How to Calculate ROI on Test Automation?
Tags: calculateroi, testautomation, testgrid
Published: 2024-06-13 14:29:46

If you are a software developer, you already know how software testing is indispensable for your development process. Testing helps you identify bugs and glitches during the early stages of development and lets you proactively rectify such issues before the product launch. 

Software testing helps you deliver reliable and error-free software to end users and avoid launching products with defects that can damage your hard-earned reputation. To cite an example, in 2015, Starbucks lost millions of dollars when its Point-of-Sale platform shut down due to a software defect. 
So, clearly, software testing must mandatorily be a part of your application development process to avoid such setbacks for your business.

As far as selecting a testing method is concerned, most organizations today rely on automation testing more than conventional manual processes since it is faster and more efficient. 

Automation testing enables businesses to reduce their: 

- testing costs
- perform tests more frequently and
- deliver more accurate and reliable results.
- Additionally, you get other valuable benefits like:
- detailed checks and reporting,
- better bug detection,
greater test coverage, and more

All these benefits you cannot expect with manual testing methods. 
Despite its numerous benefits, some companies hesitate to switch to an automation framework since it involves a high initial investment. If you are one of them, we suggest you evaluate and collect evidence about how automation testing will benefit your business in the future. One surefire way to do that is to calculate the Return on Investment (ROI) your business can derive from adopting test automation.

## ROI on Test Automation: Definition and Ways of Calculate
In this blog, we will try to explain the different methods for calculating ROI on test automation. We will also focus on what you need to take care of while performing the calculations.
We will begin by first explaining what ROI on test automation is and how calculating it can help your business.

### ROI on Test Automation – What is it exactly?

ROI is a metric that provides a numerical representation of the return you derive by incorporating automation testing into your QA process.
Here is how calculating the ROI on test automation can help you:

- Estimating when your investment in automation will pay off
- Determining the positive or negative impact of automation on your business
- Presenting the potential investors and persuading them to support your plans
- Identifying the potential gains or losses related to the investment in automation testing

There are different ways to calculate the ROI on test automation. Let us look at each method in detail.

## Different ways to calculate the ROI on Test Automation

Apart from the basic calculation process by which you determine the time saved by adopting automation testing, there are more complex methods based on risk reduction and efficiency.

### Basic calculation method

One common method for calculating the ROI is this formula, whereby you subtract the estimated costs from the estimated benefits and then divide the result by the expenses. Then you multiply it by 100, which will give you a percentage depicting the expected return from test automation.
The ROI formula:
Benefits – Costs/Costs x 100

In another method, you evaluate the time saved when running a specific number of automated tests during a particular period instead of conducting manual testing.

For instance, a company developing software may take 250 hours to write automated tests related to the software. Thus, it may save around 20 hours of manual testing a week. This denotes the organization will be able to compensate for the initial time investment in around 13 weeks.

Similarly, you can also calculate ROI in terms of money. To do this, you need to multiply the time values with the hourly rates of manual testers and developers and determine the time frame for the evaluation.

For example, if the developers get paid double that of manual testers, you would save the money on switching to automated testing in about 26 weeks.

However, you must remember that these basic methods are not too accurate. For more reliable results, you may need to consider more parameters. This includes the time you invested in the upkeep and upgrading of the tests, the time savings you achieved because of the elimination of mistakes made during manual testing, or the profits you received from conducting automation tests on a large scale.

### Efficiency ROI calculation method
It is considered a more advanced method that focuses mainly on time investment gains. Here is how you define the investment and cost in the ROI formula.
Investment = Development time for creating the automated test script + test analysis time (automated) + Automated test script execution time + test maintenance time (automated) + 

### Manual test case execution time
Gain = Manual test execution time/analysis time multiplied by the total number of test cases (automation plus manual) * Period of ROI / 8
In the above formula, the period of ROI denotes the time for which you calculate the ROI (usually weeks). In manual effort, you divide it by 8, and in the case of automation, it is 18 or 20. 
You can run automated tests for 24 hours nonstop, but you cannot expect a manual tester to work more than 8 hours a day. In automated tests, you need to reduce 24 hours to 18 or 20 since test cases are often paused or stopped for various reasons.
In this method, total efficiency is the focus rather than only monetary gains. However, it should not be considered the final assessment since it is based on assumptions like test automation completely replacing manual testing or that only a single tester is required for manual testing. 

### Risk Reduction Calculation method
Here is the formula used in the method:
ROI = Reduction in monetary risk minus the cost of risk control and divided by the cost of risk control
You can calculate the reduction in monetary risk by first taking the annual risk occurrence rate, lessening the risk control cost from it, and then dividing the result by the risk control cost. Here the gain is the reduction in monetary risk that an organization would face if they didn’t adopt automation. This method assumes that manual testers are more prone to making mistakes.

## Other Factors to Consider While Calculating ROI on Test Automation
Here are some factors that can affect your calculations:

- Automation of some processes can impact other operations. For instance, automatically generating test reports may reduce the time and cost of preparing QA documentation.
- Reusing tests can result in further savings
- You may automate only specific tests and stick to manual testing for some tests. All these have to be adjusted.
Read also: The most effective Way to Get the Best ROI – [Automation Testing](https://testgrid.io/blog/automation-testing-best-roi/)

## Summing Up

As you must have realized, calculating ROI on test automation is no simple task. To derive accurate results, you need to pick the right calculation method, identify and evaluate the parameters, and consider other factors that can impact the calculation. For example, you may be unable to determine the monetary value of certain things needed for your calculation.
However, once you zero in on the right method and consider all factors, you can assess the expected return from investing in automated testing. You can also present the results obtained from the calculations to external investors if you need their support to automate your testing process.
Source : This blog is originally published at [TestGrid](https://testgrid.io/blog/roi-on-test-automation/)