Calculate the ROI of Test Automation: Examples + Common Mistakes

In software development, speed has become the defining characteristic of product launches. It sets the standard we cannot really escape anymore. It places demands on market players, both old and new: release now, fix the issues later. Launch the feature today, or watch your competitors outpace you. Meet the deadline or lose a vitally important partner/client.

These are all thoughts and ideas most product managers, CTOs, and team leads have had (or heard). In part, I think the culprit for this state of affairs has been automation itself, as it has streamlined so many tech processes across industries and has set higher client and market expectations.

For software products, however, automation can also be the saving grace, offering a unique opportunity to go both fast and steady. According to Boehm’s law, the cost of spotting and fixing issues grows exponentially with time. This is where automation testing comes into play. Organizations all over the world are automating tests to ensure both velocity and product stability.

The idea is: why choose between quality and speed when automated testing can ensure quality at high speed? I know that’s quite the mouthful, but it’s essentially true. Still, as much as a good automation strategy can benefit a software project, the aspect of ROI, or Return on Investment, remains a crucial one.

When it comes to ROI, automation testing is an area that produces a lot of doubts and misconceptions. Many companies, product managers, CTOs, and CEOs are hesitantly standing on the doorstep of that ‘automation ride’ and wondering: should I go in? Is it worth it? Will I spend more than I get back? The truth is that automated testing isn’t that different from any other business investment. It all comes down to calculating the returns — here’s how I do it.

The Basics of Calculating ROI of Test Automation 

It’s worth noting that in some parts of the automation testing community, the ROI of test automation is considered to be somewhat of a myth. This is obviously a controversial opinion that does not necessarily reflect the overall state of the industry. Still, it may help understand why some automation QAs are skeptical about the idea of ROI in testing.

To delve deeper into the subject of ROI of test automation, let’s start by looking at the basic ROI formula for automation testing. The most widely used way to calculate ROI for automated testing is the following:

ROI for testing automation = Cost savings / Investment cost

OR

(Investment value – Investment cost) / Investment cost

However, each company will have to take into account its own specifics, pre-existing problems as well as natural trends in software development to apply this calculation correctly.

To begin with, cost savings can be calculated in various different ways, based on your knowledge of company processes, expenditures, and the testing automation tools in question.

For example, the go-to method of counting savings is to consider how much Quality Assurance time is saved by automation. If implementing automated testing saves us Z hours of QA each month, it’s easy enough to calculate the X cost of those work hours versus the Y cost of implementing automated testing. Most people see it as a simple matter of inserting X and Y into the first variant of the equation.

If we assume that the cost of implementing automated testing is 500 units and we save 100 units each month on lessened QA time, we’ll break even in 5 months. Beyond that point, we have a constantly increasing positive automated testing ROI.

Next, the investment category of the equation can be vastly different in each specific implementation case. Some companies opt to develop their own automation framework, while others prefer to find external partners that specialize in this area or have ready-made tools.

Needless to say, depending on whether your team has experience in developing and maintaining automated testing frameworks, the costs (and cost-effectiveness) can vary wildly.

Now that we have mostly covered the subject of how to calculate ROI for test automation, let’s talk about another “phantom” point to factor into your analysis: What happens if you don’t invest.

Opportunity Costs of Manual Testing

No discussion about any sort of ROI analysis in automation testing can really be complete without considering the potential financial or organizational losses you might suffer if you don’t invest in new tech. “The cost of lost opportunity,” as it were.

To correctly evaluate the opportunity (i.e., investing in a streamlined process), you have to consider the downsides of the commonplace alternatives. Here’s a brief rundown of the possible lost opportunity costs of sticking with manual testing:

A Slow-Down of Multiple Company Processes

The average speed of automated testing is about five times that of manual test execution time. This impacts your delivery velocity, deadlines, team dynamics, stress, and employee burnout.

That’s only half the issue though. Any in-house department influences other departments. The company is a living, breathing organism.

A slowdown in development or production can also grind other departments to a halt: sales, marketing, auditing, and others. It can place a strain on HR to manage employee happiness or to recruit new developers/testers who couldn’t handle the crunch.

Organizational Micromanagement 

As with anything that’s done in-house and by humans, there’s always a need for organizational management, adjustments, meetings, briefings, and employee one-on-ones.

If your managers don’t have to deal with that yet, it’s only a question of time. As soon as you scale up, you’ll have to get involved in managing the human side of your teams under the immense pressure of delivery deadlines.

Manual testing increases this micromanagement strain since you’re offloading even more technological complexity onto living people that will require support to stay productive.

Lowering of Delivery Output Due to Regression Tests

As Blake Norrish accurately points out in his blog on “Regression Death Spiral,” testing isn’t only about verifying that one new feature. There’s also regression testing.

Consider what happens when you’ve been working for years on a software product. Dozens of engineers and developers leave, and new ones arrive. It’s a multi-layered cake of code created by different people.

Each manual test is a laborious process of making sure the new feature doesn’t break any or ALL of the previous ones, created over the ENTIRE period of development.

