Key Metrics and KPIs to Track in Software Development Outsourcing
Why Track KPIs in Software Development?
KPIs measure a company's effectiveness in achieving business goals, such as expected quarterly revenue or the number of employees hired. In the digital world, KPIs serve the same function but focus directly on the outcomes of the software development team's work.
They show how well your development team is performing. And if this argument hasn't convinced you that tracking KPIs is worthwhile, the following points will certainly dispel any doubts.
You Have Control Over the Project
As a company outsourcing software development, you want to know where the project stands—it's your unique product. You don't want to miss anything in the process.
In this context, KPIs provide a complete picture of the situation and control over the project. By tracking them, you can react early enough if you notice a concerning situation.
You gain the most important resource for a manager: peace of mind from having timely access to accurate information.
You Achieve Your Business Goals
A software development project without KPIs is like a journey without a map. Eventually, you might get lost, end up in any city, and never check the calendar or watch—but only some people enjoy or can travel that way.
In business, there is rarely room for spontaneity because it costs too much. Technology projects almost always have a specific goal and therefore need precise measurement of distance covered, time spent, and costs incurred.
You See the Engineering Team's Commitment
Imagine a project is clearly behind schedule, and no KPIs are set at the team or individual developer level. If you ask the team what happened, they can tell any story. Each person may have their own reason why what was supposed to happen didn't, and you have no real tool to verify who is telling the truth.
With software development metrics, such a problem never arises because KPIs turn opinions into facts and numbers. Thus, you know exactly to what extent and who completed or failed to complete their task.
You Have Complete Information for Investors
If you are a startup and the product is externally funded, investors will want to know exactly where their money is going and how you are using it. So, when venture capital asks about the project status, as in the case above, you must answer not with opinions but with facts—that is, software development KPIs.
12 Important Metrics in Software Development
KPIs can vary drastically depending on the size of the company or project, funding method, and even industry. Here we list the 12 most important KPIs for software development that you should measure.
Net Promoter Score (NPS)
Let's start with a software development KPI that primarily relates to past and current projects of an outsourcing agency.
NPS measures overall customer satisfaction with the company's work. It is checked with two simple questions:
On a scale of 0 to 10, how likely are you to recommend our services to your friends?
Why did you give that answer?
The NPS survey reveals customers' subjective feelings about working with the company. The survey can be conducted online or in person, and it is expected to be repeated periodically at intervals of 3 to 12 months.
NPS allows companies to identify what works well in customer service and what doesn't. NPS results can also be used in marketing or sales, for example, to upsell or cross-sell to companies that received high scores.
NPS is calculated by subtracting the percentage of detractors (scores 0-6) from the percentage of promoters (scores 9-10). It is generally considered that a Net Promoter Score between 0 and 30 is decent, while above 60 is excellent.
An alternative to NPS is the CSAT (Customer Satisfaction Score), measured on a scale of 1 to 5.
Employee Net Promoter Score (eNPS)
eNPS is a software development KPI that, like NPS, measures satisfaction, but this time of the company's employees rather than its clients. The survey principles, repeatability, and rating scale are the same.
eNPS is conducted to identify the causes of employee dissatisfaction with their work as quickly as possible and address them. Of course, it works the other way too—eNPS captures what employees like about the company to use that information to maintain good conditions.
Importantly, eNPS can also be used to measure employee satisfaction with a specific project. In this case, you use eNPS to find out what developers have on their minds that they might not say during a sprint.
eNPS is also an interesting metric for companies seeking support from a development agency, as one of the biggest issues in IT projects is developer turnover. So, the higher the eNPS, the lower the risk of outsourced developers leaving after coding begins.
Velocity
Velocity is a software development metric that shows how many tasks defined by the product owner were completed by the team in a given sprint. Based on the team's average pace of working through the backlog, it helps estimate when and how long the team will spend on specific tasks.
The most popular ways to measure velocity are the following two:
- Task counting - simply marking tasks as done or not done,
- Story points - rating tasks on a difficulty scale.
Velocity is a variable quantity because the pace of each sprint may differ. However, it is assumed that after three sprints, you can estimate the team's average velocity and use it to project future progress.
Sprint Burnout
Sprint Burnout is a KPI that measures the work completed during a sprint against the planned schedule.
While Velocity relates to the expected pace of work, Sprint Burnout shows the team's speed within a single sprint. It is often measured as the percentage of tasks completed relative to the remaining time in the sprint, for example: we completed 60% of tasks, and we have 30% of the time left.
Release Burnout
Release Burnout shows how quickly the team is delivering features or products. Thus, it is a broader software metric than Sprint Burnout, as a release may consist of several or a dozen sprints.
With Release Burnout, the team knows whether it can meet the product release deadlines. It also provides information to the investor or product owner about whether the agreed timelines are feasible.
Throughput
Throughput is a key performance indicator that shows how many and which tasks the team completed in a given sprint. It does not assess progress, only the total number and type of tasks completed.
With this KPI, managers can evaluate what the team spends the most time on and why. Tracking this metric is most appropriate in projects using the Kanban system, but it can sometimes also be used in Scrum projects.
Cycle Time
Cycle Time determines how much time the team spends completing a specific task. Managers often use this metric because it objectively evaluates the team's pace and helps estimate the speed of future sprints.
Cycle Time is counted from the moment the team accepts a task to its completion; there is no room for opinions in this KPI, but clear rules for ticket acceptance and completion must be established.
Lead Time
Lead Time is similar to Cycle Time, but it covers the time from when the idea for a task arises to its completion. Thus, it provides broader information on how long it takes from concept to successful execution.
WIP - Work-in-Progress/Process
WIP measures the number of open tasks that team members are currently working on. With WIP, managers can assess the team's workload and each engineer's capacity.
Deployment Frequency
Deployment Frequency measures how often the team delivers code ready for deployment. This KPI allows you to check the team's ability to deliver tangible value over time, such as a new feature or bug fix.
This metric is important for teams working in short development cycles, such as startups that need to quickly test various business assumptions and regularly release functional prototypes.
Change Lead Time
Change Lead Time measures the time from the first lines of code to the release of code to users. This metric is similar to Deployment Frequency, but it is narrowed to the time it takes the development team to deploy the code.
Change Failure Rate
Change Failure Rate measures what percentage of deployments fail at the production stage. It helps evaluate the development team's effectiveness, i.e., its ability to deliver quality software that does not require fixes.