and reap the organisation-wide benefits. Who wouldn’t want significantly improved breakeven, ROI, time to market, quality and NPV – and the ability to change course as required!
At an organisational level, the ROI becomes harder to measure. This is because Enterprise Agility is about improving the entire system for all future outcomes, not just one specific project. In other words, this is a core infrastructure investment, and these types of investments take many years to pay off.
An investment in Enterprise Agility tends to yield the following benefits:
- Customer engagement – putting the customer front and centre of our efforts and testing the validity of our assumptions by regularly releasing work and obtaining their feedback.
- Better solutions – when complex problems are solved by interactive, cross-functional teams, the solutions tend to be more robust and of higher quality. This is because we have taken in many different perspectives on the problem – technical, sales, marketing, quality, commercial, operational, plus we have baked quality in from the outset and tested it every iteration.
- Culture and engagement – the research on intrinsic motivation is compelling – when teams can shape the work and work in a self-directed way, engagement, creativity and productivity go through the roof.
- Adaptability – the ability to continually adapt our strategic direction, based on evidence of what we see in front of us. Agile brings transparency and empirical data. We can use this focus on only what is important and limit having too much work in progress, thus creating the ability to pivot.
- Value – When the above four benefits are combined, we can focus on only delivering what is of value to both the customer and our business. While this seems obvious, what is often overlooked is our ability to cull a significant number of features we assumed customers wanted. Research into feature usage shows customers often only use 25-50% of the features delivered. Imagine if you could cut your investment in features by 50%!
- Reduced Total Cost of Ownership – TCO accounts for the lifetime cost of the product, including maintenance, enhancement, and support. In many cases, this accounts for 60-90% of TCO, making the development cost looking minimal. By only developing features customers care about, we can repurpose investment into more product places.
- Market share – combining all the above effectively tends to result in increased market share and eventually market dominance if done well.
Clearly, these are all long-term investments in the infrastructure of our businesses, based on designing it for agility.
ROI on this sort of investment take years to measure, not months. But this doesn’t mean we shouldn’t measure it. On the contrary.
One useful approach for measuring the ROI of Agile is Evidence Based Management (EBM). Many organisations lose sight of the real goal of agile ways of working as they get stuck focusing on improving activities and outputs instead of business outcomes. Agile is a means to an end, not the end itself! EBM helps prevent this by focusing on the value delivered to the organisation from an investment in agile. This enables organizations to make rational, fact-based decisions, elevating conversations from preferences and opinions to empirical evidence, logic, and insight.
If you are interested in EBM, please contact me.
Otherwise, you may find the approach and the metrics as a useful way of considering how you are going to measure your Return on Investment in agile.