Ignoring this idea can often lead to disastrous consequences (like a new patch that breaks the fundamental functions of the entire product).

What happens when your team has to do continuous regression testing of each new feature? That’s right — everything slows down painfully. Burn-out, stress, and missed deadlines ensue. Automated testing is the widely accepted solution to avoid both slowing down your testing AND avoid new features breaking old systems.

Overall, only the stakeholders within the company itself can determine whether you need to implement test automation at any given time. However, none of us can run from innovation forever and not ultimately fall behind.

Common Mistakes in Calculating ROI on Test Automation

As with any new endeavor, making the calculated decision to adopt new tech is only half the journey. How you approach the implementation process and whether you’re wise enough not to repeat the mistakes of others is likely to determine your ROI value of automation vs. manual testing as well.

Thankfully, the industry has made enough strides in the direction of automation for most of the common pitfalls to be glaringly obvious. Let’s take a look:

Ignoring ALL Manual Testing Scenarios

Even the most advanced test automation framework cannot include every single scenario and process. A lot of the value of automated testing stems from running these tests multiple times, and not every scenario requires automation.

If your development is diverse in its processes and products/features, you may have to run manual tests alongside automated test scripts. Discerning where to apply one or the other will save you money.

Not Taking Into Account the Training Time

Whether you hire an outside team to handle testing automation or launch a project using only the resources you already have, your QA automation ROI calculations should always include time and money spent on training.

This can be the training of manual QA engineers who start working with automation or the training of automation QAs to work with specific tools and technologies. Moreover, when you intend to outsource your automation testing project to an offshore team, extra time and money may be needed to create a perfect synergy.

Only Short-Term or Narrow ROI Calculations

While it’s completely fine to first consider the initial cost and return of implementing test automation, it’s also necessary to evaluate the long-term ROI for your company and use relevant test automation ROI metrics.

I’ve already outlined the potential problems with manual in-house testing. No doubt you have your own insights into these (and others) since you know your team well.

Will automated testing solve more issues than just QA time in the long run? Will it open up new opportunities? Will it improve the quality of development and product launches? These are all things to consider in long-term ROI calculations.

Skipping Test Maintenance

Automated tests are still code. They’re still processes that need to be maintained and updated if you want them to provide value for years. This is a factor you need to investigate in your ROI equation.

Is your team ready to handle the maintenance? Or do you have a partner/outsourcing firm that’s proficient in this? How do you wish to handle maintenance in the long-term? Including maintenance aspects in the test automation strategy provides the team with a more realistic idea of ROI for test automation projects.

Failing to Include Setting Up the Automation Testing Environment

To calculate ROI for your test automation project accurately, it is vital to consider the efforts invested into building a testing environment.

Overlooking Records/Documentation

This is where you address the ‘knowledge leakage’ parameter in automated testing ROI calculations. It’s a short and vital directive:

Document everything you can.

There are few events as damaging as losing a key employee who kept all the knowledge in their head and having to re-engineer numerous complex cases. Automation can help here as well, as there is less of a dependence on human expertise (though it is still obviously necessary).

Depending on your product, organizational structure, and management style, the above considerations may move up or down in priority. You may even encounter entirely new pitfalls as the technological environment changes. Yet keeping these points in mind will help you stay flexible and vigilant.

3 Challenges of Evaluating Test Automation ROI

When everything is done right, the automation testing ROI can give you a pretty solid idea of the impact of test automation on your business. However, it’s not always possible to give an absolutely precise calculation because there are some aspects that are hard to account for. Here are the three potential challenges of maintaining a test automation project that have an impact on measuring test automation ROI.

There Are Always Undetectable Issues

Achieving 100% test coverage, whether with the use of manual or automated testing, is not achievable at the moment. Therefore, even the most qualified QA team will not be able to spot 100% of issues, and you’ll need to include troubleshooting costs in the overall quality assurance budget. Of course, it’s hard to predict how much locating and resolving those issues will cost in the long run, which makes calculating ROI slightly more difficult.

You Cannot Survive on Automated Testing Alone

Automation testing and manual testing are not mutually exclusive concepts, as we’ve concluded in one of our recent longreads. This is why if your QA project still heavily relies on manual testing — as it should — you won’t be able to precisely calculate how much money you’ve saved on automating your tests because manual testing will still play an important role in the progress of the project.

Not Every Benefit Has a Monetary Value

Some metrics of testing automation, such as the number of manual test cases correlating to the number of automated test cases, or the number of issues detected over a period of time, are relatively easy to calculate. However, you cannot impose an accurate monetary value on things like customer satisfaction, improved market positions, or the number of bugs that never appeared due to timely QA.

Advanced Parameters for Maximum Efficiency of ROI Calculations

The basic formula for ROI calculation on automated testing (ROI = Cost savings / Investment cost) is almost universally applicable. However, its components may vary depending on your company. Furthermore, the metrics, cases, and best practices to pay attention to may also be different.

