KEY POINTS:

  • Architects are frequently asked about the (economic) value of architecture. Being able to answer this question is a crucial skill for any senior architect. But it may be difficult to answer this seemingly harmless question concisely and convincingly to a non-technical audience.
  • In this post, I sketch two answers to the question of the economic value of architecture: the return on investment metaphor, and the selling options metaphor.

Intro

Architects are frequently asked about the (economic) value of architecture. Being able to answer this question is a crucial skill for any senior architect. But it may be difficult to answer this seemingly harmless question concisely and convincingly to a non-technical audience.

Having good architecture requires some investment. This investment is time and effort spent implementing some architecture pattern or constructor refactoring code to align with our architecture. Consequently, we need to have an answer to the value of this investment.

In this post, I sketch two answers to the question of the economic value of architecture:

  • the return on investment metaphor
  • the selling options metaphor

The Return-on-Investment Metaphor

In economic terms, return on investment (ROI) is a ratio between net profit over some period and cost of investment. In other words, ROI shows how much you get back from your investment. A high ROI means the investment’s gains compare favourably to its cost. As a performance measure, ROI is used to evaluate the efficiency of an investment or to compare the efficiencies of several different investments.

Figure 1: An illustration of the ROI metaphor. Investement leads to lower costs or higher value. It takes some time to reah a break-even point, a point when additional value has compensated for the invesment. After the break-even point, we start to earn more profit than without the investment.

An investment in good architecture can help increase ROI in IT. Probably the best example of this are frequent arguments that well designed systems are much easier to understand and change. As our systems are continuously evolving, the return on investing in making a system more easy to understand and change is significant and short. The main value of investment comes from generating less errors and bugs, easier adding changes, and short time-to-market, improved developer satisfaction.

A good example of using ROI metaphor to argue for investing in architecture is the port of Martin Fowler who uses this argument to argue for the importance of investing in improving internal quality. Figure 2 summarizes his argument.

Figure 2: Software with high internal quality gets a short initial slow down, but deliveres more rabidally and cheply later (source martinfowler.com/articles/is-quality-worth-cost.html).

A ROI metaphor is powerful, easy to understand by a non-technical audience, but it has its limitations as a way to describe the value of architecture. First limitation lies in the fact that it is very difficult to measure architecture, quality, and productivity. Consequently, you can assess ROI only qualitatively, e.g. by talking and interviewing developers and product people. Second, ROI is a good measure, but not every investment in architetcure will lead to profit increase. That is because we frequently have to make decisions with lots of uncertainty. Nevertheless, that does not mean that we should not do some investment. The next section explains why.

The Selling Options Metaphor

Gregor Hohpe has frequently argued that the best way to explain architecture to non-technical people is by using a financial option metaphor. A financial option is a right, but not an obligation, to buy or sell financial instruments at a future point in time with some predefined price. As such, a financial option is a way to defer a decision: instead of deciding to buy or sell a stock today, you have the right to make that decision in the future, at a known price.

Options are not free, and there is a complex market for buying and selling financial options. Fischer Black and Myron Scholes managed to compute the value of an option with the Black-Scholes Formula. A critical parameter in establishing the option’s value is the price at which you can purchase the stock in the future, the so-called strike price. The lower this strike price, the higher the value of the option.

Figure 3: An illustration of the financial option metaphor. Options have a price, leading to higher initial costs. However, if an opportunity can generate more value, we gain additional profit (or lose it if we do not invest).

If we apply the financial option metaphor to IT architecture, we can argue that selling options gives the business and IT a way to defer decisions. Gregor Hohpe gives an example of the server’s size that you need to purchase for a system. If your application is architected to be horizontally scalable, you can defer this decision: additional (virtual) servers can be ordered later, at a known unit cost. Another example of an IT option is architecting your system to have a clear separation of concerns. For instance, it may be challenging to decide early what authentication mechanism an application should use? A system that properly separates concerns allows you to change that decision late in the project or even after go-live, at a nominal cost.

The value of the option originates from being able to defer the decision until you have more information while fixing the price. In times of uncertainty, the value of the options that architecture sells only increases.

I like the options metaphor very much. However, as with any metaphor, it has its limits. Again, it isn’t easy to quantify architecture values and have metrics for the value of separation of concerns or horizontal scaling. Second, while the metaphor may be easy to grasp for an economic audience, it may require explaining to other stakeholders, who may be less familiar with financial options markets.

Acknowledgments

Photo by Artem Podrez from Pexels.

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