## RoI(Return on Investments) of automated tools for Services & product based companies

Hi all,
I feel that from the way IT business runs, it is more beneficial for a product based company to go for test automation rather than a services based company. Please read a small calculation i have done.( this is quite a long post & please take breaks if u need :-)
In a software project, the end goal is to have a high RoI which is termed Return on Investment.
Consider that a software company has plans of launching a product within 1 year which is projected to gain revenue X. For easier calculation, let us assume that it requires 50000 man hours for the testing domain alone. So order to complete the task within 1 year, it would require 26 testers over a period of 1 year. The CPP or the Cost per person for this duration to the company is Y for a Developer & Z for tester. So it is obvious that X&gt;&gt;(Y*100+Z*26) assuming it requires 100 developers & 26 testers. The value of X-(Y*100+Z*26) must be as high as possible to get as much revenue with the minimum cost(investment).
Now consider that a software automation tool has been identified whose market price is A. The company might add a factor B as the training cost. So the eventual cost of the automation tool would be C=A+B.
Now if the company decides to introduce the tool into its testing, The advantage of investing the amount C would not only reflect in reduction in man power (which could be utilized in other projects) but also in the long term quality initiatives.
Assume that it would require only 10 testers which would be sufficient to supplement the 26 by automating atleast 40 to 50% of the test cases & carry out the remaining manually.
So assuming X is the projected revenue, the ROI if Company decides to go for manual testing would be
ROI= X-(Y*100+Z*26).
If the company decides to invest C on the automation tool & training, then the number of testers would be 10.

ROI can be calculated as:

ROI=X-((Y*100+Z*10) +C).

Where
X- Total revenue from the project
Y-Cost per developer for 1 year
Z-Cost per tester for 1 year
C-Cost of automated tool & training

Thus the benefit or loss on ROI would be the difference between C & Z*16.
So investing an amount C saves Z*16 (since 26 testers can be reduced to 10). So if C is greater than Z*16, then it would take more than a year to get the investment back. But if C is less than Z*16, then the company would experience the benefit of automation in terms of cost & most importantly superior quality within the first year itself.
I feel the main objective of a services based company are:
1. Provide high quality service( does this make automation mandatory?) to its customers.
2.Hire more, get more billability
3.Reduce costs in project
where as the objectives for a product based company might be
1. Fish out a high quality product with as much less cost as possible ( interms of manpower.)
2. So it would be wise for them to go for an automated tool which will reduce man power required & also help in product testing over years( assuming enhancements, maintainance etc)
I definitely understand the advantages of automation but the business perspetive of these 2 different categories of company has left me a bit confused!!
I have a meagre 3 years exp in this industry & would request all experienced gurus out there to advice me if i am completely wrong in my theory & if right how much!!..
Thanks a lot for reading such a long post!! would be glad to know ur views

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