How can you measure the ROI of Platform Engineering?

Making a solid case for measuring the ROI of Platform Engineering

Return on investment is a performance measure used to evaluate the efficiency or profitability of an investment or to compare the efficiency of different investments. ROI directly measures the return on a particular investment relative to the investment’s cost.

With ROI measurement, you attempt to translate the platform’s technical benefits into a business-centric language, showcasing how it contributes to achieving strategic goals like revenue growth, customer satisfaction, and cost reduction.

By quantifying the impact of different platform features, you can:

• Justify investment: An ROI assessment allows you to determine the benefits of allocating funds to the platform by evaluating its return. This strengthens your case for adopting new tools and platforms.
• Prioritize development efforts: By quantifying the impact of different features, you can help your engineering and development teams focus on functionalities that deliver the most significant business value. This ensures the platform tools directly address core needs.
• Align with business goals: The assessment builds stronger alignment between your platform teams and business stakeholders. It demonstrates how the platform contributes to achieving strategic goals.
• Optimize platform resources: Metrics identified during ROI assessment can become benchmarks for measuring the platform’s ongoing effectiveness. Tracking these metrics allows for data-driven decision-making, enabling you to improve and continuously optimize the platform for even higher returns. This ensures you focus on investing only in state-of-the-art resources that align with business needs and elevate product quality.

What metrics should you track?

To gain a holistic view of the financial benefits and profitability of your investment in platform engineering, focus on business impacts, system performance, and engineering effectiveness:

• Business impact: Align the platform with your organization’s overall goals. Track metrics demonstrating the IDP’s value, such as increased revenue, cost savings, faster innovation cycles, improved customer acquisition or retention, and a stronger competitive advantage. Consider the risks, inefficiencies, and limitations of not investing in platform engineering to build a stronger case.
• System performance: Understand the health, reliability, technical efficiency, and performance of your software applications. Track metrics like system uptime, deployment speed, infrastructure security, and the number of system incidents. This will help you gauge user needs, identify areas for optimization, and ensure system health.
• Engineering effectiveness: Your engineering team’s effectiveness directly impacts your bottom line. Evaluate how extensible the IDP is and how easily it integrates with new tools and services. Track metrics like average time spent on environment setup and maintenance, onboarding time, time to resolve technical issues, resources required to develop and maintain the IDP, and developer satisfaction using the platform. Leverage the findings of the DORA (DevOps Research and Assessment) 2023 report to understand how user-centricity, technical skills, solid documentation, and a positive culture contribute to high organizational performance and developer happiness.
  Speaking about engineering effectiveness and productivity, a caveat needs to be made. A 2023 article from McKinsey on this topic raised a huge discussion and much criticism, as many argued that productivity cannot really be measured because development is creative work. While we agree that the impact is much more qualitative than quantitative and it’s difficult to come up with an objective metric, we believe that not measuring productivity at all is not a viable way for companies that want to grow. As we will see better in the next section, it’s important to know the strengths and weaknesses of each metric.

IDPs often deliver benefits across different areas, making capturing the value in a single metric challenging. To address this, use quantitative and qualitative data analysis techniques for a more comprehensive picture.

Strategies for Calculating Platform Engineering ROI

To assess your organization’s return on investment in platform engineering, in literature there are 3 key frameworks: DORA, SPACE, and MONK. Below you can find a brief description of each of them. Please note that we do not endorse one over the others: choices depend on too many factors. It is also important to know the limitations of each framework, before choosing.

• DORA (DevOps Research and Assessment) Framework: This framework prioritizes metrics that shed light on the capabilities driving software delivery and operational performance of your development teams. It focuses on the stability and speed of your development processes by analyzing metrics like deployment frequency, lead time for changes, mean time to restore (MTTR), and change failure rate.
• SPACE Framework: This framework offers a holistic approach to measuring the productivity of your software engineering teams. It considers five key dimensions: Satisfaction and well-being, Performance, Activity, Communication and Collaboration, and Efficiency and flow.
• MONK Framework: This framework is strongly focused on the platform’s effectiveness with respect to its end users, i.e., developers. The key metrics it measures are Market Share, Onboarding Time, Net Promoter Score (NPS), and Key Customer Metrics. These metrics need to be defined according to the specific business and tech context.

Beyond frameworks, you can also quantify the tangible benefits of platform engineering. This involves translating the platform’s advantages into measurable improvements for your business. Estimate the potential increase in revenue due to factors like improved process efficiency or reduced time-to-market.

Additionally, consider the cost savings associated with reduced infrastructure costs, automated infrastructure provisioning, reduction of risk, and workflow optimization. Industry reports, such as the Forrester Snapshot, indicate that 77% of companies attribute measurable improvements in time-to-market to internal developer platforms, while 85% report a positive impact on revenue growth.

