This stuff is cool, but...HOW CAN I GET MY COMPANY TO DO IT?
1 like•392 views
The document discusses the financial evaluation of transformative development, particularly in the context of adopting microservices within a company. It emphasizes key concepts such as payback period, net present value (NPV), and the importance of quantifying both qualitative and quantitative measures for effective decision-making. Additionally, it outlines the potential benefits and challenges of transitioning from monolithic architectures to microservices, with a focus on how to justify such initiatives based on financial metrics.
This stuff is cool, but...HOW CAN I GET MY COMPANY TO DO IT?
- 1. This stuff is cool, but… HOW CAN I GET MY COMPANY TO DO IT? Businessing the S*** out of Transformative Development! Mark Heckler Principal Technologist/Developer Advocate Pivotal Software, Inc. www.thehecklers.org [email protected] @MkHeck @MkHeck
- 2. @MkHeck Who am I? • Author • Speaker • DEVELOPER • Seeker of a better way • MBA
- 3. @MkHeck
- 5. @MkHeck Disclaimers • I’m human • Measurements require assumptions… • …but those will be clearly stated and quantified • Estimate benefits conservatively, costs liberally • The numbers you see are EXAMPLES • Adjust sensibly for your circumstances
- 7. @MkHeck What’s on the agenda?
- 8. @MkHeck What’s on the agenda? • Payback • Net Present Value (NPV) • Quantification • Based upon (solid, well-reasoned, calculated) assumptions • Several steps to get there, but don’t panic!
- 9. @MkHeck
- 10. @MkHeck Payback: Formula Cost of Project Annual Cash Inflow (or Savings) = Payback Period
- 11. @MkHeck Payback: Example $500,000 (costs) $200,000/year (new income) = 2.5 years
- 12. @MkHeck Payback: Explanation • Shorter payback period generally better • Longer payback means more uncertainty, greater risk • Prefer < 3 years payback period • Payback < 1 year == essential project
- 13. @MkHeck Payback: Drawbacks • No consideration of total value • 3 year payback, no further value after year 5, lifetime value: $250,000 • 5 year payback, ongoing value, lifetime value: $1,000,000 • Which would you choose? • No consideration of time value of money • Good measure, but incomplete
- 14. @MkHeck Net Present Value (NPV): Formula Net Period Cash Flow (1+R)T = NPV∑ where R is the rate of return/cost of capital and T is the number of time periods
- 15. @MkHeck Net Present Value (NPV): Example 1 $1,000,000 (1+0.05)5 = $783,526∑ where R is the rate of return/cost of capital and T is the number of time periods
- 16. @MkHeck Net Present Value (NPV): Example 2 = $646,206 $200,000 (1+0.04)2 $400,000 (1+0.03)3 $100,000 (1+0.05)1 ++ $184,911 $366,057$95,238
- 17. @MkHeck Inputs & Associated Challenges • Quantifying qualitative measures • How would this initiative: • affect your organization’s/group’s/team’s work? • impact your tech stack? • contribute to recruitment/retention? • affect the business?
- 18. @MkHeck Putting Numbers with It: Pros & Cons • Pros • Critical analysis yields better understanding of inputs, impacts • Can provide more objective and compelling justification for initiative • Cons • Can be very time-consuming • No automatic conversion between qualitative & quantitative measures
- 19. @MkHeck Putting Numbers with It: Caveats • Time is a constraint • Assumptions form basis of conclusions • Bad assumptions -> Inaccurate conclusions • Good assumptions -> (In?)accurate conclusions • Document assumptions meticulously • Be open to discussion, refinement
- 20. Let’s run through it (Optional<Suit>)
- 21. Microservices Assemble to make “more than meets the eye”
- 22. @MkHeck Notes about Microservice Architectures • “Return on Investment (ROI) is driven by accelerated realization of benefits rather than overall business transformation.” • Reduced maintenance costs? • Increased business opportunities through new APIs? • Selective scaling of only high-demand microservices reduces costs • Investment includes upskilling/coaching/mentoring
- 23. @MkHeck Expectations • Small batch sizes, small teams: Microservices • Bounded contexts • API-based contracts for interactions • More functionality delivered to market (or internal end-users) sooner • Building the right product (tight dev loop == tight feedback loop)
- 24. @MkHeck Expectations • Microservices (continued) • Improved quality; small mods vs. major overhauls • Improved end-user satisfaction • Small, frequent releases expose & help resolve process issues “in the small” • When releases are tiny, well-planned & -choreographed events, they can happen at will
- 25. Monoliths That’s one big app!
