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How to Calculate ROI Test Automation And What You Need?

June 14, 2024Yauhen Zaremba
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Calculating ROI on Test Automation: How to do it And What You Need
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Testing is a crucial stage in producing quality software and technology devices. Timely and the right testing ensures that the product works exactly as intended, is free of bugs, and has no vulnerabilities. The idea is clearly to understand and improve test automation ROI.

While you can perform testing manually, there is a growing tendency to automate the process. Embracing automation in testing can be a great way to save time and manage business expenses related to product development and QA operations.

Automated testing is faster and more efficient than manual testing. This allows businesses to reduce their QA teams or have testing staff spend more time on other tasks. You can perform Automated testing more frequently and deliver reliable results than manual testing. Ultimately, this improves the productivity of the business.

Other benefits of test automation include detailed checks and reporting, more efficient bug detection, and a more straightforward testing process. Although automation provides so much value, only some businesses benefit similarly. So, before adopting this testing strategy, it’s best to assess the potential costs and gains.

Setting up an automation framework involves a high initial cost. You will likely commit to it (or persuade investors to do it) if you have reliable evidence that it will pay off in the future. To obtain such evidence, you can calculate test automation’s return on investment (ROI).

This post will help you with the task. It explains what ROI is, outlines different methods of calculating ROI on test automation, and identifies the things you need to pay attention to while calculating the ROI. It may be more complex than using a split document, but we’ll try to explain it as clearly as possible. Ready? Let’s begin!

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What is the ROI of Test Automation?

According to a definition by Relevant Software, ROI is “a metric that gives you a numerical representation of the return you can get by embedding an automation strategy into your QA workflows.”Calculating the ROI can be helpful in many ways:

  • It helps you determine the financial impact (positive or negative) that investing in automation will have on your business.
  • ROI allows you to estimate when to expect the investment to pay off.
  • It gives you a clear idea of the potential for gains and losses associated with the investment.
  • Finally, it empowers your business presentation in front of the potential investors to encourage them to support your plans.

To obtain the ROI figure, subtract the estimated costs from the estimated benefits, divide the resulting amount by the expenses, and multiply it by 100.

The outcome will be a percentage figure showing an expected return on adopting test automation. Savings stand for the amount gained by replacing manual tests with automated tests. Costs represent the investment involved in designing the tests and setting up the test environment.

You can express both the benefits and costs in units of either money or time. This is because benefits can be measured in terms of the following:

  • savings resulting from automation;
  • reduced financial risks resulting from automation (such as the costs of potential troubleshooting after the release of a faulty product);
  • time saved by automating tasks;
  • money saved on salaries that would have to be paid to staff performing manual tests.

Meanwhile, you can measure costs in terms of the following:

  • money spent on adopting automation (e.g. building an automation team or accessing third-party testing services);
  • the time needed to develop and set up automated tests;
  • expenses associated with maintaining and improving the testing environment.

Important Metrics to Consider before calculating ROI Test Automation

Important Metrics to Consider before calculating ROI Test AutomationBefore you start calculating ROI for your test automation journey, you must be aware of the important metrics that influence the amount. Here are the top important metrics to consider before evaluating test automation ROI:

Cost

Business cost is clearly one of the biggest reasons for transforming your testing approach from manual to automation. The cost benefit might not show immediately due to the setting up and installing automation tools. But it is definitely an important metric that shows a downward slope in the long run.

Time

You have a team of experienced testers, but they spend the majority of their time writing and executing manual test cases. For SMEs, it is quite a huge loss; the more time they spend on doing redundant tasks, the less time they have to focus on business-essential operations. Clearly, ROI is not only cost-based when you are building a start-up from the ground up and need your team to perform at its best.

Quality

If test automation is providing error-free, best products in a record amount of time, then ROI does and must include quality as one of the metrics. With zero possibility of human error and a high probability of automating redundant tasks, test automation increases product quality and improves customer satisfaction altogether.

Tips to Improve ROI Test Automation

You will not receive the best results just by implementing test automation and waiting for ROI to come to you. Rather, adopt these tips to increase your chances of augmenting test automation ROI:

Decide What to Automate

Automation is good, but automating everything is simply a waste of time and money. Make an informed and calculated decision on which tasks require automation so you save your time and cost on installing and maintaining tools and systems that serve no actionable purpose or contribute nothing to your business ROI.

Create Testable Products

Switching from manual to automation will not work for you if your end product is untestable. With every new idea and fresh release, your goal should be to develop applications that are testable and offer a gateway for automation tools to verify their functioning.

Use Standard Test Automation Tools and Frameworks

While customization is great, going for industry-standard test automation tools and frameworks ensures that you comply with the region’s rules and regulations. All the while, such an approach ensures that your product meets the general expectations of the users and stakeholders.

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Prepare Reusable Test Cases

Automation is specifically for writing test cases that testers can reuse. Any QA engineer that spends less time executing the same test cases over and over again spends quality time creating other test cases and checking different aspects of the product. It directly impacts the test automation ROI by diverting your critical business resources in the right direction.

Prioritize the Right Tasks

If you have five test cases to automate, make sure you run the one that is the high priority first. Simply automating and running those cases at random will impact your ROI if your users are waiting for the release of certain features that get delayed.

