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How to build a business case for purchasing a cloud development environment

How to build a business case for purchasing a cloud development environment

Introducing new tools requires financial justification, even if, to you, the justification seems obvious. When it comes to cloud development environments (CDEs), this is increasingly important because these development platforms touch almost every part of the development lifecycle.

When building out a business case for purchasing a CDE, or any tool, you’ll want to answer these questions:

  • What’s the cost to our company?
  • What’s our return on investment?

To help answer these questions as objectively as possible, we’ve created an ROI calculator to help answer the question: how can I assess the financial value of implementing a CDE? This calculator will be able to:

  • Quickly and simply demonstrate the value of CDEs, specifically Gitpod Dedicated
  • Present a business case that can be shared with leadership and key financial stakeholders
  • Assist engineering leaders in advocating for implementing CDEs within their company
Gitpod ROI calculator

Calculator assumptions

This business case is built around two primary features of CDEs that we are assuming you care about:

  • Using CDEs removes “works on my machine” problems, time-consuming development setups, dependency conflicts, inadequate local hardware performance, costly context switches, and more. This results in significant developer experience and productivity savings.

  • Onboarding developers can happen more quickly when development environments are pre-configured.

Calculator parameters

ROI Calculator Inputs

Inputs

  • Number of engineers
  • Number of new engineers to onboard per year
  • Average engineer salary per year
  • Hours spent managing and troubleshooting development environments per week per engineer
  • Working days to first pull request for new joiners

When quantifying the last two inputs, it can be helpful to conduct a survey. Below is an example of two questions we usually ask development teams: their engineers about the time spent on onboarding and troubleshooting development environments.

survey result survey result

If you’re unsure of these values, retain the default settings in the calculator of 5 hours per week and 10 days of onboarding. These figures represent the average values we’ve seen from customers prior to implementing Gitpod.

If you’d like to use our survey as a starting point, reach out and we can provide you with a copy.

Results

1.) Translate the time troubleshooting development environments into money

Let’s convert these 5 hours per week into monetary equivalent. Considering that developers are typically the highest-paid employees in a company, their effective coding time is only 70%, taking into account payroll taxes and days off, the average cost per lost development hour equates to $80. This is only the hard cost, not taking into account opportunity costs related to factors like time-to-market, R&D to Revenue ratio, etc. Hence, losing 5 hours per week results in a monthly loss of $1500 per developer per month. For a company with 100 developers, this translates to an annual loss of $1.8 million.

2.) Translate lost onboarding time into money

Given that onboarding time can be reduced by 75% using CDEs (as seen in case 1, 2 and 3), we can estimate time savings for new joiners. With CDEs, 10 days of onboarding are reduced to 2.5 days, saving 60 hours per new developer. Consider a company that onboards 30 employees annually. This includes hiring internal developers, using external ones, and transitioning employees between projects within the company. Such a company loses $144k annually due to onboarding problems.

3.) Outputs

By combining these two factors, we find that a 100-developer company, which onboards 30 employees yearly, can free up 24,000 development hours per year after implementing Gitpod.

This is equivalent to 19% of their engineering capacity (The ratio of freed up hours to the total effective engineering time.), or $2 million in added value (The value of freed up hours in monetary equivalent).

Taking into account costs for Gitpod and infrastructure, the Return on Investment (ROI) will be 913%.

ROI Calculator Outputs

What’s next?

You can customize calculations in the calculator for your company by inputting these five simple parameters. If you need to expand your business case, our team can assist you by incorporating additional CDE features into the calculator. Some examples of additional features for evaluation:

  • Replacing Virtual Desktop Infrastructure (VDI)
  • Savings on expensive new laptops
  • Avoiding the hiring of additional developers
  • Reducing developer turnover costs
  • Replacing specific software required for local development environments, which is unnecessary with CDEs
  • Security risk reduction

For help, questions or comments, contact our team directly!

Author
@andreybadmaev's image Andrey Badmaev Finance & RevOps at Gitpod

Publish date

Jan 24, 2024

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