Calculating the Return on Investment (ROI) of Test Automation

by Nataliia Vasylyna | March 23, 2011 9:00 am

Note: this article was updated in July 2019.

How to understand that the service your provider offers gives you profit? And if this is test automation, how to check it is profitable for your business? Read further to know how the notion of ROI is applicable for test automation and how to make sure that this service is just what your project needs.

What is ROI and why business needs it

Return on investment (ROI) is a financial ratio that illustrates business profit or loss margins. This rate considers the amount of investments made in this business. To calculate this value, you need to find the ratio of the income – investment (loss) amount to the amount of investments. The formula looks like the following:

ROI in Test Automation

ROI can be calculated both for the whole duration of a campaign and for its definite period. Let’s look at the example: this month you spent 500$ for the advertisement of your online shop[1] in social networks. During the same month, you got 200 new clients who made purchases in the total amount of 1100$. To calculate ROI, we need to take away the cost of the advertisement from income, and then divide the resulting value by the amount of advertising costs:

ROI culculation

As a result, you get the 120% of return on investments for the period of one month.

ROI in Test Automation

Test automation at projects helps to meet the increasing demand for fast releases and bug-free software. Besides speed and quality, it also reduces costs, allocated for testing. Like any other type of investment, the effectiveness of test automation [2]is defined via the calculation of ROI. The general equation for this process is as follows:

ROI in Automation

The main question that appears is “How to detect the income and investments (loss)?” We consulted QATestLab specialist on test automation, Vasiliy, and here is what he says:

“It is rather challenging to calculate ROI for test automation before the start of a project as you can’t define the exact number of tests that will be automated. What you can calculate is the money spent on getting the license for automation tools[3], the approximate time that will be spent on automation and the rates for specialists’ services.”

Automation ROI

Main purposes of test automation

The demands for test automation will vary according to the specifics of a particular product, but its general goals are the following:

Like any other kind of work optimization, automation testing requires investments both financial and non-material. Anyway, these investments should bring profit, otherwise, they will be useless. ROI will help you to determine if test automation is the right solution for your project, but it is very important to consider the most frequent mistakes that hinder the correct ROI calculation.

Main pitfalls in calculating ROI for test automation

We have gathered the most common mistakes that can be made in the process of ROI definition:

Comparing losses and gains of automation vs manual testing. Automation cannot cover all types of tests, and there always will be scenarios that require manual checking. The scope of these testing methods is not equal as well as expenses on them, that is why calculation of ROI, in terms of their comparison, is irrational.

No synchronization of automation tools pool with managerial capacities. To present a successful scenario of automation testing, it is not enough just to know the tools and methods. The process that requires a lot of time and human resources is studying a particular product and organizing a team to work at a project. If you don’t consider these investments, the calculation of ROI won’t be accurate.

Not considering the maintenance process. Implementation of test automation is only half the battle. Tests should be constantly maintained and updated, especially after adding new features to the product. The automation suite will grow in this case and require continuous monitoring and support.

Not calculating ROI for time periods. Speaking about test automation, it is more effective to define return on investment for periods of time:

“If a team is organized according to Scrum methodology, it will be correct to calculate ROI for these two- or three-weeks sprints when you see how fast team accomplishes the set tasks and have the scope of performed work,” – explains QATestlab test automation engineer.

Final Word on ROI for Test Automation

Сalculation of ROI is quite clear according to its formula, but as usual, there is one catch: it is clear for fixed costs. In case of test automation, it is hard to determine the exact ROI as it hasn’t got fixed expenses, and clear gains cannot be predicted before the start of a project. This ratio will be approximate and will not give the exact numbers. On the other hand, if you consider all the tips given above and apply them to your particular project, you will understand the general principles of calculating ROI for test automation and check if it will work for you.

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Endnotes:
  1. online shop: https://blog.qatestlab.com/2018/12/18/ecommerce-christmas-rush/
  2. test automation : https://qatestlab.com/services/test-automation/
  3. automation tools: https://blog.qatestlab.com/2018/03/27/tes-automation-frameworks/
  4. How automation testing can help your software development process: https://blog.qatestlab.com/2011/03/03/how-automation-testing-can-help-your-software-development-process/
  5. The Necessity Of Automation: https://blog.qatestlab.com/2011/08/26/the-necessity-of-automation/
  6. Test Automation Of Software: https://blog.qatestlab.com/2011/06/17/test-automation-of-software/
  7. Running Selenium Server Using Custom Firefox Profile: https://blog.qatestlab.com/2011/03/07/running-selenium-server-using-custom-firefox-profile/
  8. Useful Tips for Choosing a Test Automation Tool: https://blog.qatestlab.com/2011/06/08/useful-tips-for-choosing-a-test-automation-tool/

Source URL: https://blog.qatestlab.com/2011/03/23/calculating-the-return-on-investment-roi-of-test-automation/