- 26. @MkHeck Assumptions: monoliths • Average cadence of releases of key monolithic apps: 1x/year* • 10 months of development before “code freeze” • 1 month of integration testing, bug fixes • 1 month of UAT (confirmations, course corrections, logging “new” requirements) *optimistic in many cases
- 27. Microservices Assemble to make “more than meets the eye”
- 28. @MkHeck Assumptions: microservices • Average cadence of microservices releases: 7448x/DAY* • If your company is 1/1000th (0.1%) as effective as Amazon, that’s still > 7 releases/day…over 2500 releases/year! • 14 new microservices in first year • Each of your Y1 microservices averages a release every other day *Amazon: 1 every 11.6s in 2011 - YMMV!
- 29. @MkHeck Assumptions: microservices • How much more functionality can be delivered more quickly, more accurately? • If you can approach zero with missed requirements, missed opportunities, missed expectations…how much is that worth? • If users can have needed functionality MONTHS or YEARS sooner, what is that worth to your company?
- 30. @MkHeck Quantification • Volatile functionality • Sales drivers • Product development/engineering • Focus upon producing key abilities, define interfaces in monolith • Average time to get interface APIs “live”: 6 months • Average business size: $500m annual revenue • Impact of high-demand projects implemented via microservices: $1m/microservice
- 31. @MkHeck Quantification • Costs • Upskilling required for relevant tech teams • Ramp-up - offset by avoidance of contextualization issues • Other things that may smooth/speed path omitted* • Platform costs and interface development • Foregone revenue from monolith implementation** *would increase costs and resultant cash flows **assumes some functionality would be implemented otherwise in monolith ($1m) ($2m) ($5m)
- 32. @MkHeck Totals, Year 1 New revenues, year 1 $14m Expenses Upskilling ($1m) Platform costs ($1m) Interfaces ($1m) Opportunity costs ($5m) Y1 NET GAIN/LOSS FROM ADOPTION $6m
- 33. @MkHeck 6.86 months Annual Cash Inflow (or Savings)14,000,000 Cost of Project8,000,000 Payback: Microservices = Payback Period APPROVED!
- 34. Not so fast…
- 35. @MkHeck Totals, Year 1 New revenues, year 1 $14m Expenses Upskilling ($1m) Platform costs ($1m) Interfaces ($1m) Opportunity costs ($5m) Y1 NET GAIN/LOSS FROM ADOPTION $6m
- 36. @MkHeck Y2 Assumptions • Double number of microservices added in Y2 vs. Y1 • 14 new in Y1 + 28 new in Y2 = 42 new microservices @EOY2 • Estimate slightly reduced impact, may be overly pessimistic • 28 * $750k = $21m $14m + $21m = $35m “new” revenue • Assume linear ability to expand monolith, may be overly optimistic • $10m worth of functionality could be implemented in monolith
- 37. @MkHeck Totals, Year 2 New revenues, year 2 $35m Expenses Upskilling ($1m) Platform costs ($2m) Interfaces ($1m) Opportunity costs ($10m) Y2 NET GAIN/LOSS FROM ADOPTION $21m
- 38. @MkHeck Y3 Assumptions • Double number of microservices added in Y3 vs. Y2 • 42 @EOY2 + 56 new in Y3 = 98 new microservices @EOY3 • Estimate further reduced impact, may be overly pessimistic • 56 * $500k = $28m $35m + $28m = $63m “new” revenue • Assume linear ability to expand monolith, may be overly optimistic • $15m worth of functionality could be implemented in monolith
- 39. @MkHeck Totals, Year 3 New revenues, year 3 $63m Costs Upskilling ($1m) Platform costs ($6m) Interfaces ($1m) Opportunity costs ($15m) Y3 NET GAIN/LOSS FROM ADOPTION $40m
- 40. @MkHeck NPV: Microservices = $61,086,277 $21m (1+0.05)2 $40m (1+0.05)3 $6m (1+0.05)1 ++ $19,954,649 $35,417,342$5,714,286 APPROVED!
- 41. @MkHeck Factors Revisited • Quantifying qualitative measures • How would this initiative: • affect your organization’s/group’s/team’s work? • impact your tech stack? • contribute to recruitment/retention? • affect the business?
- 42. @MkHeck In summary… • Critical analysis yields better understanding of inputs, impacts • Can provide more objective and compelling justification for initiative • Be honest • Document & communicate assumptions clearly • Be open to course corrections
- 43. @MkHeck This is Not the Enemy!They are your Allies
- 44. @MkHeck Thank You for Participating! Keep the conversation going: • @MkHeck • [email protected]