Investing in software development is a top priority for companies looking to stay competitive, enhance operational efficiency, bring customer service to the next level, and drive innovation. But how do these companies know if their investment is paying off? 

For example, many retail chains invest in inventory management software to track stock levels, manage orders, and forecast demand. Even after the initial development investment, retailers will need to keep the software updated and regularly introduce new features, such as real-time analytics and automated reordering to streamline operations and reduce human error.  

Due to the high initial costs and regular required maintenance of software development it is crucial for companies to thoroughly understand how to calculate both the risks and the return on investment (ROI). Correctly calculating ROI can help your company evaluate the effectiveness of software, plan for improvements and updates, and make better software investment decisions. Calculating software ROI, however, is not always easy — the benefits can be difficult to quantify and there may be hidden costs impacting profitability. To help companies break through the cloud of uncertainty and gain clarity when making strategic decisions about such high-risk investments, we will give suggestions on what to consider when evaluating software ROI and the hidden costs impacting it.  

Why is software ROI difficult to calculate?

Calculating ROI for software is inherently difficult due to the multifaceted nature of both its costs and benefits. One of the primary challenges is the intangible benefits that software can provide, such as increased employee morale, improved customer satisfaction, and better decision-making capabilities, which are hard to quantify monetarily.  

Additionally, software costs extend beyond the initial purchase and include ongoing expenses for maintenance, updates, and training. The measurement of these long-term expenses, or total cost of ownership (TCO) includes what you’d pay for software licensing, physical infrastructure to support the software, and even recurring subscription fees with Software as a Service (SaaS).  

The dynamic nature of technology also means that software must continuously evolve to remain secure and usable, adding to the complexity of long-term cost estimation. Moreover, the success of software implementation can vary widely depending on user adoption rates, the learning curve, and the effectiveness of integration with existing systems. These factors make it challenging to draw a direct line between the software investment and financial returns, complicating the ROI calculation process. 

Benefits of calculating software ROI 

Despite these challenges, calculating software ROI provides benefits that are crucial for making informed business decisions. It allows organizations to justify the initial investment by demonstrating potential financial returns and strategic advantages, thereby securing stakeholder buy-in and funding. Understanding ROI also helps prioritize software projects that offer the highest value, ensuring effective resource allocation. Additionally, measuring ROI can reveal inefficiencies and areas for improvement, guiding future enhancements and updates to maximize performance. Measuring ROI also aids in setting realistic expectations and benchmarks during the development and onboarding process, leading to better planning and goal setting. This structured approach ensures that software investments align with business objectives and deliver tangible value, such as enhanced strategic planning, optimized operational efficiencies, and improved growth and profitability. 

The four hidden costs impacting software ROI 

The formula for calculating ROI is relatively simple — the benefit of an investment is divided by its cost and expressed as a percentage in the next step.  When evaluating the ROI of software investments, however, it’s important to look beyond the obvious expenses and consider the hidden costs that can significantly impact the overall profitability of investment. These hidden costs often stem from issues such as excessive technical debt and code complexity, which lead to product delays, and ongoing maintenance of poorly planned or executed software. Understanding these factors can help businesses make more informed decisions and avoid common pitfalls. 

1. Excessive technical debt 

Technical debt accrues when developers take shortcuts or use quick fixes to meet stringent and unattainable timelines misallocated in the ideation phase of the product development cycle. While these shortcuts are sometimes unavoidable, they can be significantly reduced through more efficient planning, realistic time frames for project delivery, and better allocation of development resources. If not accounted for in the beginning, excessive technical debt can result in: 

• Increased maintenance costs: The need for frequent patches and fixes increases the time and resources required for maintenance. 
• Reduced agility: Future development and scalability can be hampered, making it harder to adapt to new business requirements or technologies. 
• Performance issues: Software with high technical debt can suffer from poor performance, affecting user satisfaction and productivity. 