There are six parameters/variations of measuring the ROI of automation, which may be stand-alone for your company or integrated into one bigger equation:

• Automation of new tests — this is the most standard case scenario, handled by the simplest “QA time saved” formula.
• Automation of older tests — as I discussed in the regression testing paragraph, this is a best practice use case to seriously consider.
• All-around environment testing — knowing how your product handles various environments may be key, considering most companies seek to diversify in this area. How much will you save on avoiding bugs across different environments?
• Defect leakage — the number of bugs “leaking” from development into production. Many experts consider this to be the most impactful parameter since it can do the most damage when affecting customers (and, consequently, your business).
• Reuse or redundancy of tests — there’s little reason to build a new test when an existing one can be repurposed. Modular scripts are one way to mitigate this, but there are others. Consider the savings aspect here.
• Knowledge leakage — consider the average tenure of a QA engineer. Then think about what happens if they leave. What’s the cost of time spent on re-training a new one and re-engineering lost manual test cases? How can automation reduce your costs here?

These can be parameters in your larger calculation or specific cases if you choose to implement automation in one area first. This leads us to the topic of the general best practices in the industry and how to ensure that the ROI formula actually corresponds to reality via correct tech integration.

How to Reap Maximum Benefits of Test Automation

An important factor in calculating ROI and preparing to integrate a new company process is knowing the best practices of the industry, which may directly or indirectly affect your costs and returns. The importance of introducing testing automation itself is not up for debate after all: with the average minute of downtime costing $5,600 and over 60% of software failures costing their owners more than $100,000, automation testing is one of the best options to ensure consistent functionality and stable performance. Here is how to do it the right way.

The two rules of thumb are: gradual introduction and long-term planning.

Calculating ROI on paper is one thing, but making sure that the company organically adopts a new technology is quite another. So, what are the three main points to consider during actual implementation?

1. Don’t Automate Every Single Process Right Away

With the considerably lower automation test execution time per test compared to manual testing, it can be very tempting to try and increase test coverage and efficiency by automating everything. However, rushing to automate every single test from day one is the other end of the extreme that can significantly drive up the costs of test automation without bringing all the anticipated benefits. As I mentioned before, manual testing still has its place in test cycles.

Carefully consider the pipeline of your automated transformation and what kind of balance your company has when it comes to testing needs. Which of the advanced ROI parameters listed above is the most vital for you? Where should you start?

2. Understand That Every Test Will Become a Regression Test Eventually

The danger of ignoring ROI on prior test automation is that it leaves a blind spot in your company: you’re not taking the future of your current tests into account.

The best practice for this is to integrate new tests as an element of your regression testing process right away. Remember that automated testing needs to be constantly maintained to ensure excellent automation coverage and efficiency.

3. Evaluate the Timeline (Waterfall vs. Shift-Left Model)

The shift-left testing method has been hailed as the saving grace of companies mired in expensive manual testing via the old waterfall model (where development and testing are done sequentially).

Shift-left is based on simultaneous development and testing via automation software and agile practices, ensuring better quality and considerable time savings. In most cases, this is the go-to direction for most development and QA teams, as it also makes the process of maintaining and training a testing team more efficient.

Communicating the Importance of ROI on Test Automation to the Team

When talking about test automation’s return on investment, it’s important to keep in mind that automation efforts are always shared between departments. Moreover, adopting automated testing takes a lot of time and resources, all the while automated testing does not guarantee immediate success.

This is why it’s essential to not just think about quantifiable ROI figures for your test automation project, but also ensure stakeholder buy-in. And that, in turn, is only possible with honest communication about investing in automation and the desired outcomes. Here are some tips for getting everyone on board with test automation completely instead of making the testing team the only responsible entity:

1. Present a compelling testing strategy. It should provide a clear picture of the goals, milestones, timeframes, and possible risks of automation. Moreover, if the manual QA team is worried about automation replacing manual testing, it’s vital to communicate that no replacement is taking place and that automation is automated to enhance the software testing process, not overhaul it completely.
2. Build communication on real-life examples. Implementing a test automation project is a complex task, and the team needs to know exactly why they are doing it. This is why the person in charge of adopting test automation shouldn’t just point out the benefits on paper. It’s much better to use real-life examples, stories, anecdotes, and calculations based on the company’s own operations.
3. Visualize the transformation. Most people find it easier to understand information that is broken down and presented in an easily digestible form of graphs, charts, and tables. These visual tools can help you easily prove that automation is more efficient than manual testing for many types of tasks and that the amount of effort needed for manual testing to be automated will pay off in the end.

Conclusion

Embedding an automation strategy into your QA process is almost always a good thing. The immense value of test automation has the potential to take most companies to a new level of efficiency. In today’s competitive markets, speed and quality of delivery are vital factors of survival and success.

The collaboration between human expertise and automated tools is what defines the most dominant market players. Automation testing ROI calculations remain the main method of determining how to approach test automation, but managers must never forget that it’s not a cut-and-dry formula.

At the end of the day, your own internal resources spent on test automation, efforts, company structure, choice of automation partner, client needs, and other factors have a serious impact on your long-term returns. So, be cognizant of your company specifics, find trustworthy contractors, and value your team and development process health above all.