Predicting the ROI of Change

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Summary:

Implementing process change is a risky business, fraught with uncertainty and unknown cost. Process simulation modeling can help you zero in on the changes that will deliver a positive ROI.

How Valuable Is Process Simulation Modeling (PSIM)?
Process Simulation Modeling (PSIM) can provide real business value to organizations that are trying to change processes. When companies use the appropriate software simulation–designed for their industry to evaluate process performance, these organizations can improve their operations and achieve higher levels of process maturity with the integration of CMMI. However, regardless of what changes a company is considering, there are always costs and risks involved with any type of change.

PSIM allows a company to examine the changes it want to make, analyze these changes, and determine the impact the change will have on a company’s process. "Any changes that have a significant impact on the product outcome can cause a risk exposure–especially if the organization is investing a significant amount of money in terms of tools, technologies and the training or retraining of people," says David M. Raffo, PhD, a full professor at Portland State University with joint appointments in the Business Administration, Engineering and Computer Science Departments. As the co-author of Moving up the CMMI Capability and Maturity Levels Using Simulation, he has extensively studied the benefits of using PSIM to improve organizations and to keep these companies focused.

Dr. Raffo’s report, itself, is aimed at practitioners–especially software and systems project managers. Dr. Raffo focuses on how PSIM can be used to evaluate issues related to process strategy, process improvement, project management, technology and tool adoption, and control and process design. He stresses that PSIM is a flexible tool that can aid in quantitatively testing ideas such as how to configure a process–or how to configure a software acquisition supply chain. Moreover, this model fulfills the requirements for Process Performance Models (PPMs) that are essential for high maturity organizations as specified by the CMMI.

Who Should Use PSIM?
When a company has expensive processes or when a company is developing safety or mission critical products, PSIM should be considered. "Recent developments in PSIM tools have drastically cut the costs to develop models for evaluating such issues, and new methods have been developed to apply PSIM – enabling it to rapidly provide greater business value," he says. "At the same time, trends within the software industry towards improving operations and reducing costs have heightened the need for tools to better plan and manage processes."

Dr. Raffo notes that competition in the software industry, and the continuing pressure from low-cost economies, is pressing companies to improve their efficiency–and to find ways to optimize their development and quality assurance activities–locally and globally. "Furthermore," he adds, "as companies improve their operations and establish metrics in order to achieve higher levels of CMMI, the data collected can facilitate the construction of quantitative models."

Today, certain industries such as healthcare, automotive, aerospace and software system development – as well as world governments and the U.S. Department of Defense, are using PSIM to determine if their processes are efficient, and to reduce the risk associated with any changes. Dr. Raffo believes that, in most cases, process simulation more than pays for itself on large projects when this tactic is used to evaluate even one decision.

"What is amazing about simulation is that you can try before you buy," Dr. Raffo says. "You can see what a new tool or improvement would be like on your process and predict your overall performance benefit before you expend the resources to deploy it. That's where your real value comes in. Why spend $100,000 on something that will not work?"

Company Pitfalls if PSIM is not used
Many times, vendors claim a tool will provide a savings or performance improvement. However, when

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