2. Code complexity 

Code complexity measures the difficulty of building, maintaining, and modifying software code. High code complexity can arise from excessive technical debt, poor design, loose and arbitrary implementation of coding standards, or over-engineering. The hidden costs associated with code complexity include: 

• Maintenance challenges: Complex code is harder to understand, modify, and debug, leading to increased time and effort for maintenance. 
• Higher error rates: The more complex the code, the higher the likelihood of bugs and errors, which can affect software reliability and performance. 
• Reduced developer productivity: Developers spend more time trying to understand complex code, which slows down the development process and can lead to frustration and turnover. 
• Scalability issues: Due to its higher error rates and maintenance challenges, complex code can be difficult to scale, limiting the software’s ability to grow with the business. 

3. Product delays 

Delays in product development and deployment can significantly extend “time to market” and, therefore, negatively affect the expected ROI of software investments. Common causes of delays include: 

• Scope creep: Uncontrolled changes or continuous growth in project scope can extend timelines and increase costs. 
• Resource allocation: Insufficient or mismanaged allocation of resources, including developers, testers, and project managers can damage software development project budgets. 
• Inadequate planning: Poor initial planning and unrealistic timelines often lead to extended project durations and higher expenses.

4. Maintenance of poorly planned/executed software 

Poorly planned or executed software often requires extensive ongoing maintenance, which can drain resources and create continuous unplanned expenses. The hidden costs of maintaining such software include: 

• Frequent updates and patches: Constantly addressing issues and updating the software to maintain functionality and security. 
• Training and support: Increased need for training and support for users to cope with unstable or unintuitive software. 
• Integration issues: Difficulties in integrating the software with other systems or platforms, leading to additional development and support costs. 

Mitigating hidden software development costs 

To mitigate these hidden costs and improve the ROI of software development investments, businesses should: 

• Invest in quality from the start: Prioritize high-quality software design, architecture, development practices, and testing to reduce technical debt and coding errors. 
• Set realistic timelines: Establish achievable project timelines with clear milestones and buffer periods to accommodate unexpected delays. 
• Allocate resources wisely: Ensure adequate and well-managed resource allocation to maintain steady progress and avoid bottlenecks. 
• Continuous improvement: Implement a culture of continuous improvement and regular code reviews to catch and address issues early. 

Evaluating software ROI for long-term success 

It is crucial for companies to consider the established ROI of their vendors and software development partners. Investing in premium engineering may seem like a higher up-front cost, but it can significantly increase software ROI by reducing many of the hidden costs we mentioned above. Clean code, thoughtful design, and robust planning ensure smoother deployment and better performance and support compliance with regulatory standards while enhancing overall business agility. By strategically evaluating and investing in premium software development, companies can achieve sustainable growth, maximize their return on investment, and maintain a competitive edge in the market. 

Forrester’s TEI analysis of HTEC-built software ROI 

The Total Economic Impact™ (TEI) of HTEC, as calculated in a 2024 commissioned study conducted by Forrester Consulting, illustrates the impact of premium engineering for HTEC clients. By examining the experiences of four HTEC customers and aggregating their project data, Forrester outlined the potential financial benefits and strategic advantages of engaging HTEC for software development and engineering. Key highlights from the study include: 

• Net Present Value (NPV): $3.6 million 
• Return on Investment (ROI): 82% 
• Decrease in time required for new product release: 12 months 

Financial impact of premium engineering services 

The Forrester study also highlighted several key benefits of HTEC’s premium engineering services:

• Faster product release: HTEC’s involvement significantly decreases the time required for new product release, giving companies a competitive edge.
• Savings from upfront quality and security design: Emphasizing quality and security from the start leads to substantial long-term savings.
• Improved customer acquisition: Enhanced product quality and faster releases improve customer satisfaction and trust, aiding customer acquisition.
• Promotion of modern engineering best practices: HTEC models how products are built using the latest technologies and methodologies.
• Increased labor cost flexibility and access to additional skillsets: HTEC provides access to a flexible labor force and a wide range of specialized skills.
• Innovative product design: Designing cutting-edge products from start to end.

HTEC’s unique approach to software development includes cross-functional and industry-focused teams, expertise sharing through the Tech Excellence framework, and a strong emphasis on quality and security. By leveraging HTEC’s technology consulting, design, and development services, businesses can realize faster time-to-market, improved product quality, and substantial cost savings, ultimately leading to significant ROI and client satisfaction.

For more detailed insights into HTEC’s impact, download our infographic with tips on improving the secure software development lifecycle (SSDLC) and highlights of HTEC’s benefits in each stage.