This stuff is cool, but...HOW CAN I GET MY COMPANY TO DO IT?

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

http://www.thehecklers.org

@MkHeck

Who am I?

@MkHeck

Who am I?

• Author

• Speaker

• DEVELOPER

• Seeker of a better way

• MBA

@MkHeck

@MkHeck

The Goal

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Disclaimers

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Disclaimers• I’m human

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• Measurements require assumptions…

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• …but those will be clearly stated and quantified

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• Estimate benefits conservatively, costs liberally

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• The numbers you see are EXAMPLES

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• The numbers you see are EXAMPLES

• Adjust sensibly for your circumstances

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With great power…

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What’s on the agenda?

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• Payback

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• Payback

• Net Present Value (NPV)

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• Payback


• Quantification

@MkHeck


• Payback


• Quantification

• Based upon (solid, well-reasoned, calculated) assumptions

@MkHeck


• Payback


• Quantification

• Based upon (solid, well-reasoned, calculated) assumptions

• Several steps to get there, but don’t panic!

@MkHeck

@MkHeck

Payback: Formula

Cost of Project

Annual Cash Inflow (or Savings)

= Payback Period

@MkHeck

Payback: Example

$500,000 (costs)

$200,000/year (new income)

= 2.5 years

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Payback: Explanation

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• Shorter payback period generally better

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• Longer payback means more uncertainty, greater risk

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• Prefer < 3 years payback period

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• Prefer < 3 years payback period

• Payback < 1 year == essential project

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Payback: Drawbacks

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Payback: Drawbacks• No consideration of total value

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• 3 year payback, no further value after year 5, lifetime value: $250,000

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• 5 year payback, ongoing value, lifetime value: $1,000,000

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• Which would you choose?

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• No consideration of time value of money

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• No consideration of time value of money

• Good measure, but incomplete

@MkHeck

Net Present Value (NPV): Formula

Net Period Cash Flow

(1+R)T

= NPV∑where R is the Rate of Return

and T is the number of time periods

@MkHeck

Net Present Value (NPV): Example 1

$1,000,000

(1+0.05)5

= $783,526∑where R is the Rate of Return

and T is the number of time periods

@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

@MkHeck

Inputs & Associated Challenges

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Inputs & Associated Challenges• Quantifying qualitative measures

@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?

@MkHeck

Putting Numbers with It: Pros & Cons

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Putting Numbers with It: Pros & Cons• Pros

• Critical analysis yields better understanding of inputs, impacts

• Can provide more objective and compelling justification for initiative

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Putting Numbers with It: Pros & Cons• Pros



• Cons

• Can be very time-consuming

• No automatic conversion between qualitative & quantitative measures

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Putting Numbers with It: Caveats

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Putting Numbers with It: Caveats• Time is a constraint

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• Assumptions form basis of conclusions

• Bad assumptions -> Inaccurate conclusions

• Good assumptions -> (In?)accurate conclusions

@MkHeck





• Document assumptions meticulously

@MkHeck





• Document assumptions meticulously

• Be open to discussion, refinement

Let’s run through it (Optional<Suit>)

MicroservicesAssemble to make

“more than meets the eye”

@MkHeck

Notes about Microservice Architectures

@MkHeck


• “Return on Investment (ROI) is driven by accelerated realization of benefits rather than overall business transformation.”

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• Reduced maintenance costs?

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• Increased business opportunities through new APIs?

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• Selective scaling of only high-demand microservices reduces costs

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• Selective scaling of only high-demand microservices reduces costs

• Investment includes upskilling/coaching/mentoring

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Expectations

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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)

@MkHeck

Expectations

@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

MonolithsThat’s one big app!

@MkHeck

Assumptions: monoliths

@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

MicroservicesAssemble to make

“more than meets the eye”

@MkHeck

Assumptions: microservices

@MkHeck


• 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!

@MkHeck


@MkHeck


• How much more functionality can be delivered more quickly, more accurately?

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• If you can approach zero with missed requirements, missed opportunities, missed expectations…how much is that worth?

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• 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?

@MkHeck

Quantification

@MkHeck

Quantification• Volatile functionality

• Sales drivers

• Product development/engineering

@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

@MkHeck

Quantification

*would increase costs and resultant cash flows

**assumes some functionality would be implemented otherwise in monolith

($1m)

($2m)

($5m)

@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)

@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

@MkHeck


Cost of Project

Payback: Microservices

= Payback Period

@MkHeck


8,000,000


= Payback Period

@MkHeck

14,000,000

8,000,000


= Payback Period

@MkHeck

6.86 months14,000,000

8,000,000


=

@MkHeck

6.86 months14,000,000

8,000,000


=

APPROV

ED!

Not so fast…

@MkHeck

Totals, Year 1


Expenses

Upskilling ($1m)


Interfaces ($1m)



@MkHeck

Y2 Assumptions

@MkHeck

Y2 Assumptions• Double number of microservices added in Y2 vs. Y1

• 14 new in Y1 + 28 new in Y2 = 42 new microservices @EOY2

@MkHeck



• Estimate slightly reduced impact, may be overly pessimistic

• 28 * $750k = $21m $14m + $21m = $35m “new” revenue

@MkHeck



• Estimate slightly reduced impact, may be overly pessimistic


• Assume linear ability to expand monolith, may be overly optimistic

• $10m worth of functionality could be implemented in monolith

@MkHeck

Totals, Year 2


Expenses

Upskilling ($1m)


Interfaces ($1m)



@MkHeck

Y3 Assumptions

@MkHeck


• 42 @EOY2 + 56 new in Y3 = 98 new microservices @EOY3

@MkHeck



• Estimate further reduced impact, may be overly pessimistic


@MkHeck



• Estimate further reduced impact, may be overly pessimistic


• Assume linear ability to expand monolith, may be overly optimistic

• $15m worth of functionality could be implemented in monolith

@MkHeck

Totals, Year 3


Costs

Upskilling ($1m)


Interfaces ($1m)



@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

@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

APPROV

ED!

@MkHeck

Factors Revisited

@MkHeck

Factors Revisited• Quantifying qualitative measures

@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?

@MkHeck

In summary…

@MkHeck

In summary…



• Be honest

• Document & communicate assumptions clearly

• Be open to course corrections

@MkHeck

This is Not the Enemy!

@MkHeck

This is Not the Enemy!They are your Allies

@MkHeck

Thank You for Participating!

Keep the conversation going:

• @MkHeck

• [email protected]

mailto:[email protected]

This stuff is cool, but...HOW CAN I GET MY COMPANY TO DO IT?

Software

Transcript of This stuff is cool, but...HOW CAN I GET MY COMPANY TO DO IT?