How much does automating software development cost? The easy answer: Nothing, since you are already paying for it, but you are not benefiting from it!

All manufacturing processes have three inputs: Capital, labor and material costs. In software development the labor costs are the main category, but the others exist as well in form or another.

Quantifiable labor costs

The reduced labor costs are easily quantified. These include direct development labor costs, and rework caused by application defects.

This makes ROI (return on investment) seemingly easy to calculate: Our claim that our automation gets you ~ 80% of any business application automatically produced (measured in lines-of-code; human written vs. automatically generated). However, this is not the whole truth. At all.

Same Customer Budget, More Features

Hidden costs are the unwanted ingredients found in every process - the "waste" in Lean process terms. While we can’t see these costs, the competitive market does. These costs include:

• Quality costs (cost of testing, test automation & manual testing to find and fix defects)
• Order to cash cycle time costs (depending on your agreement)
• Capacity limitations costs (outputs limited by available skilled staff)
• Labor training and labor turnover costs (see later chapter)
• Delivery delays costs (as agreed in contracts, penalties section)
• Lost opportunities due to inability to deliver to customer demand costs (you can take only so many projects at time, as personnel is already tied full time to a project)
• Long setup times costs (setting up environments and infrastructure, writing boilerplate until you even get to business content)
• Work in Process costs (in product development, money starts to flow only when product is available for market)

These hidden costs are incurred continuously and are “baked” into the customer prices. Depending how high these costs are, this may or may not yield a market competitive position in the longer term. Most important, the summation of these costs is also the cost of our process inefficiency that the automation that we are paying, but we don't have, can eliminate or minimize.

The value of automation

When making automation justification calculations, you routinely use ROI with the easily measured reduced human labor value. The hidden costs are not included in the justification, as they don’t appear in any of your company’s metrics or account ledger. What does this mean?

1. Automation helps minimize or eliminate most of the hidden process inefficiency costs, which makes easy ROI calculations (at least partly) unfit for the justification.
2. You are not investing in any paradigm shifting fundamental and innovative ways, reflecting any entrepreneurial initiatives which might separate you from the competition ... and as we by now know, that competition is GLOBAL and investing strategically, not limited by accounting or finance “tests” in order to propose or approve new investments in software development automation in order to increase market share and profitability.

Software development automation is not a substitute for good lean processes and continuous improvement but is instead the compliment and amplification of those process improvement management strategies.

Whereas continuous improvement is the steady and consistent elimination of the hidden costs (or wastes as they are called in Lean), proper automation is a high impact step function which radically changes the production algorithm by enabling both mass production and mass customization with minimized process changeover times and predictable production rates as demonstrated by traditional manufacturing industries.

Effects on labor training and turnover

Does this mean we no longer need to invest in worker training? No! Even if you traditionally prefer veteran jack-of-all trades, software production line enables better use of less experienced workforce, which makes replenishments easier on labor turnover.

It also means worker training needs to be continued and even increased as a core, albeit significantly reduced. Group of workers will produce more per worker going forward as the automation will do what it's best at: Automatically and tirelessly creating boilerplate and other repeating patters required in every business application, creating structures and features common to every business application. The workers perform what they are best at: Inventing and implementing innovative solutions and solving real business problems, things unique and exceptional to this particular application.

Summary

In all manufacturing processes, assuming stable inputs, the most responsive control point affecting efficiencies is strategically deployed automation. This is the capital portion of the manufacturing recipe and while we typically justify and approve automation projects based on “hard” financial costs, ROI and IRR, it's the elimination of the “soft” hidden costs that pay for it. In fact, the failure to automate is the acceptance of those “hidden” costs and falsely believing that we can simply pass those costs on to the customer through the sales price without suffering a market share penalty.

Unfortunately, while we may not be able to “see” and quantify those hidden costs, the competitive market does. As such, those software manufacturers that follow a proactive, strategic automation strategy with a broad understanding that is what will be required going forward will compete globally and produce software at higher levels of quality, availability and variety.

Credits

At LeBLANC, we aim constantly to learn from matured manufacturing industry and bring it's best practices and decades old experience to our still much artisan industry for increased productivity, and hopes for better future.

This article is based on our favorite “Mr. Automation Guru” Chris Stergiou’s original article Manufacturing Automation – How Much Does it Cost?, which we adapted to fit our software production industry.