COST SAVINGS

COST SAVINGS
In order to establish a business case
for SOA, it is important to articulate
the cost benefit that results from a
SOA initiative. Several approaches
may be considered for determining
cost benefit. One such approach
suggested by David Linthicum
involves computation of cost savings
taking into account the reuse of
services. Cost-savings computation
based on this approach is described
as follows.
COST SAVINGS COMPUTATIONS
The cost savings can be computed as

Development Cost Savings (DCS) = [(N*R)/100]*(C*A)

Where
N = No. of services that are reusable
R(%) = Degree of reuse (expressed as percentage)
C = Complexity of services (average no. of functions or object points
per service)
A = Average cost per function point or object point
Explanation
• When N services are reusable with a reuse percentage of R then the amount of
reuse that represents cost savings is N*R/100
• The complexity of services, C, represents the measure of average amount of
development effort required to develop each of the services. This is dependent
on effort (measured in function points or object points) that would be required
to develop the functionality, had it not been avoided an account of services
model.
• Taking the complexity factor, C into consideration and multiplying it with the
average cost for each function point or object point A, results in average cost
savings per unit of reuse (C*A)
• Hence the total effort saved on development would be the amount of reuse
(N*R/100) multiplied by the average cost savings per unit of reuse (C*A)
ILLUSTRATION COST
SAVINGS FOR BANKING
INSTITUTION
Consider a banking institution that offers
loan and several other products (eg. Credit
card services) to customers. For the
purpose of illustration of computation of
cost savings, assume that the IT
department of the banking institution has a
set of 12 applications that collectively
implement business process of several
financial products (such as loans, credit
card etc.) and is considering a SOA strategy
for the benefits mentioned earlier. This Photo by Unknown Author is licensed under CC BY
ILLUSTRATION COST
SAVINGS FOR
BANKING
INSTITUTION
In order to move to SOA, assume that , of
the 12 applications , one per quarter is
refactored to support service-oriented
model with each on an average exposing
six services. The customer related date
retrieved is modified to expose
functionality as a service to support all
products. This as one example of a
refactored service that may be reused by
business processes of all products.
ILLUSTRATION COST
SAVINGS FOR BANKING
INSTITUTION
The reuse percentage let us say reaches
a maximum of 18% over 12 quarters,
which is for a period of three years. If
the complexity that is the average
number of function points say 400 then ,
using the cost savings may be computed
for a period of three years as follows.
.
ILLUSTRATION COST SAVINGS
FOR BANKING INSTITUTION
• N of services thar are reusable = N= 12
• Degree of reuse expressed as % = R%=5%
• Complexity of services (average no. of functions are object points per
service) = C= 400
• Average cost per function point or object point = A = $100
• Cost savings for Q2 =[N*R/100]* (C*A)
• = [(12*5)/100]*(400*100)=$24000
Cost Savings Computation
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