Don’t underestimate the intangible benefits, either. While numbers and product performance are undeniably important, platform engineering often unlocks valuable benefits that are harder to quantify.
These intangible benefits include improved customer satisfaction, avoiding security breaches, fostering increased innovation through faster experimentation, greater satisfaction of the technical team, and enhanced overall developer experience. Consider how the IDP can generate new revenue streams or create new business opportunities for your organization. Another indirect benefit is the retention of engineering people, who are a very scarce resource on the market, expensive and difficult to retain, train, etc. Happier developers are more likely to churn less.

Building a strong ROI for Platform Engineering

The actual value of platform engineering can take time to reveal itself. You might not see the full impact on developer efficiency, product quality, customer satisfaction, and revenue or cost savings for months or even years. Perhaps impacts are not seen because a tangible, measurable benchmark is missing. Furthermore, the team rarely transitions to the platform overnight, like any transition process it is done step-by-step (one unit/team at time).

However, a successful IDP ROI is demonstrably positive. It translates into increased security, faster software and product development cycles, shorter overall development times, lower engineering overheads as industry standards evolve, reduced development costs, and a more positive developer experience.

Here’s how you can build a strong ROI for Platform Engineering:

1. Identify and calculate costs: The first step is identifying and calculating the initial and ongoing expenses associated with deploying your IDP. These include expenses like software licensing, training, and maintenance costs.
2. Quantify financial benefits: Once you’ve identified the costs, it’s crucial to quantify the financial benefits the IDP can bring to your organization since implementation. This can encompass key areas like reduced labor costs, improved efficiency, enhanced security, or faster product releases.
3. Calculate ROI: With both costs and benefits identified, you can now calculate the ROI of your IDP implementation. A good starting point could be using the formula: ROI = (Net Profit / Development Program Cost) x 100%.

In this context, the Platform Engineering Maturity Model from the CNCF is probably the most useful resource you can find. It helps you not only to assess where how mature your organization is but also helps you understand what you actually need.

In addition to what you can find in the Maturity Model, below are some advice from our experience that may help you maximize the ROI of your platform:

• Apply a product mindset to your Platform. Define in advance the goals you want to achieve, how you will measure them, the expected time and cost, etc. You can find more information about the Platform as a Product approach in this article.
• Adopt a lean, Pareto-efficient approach. Build an MVP and demonstrate quick-win ROI, first benefits. Start impacting the business, build consensus, and get funding from there to grow, also adjusting the emerging platform over time (business needs and tech needs may evolve quickly in today’s landscape).
• Plan and design your platform to be evolvable and maintainable over time. If you build it bigger and bigger, the maintenance and evolution costs will quickly become huge. Consider applying the concept of Thinnest Viable Platform.
• Do not start with the assumption that you need to build everything from scratch. Define what is a market best practice for engineering (probably, you can purchase/outsource that part, which is a commodity) and what is peculiar and unique about your business (probably the part you will need to build and maintain if that peculiarity provides sufficient business value).
• Remember the real cost of a product is rarely building it. The main costs of a product are its maintenance and evolution over time (we don’t want to be building tomorrow’s legacy!) and the cost of adoption (in the sense of change management: the cost of changing the culture and behavior of the organization to adopt the new solution).

The next step for your success: Platform Engineering ++

It is important to note that, even at its maximum level, the ROI of your Platform Engineering initiative is limited, if you only focus on infrastructure provisioning and application deployment. This way, you need to catch up on other critical aspects of software development, like data, ML, APIs, security, etc. To get the maximum ROI from it, you need to consider your platform holistically.

This is where comes into play Platform Engineering ++, a new approach that encompasses the entire end-to-end value chain of software development. In a nutshell, its core elements are Infrastructure and DevOps plus Data/ML Engineering, plus Software Composability (API, Events, Micro Frontend, Libraries and all aspects of a Software Application that can be reusable and evolved with an Inner Source approach). By considering all these aspects together, organizations can manage the entire application development lifecycle more efficiently, thus maximizing the ROI of the Platform.

To find out more about Platform Engineering ++, read this article from our CTO Giulio Roggero, and come back to our blog for further insights.

Conclusions

Embracing Platform Engineering all by yourself is not easy, nor is measuring its ROI. We hope that this article can help you navigate better in this world.

A good way to understand what a fully-fledged platform looks like, and the set of critical capabilities you’re looking for, is to look at what the market offers. The video demo of Mia-Platform Console or a free conversation with one of our solution architects are great starting points, even to just collect ideas and start understanding what type of IDP you’d like to have. Do not hesitate to reach out, we’d love to hear from you!