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Friday, January 28, 2005

SOA, Complexity And ROI

We recently covered SOA goal is managing complexity wherein we covered about Mike "Wolf" Gilbert's views that the primarly goal of deploying SOA is to manage complexity. We also covered Barry Brigg's views about Integration Brokers, SOA ,Complexity: Horizontal Vendors & ERP Extensions. Ronald schmelzer of Zapthink writes about ROI assessment frameworks for SOA initiatives. Execerpts with edits and my comments added:

In today’s world of tight IT budgets, increased regulation, global competition, and accelerating change, companies (and governments) require quantifiable results from their investments in technology. No executive will sign off on any investment in new technology without a solid expectation for how it will deliver value to the business. When people understand an established technology and how it will provide value over time, calculating the return on investment (ROI) for an IT expenditure will often be a straightforward process. Calculating ROI on projects involving new technologies or emerging IT approaches like Service-Oriented Architecture (SOA) is frequently more of an art than a science. What makes calculating the ROI of SOA even more challenging is that architecture, by itself, doesn’t offer specific features that companies can readily identify with some particular return. Only by understanding the full range of SOA value propositions can companies begin to get a handle on calculating the ROI of SOA, and even then, it may be impossible to understand SOA’s true ROI before the project is completed, because SOA addresses issues of fundamentally unpredictable business change.

SOA provides benefits in four basic categories: reducing integration expense, increasing asset reuse, increasing business agility, and reduction of business risk. These four core benefits actually offer return at many different levels and parts of the organization, depending on which set of business problems the company is applying SOA to. First, implementing loosely-coupled integration approaches can reduce the complexity and hence the cost of integrating and managing distributed computing environments. While moving to standards-based interfaces such as Web Services reduces integration cost somewhat, the real win with SOA is in replacing multiple function calls at a fine level of granularity with coarser-grained, loosely coupled Services that can handle a wider range of interactions in a more flexible manner than API-based integration.
Companies can compare their investment in Web Services-based SOA to an equivalent traditional integration middleware approach and then compare both the immediate licensing and configuration cost reductions as well as the longer term maintenance and change costs. As detailed in Understanding the Real Costs of Integration, companies can realize significant and immediate ROI from simply moving from tightly-coupled forms of integration to loosely-coupled ones. Eventually, companies can phase out their more expensive integration approaches altogether, without suffering from the traditional pain associated with "ripping" out the infrastructure. Companies are now implementing SOA side-by-side with their existing EAI and ETL projects, providing immediate cost reduction, while over the long term, SOA can lead to significant complexity reduction, as companies gradually replace their legacy middleware technologies.

Increased business visibility in the face of changing regulations is a concrete instance of the business agility benefit that SOA can provide. Implementing SOA for the purpose of controlling business processes, establishing corporate-wide security, privacy, and implementation policies, and providing auditable information trails, are all examples of ways that SOA can reduce several of the risks facing companies today. While the reduction in risk that SOA provides is tangible, it is difficult to quantify the true ROI of an SOA implementation where risk reduction is a primary benefit. Companies will find value in implementing SOA to reduce risk to some arbitrarily acceptable level, and base the ROI of that implementation on the perceived avoidance of loss that the implementation addresses. Because of the multi-faceted nature of the SOA value proposition, ROI calculations for SOA projects can vary greatly from one project to another. Rather than seeking a single ROI goal for an SOA implementation, companies should take the same iterative, composite approach to ROI that they take for SOA implementation itself. For example, every time they define a Service as part of a company’s Service model, they should also define a corresponding ROI objective for that Service.
- How much will they spend on this Service?
- What direct and indirect returns can they realize from this Service’s implementation, in terms of reduced integration costs, improved asset reuse, or greater business agility?
- How will the composition of the Services into processes realize additional ROI for the business?
Ronald Schmelzer concludes,"In many cases, SOA implementations can provide a clear, positive ROI from the first day a Service goes live. However, it is more likely that ROI expectations, like SOA implementations, should be iterative in nature, frequently assessed, and composite. In doing so, users can not only quantify, but also realize, the return on investment of their SOA implementations".

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