Ways to Measure ROI Test Automation

Ways to measure ROI on test automation include the basic calculation that shows how much time can be saved by replacing manual testing with automated testing and more complex calculations based on efficiency and risk reduction.

Testsigma - Ways to Measure ROI Test Automation

Basic ROI calculation

The most basic ROI measurement approach consists of calculating the amount of time saved by running a certain number of automated tests over a specific period instead of performing manual tests.

For example, it may take 250 hours to write automated tests for a piece of software that a company is developing (for example, a quoting software for small business).

You may consider using an alternative piece of kit, such as online waiver software, but whatever one you use, you could save 20 hours of manual testing a week. This means the initial time investment would be compensated in about 13 weeks.

We can also calculate the ROI in money if we multiply the time values by the hourly rates of developers and manual testers and set the time frame for the assessment. For example, if developers are paid twice as much as manual testers, it would take around 26 weeks to save money on adopting automated testing.

It is worth remembering that this calculation is simplified. To make it more accurate, additional parameters may need to be considered. These may include, for example, the time spent on maintaining and upgrading the tests, the time savings made thanks to the elimination of mistakes made in manual tests, or the gains achieved thanks to the large scale at which automated tests can be conducted.

Testsigma - Basic ROI calculation

Calculation of Efficiency of ROI

A more advanced approach involves the efficiency ROI calculation, focusing on time investment gains. In this case, the investment and cost that go into the ROI formula are defined as follows:

Investment = Automated test script development time + Automated test script execution time + Automated test analysis time + Automated test maintenance time + Manual test case execution time

Gain = Manual test execution time or analysis time * Total number of test cases (automation + manual) * Period of ROI / 8

This approach is based on some assumptions, such as that test automation completely replaces manual testing and that only one tester is needed for manual testing. Since these assumptions are seldom fulfilled, this calculation should be used as a rough guide rather than the final assessment.

Risk Reduction ROI Calculation

This ROI calculation is based on the following formula:

ROI = (Reduction in monetary risk – Cost of risk control) / Cost of risk control

The reduction in monetary risk can be calculated by taking the annual risk occurrence rate, subtracting the cost of risk control from it, and dividing the resulting number by the cost of risk control. The gain here is the reduction in monetary risk that a company would face by not implementing automation technology. This is based on the assumption that manual testers are likelier to make mistakes.

ROI Calculation – Other things to Consider

Whichever method you choose, consider some additional factors that may influence your calculations. For instance, automation of some processes may impact other operations too, which must be accounted for. An example of this would be having automatically generated test reports, reducing the time and cost involved in producing QA documentation.

Furthermore, not all tests can or need to be automated. Consider applying automation only where it can bring significant gains. This implies that manual testing would continue in other cases and that you would retain some manual testing staff. If this is the case, you need to adjust your calculations accordingly.

Some tests can be reused, bringing further savings in your operations. Consider the gains from automating regression tests. Knowing that automated tests are much more accurate than manual tests, you can assume that adopting automated testing can save you the costs of troubleshooting missed bugs.

Ensuring the accuracy of ROI calculations

You are right if you have already concluded that calculating ROI for test automation projects is a complex task. But the complexities do not end here. Before you approach the task, you should be aware of some subtle issues that can influence the accuracy of your calculations.

Firstly, it may not be possible to determine the monetary value of some things relevant to your calculations, for instance, the cost of fixing errors that will never occur thanks to automated testing, improved website credibility, or product quality.

Secondly, some parameters may change over time, potentially in unpredictable ways. This applies, for example, to the cost of access to simulators/emulators/real devices supplied by third-party providers or the costs of maintaining and training a testing team in the long term.

Finally, remember that automated testing does not guarantee perfect accuracy. Occasionally, some bugs may need to be noticed and require troubleshooting. Embracing automation does not mean that you no longer need any testing staff. You still need a team to operate automated tests. Manual testers may occasionally be required too.

To conclude on ROI Test Automation

Calculating ROI on test automation may seem complex. It certainly requires a detailed examination of your business and product, testing needs, and testing processes. You need to select the calculation method, identify and assess the relevant parameters, and review additional factors that can impact your calculations.

However, you will obtain a handy metric if you do it right. It will help you assess the expected return from adopting automated testing, enabling you to make an informed decision about investing in the technology. The figures can also be presented to external investors. 

Investing in automation tools, such as CRM services, sales automation software, or test automation, requires a careful and professional assessment of its impact on a company’s productivity and finances. This brief introduction helps you get started with the process.

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Frequently Asked Questions (FAQs)

What do you mean by ROI in Selenium?

ROI in Selenium simply means to measure the effective ROI from test automation with Selenium. It highlights the benefits of using Selenium test automation framework to perform faster work and less manual labor for higher profit.

What is the average ROI on automation?

The average ROI on automation is typically around 250% and comes in after almost six months of deploying the automation tools. But it depends if you are calculating the ROI in terms of monetary gains or efficiency. We have discussed the formula in the blog above for your better understanding.

What is the ROI process?

Return on investment (ROI) is an average/approximate measure of profit on your investment. You can calculate ROI by subtracting the initial investment cost from its final value and then dividing the new number by the cost of the investment. And to get the accurate percentage, multiply it by 100.

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