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Simply: does revenue exceed cost of running it? The book I referred to answers the "but engineering team doesn't have revenue". Engineering can be art, sure,
by andrey_utkin 6y ago
Simply: does revenue exceed cost of running it?
The book I referred to answers the "but engineering team doesn't have revenue".
Engineering can be art, sure, and if you like, we can even discount the idea that art creation can be seen as economic activity. But is there a need to measure productivity then?
- username90 6y ago> Simply: does revenue exceed cost of running it? Cost of running it includes engineering salaries, so isn't a good measure to include when you measure productivity of engineers. A productive engineer would be worth a higher salary, but if you include the cost of that higher salary reducing his value would that also reduce the salary you want to pay? Doesn't make sense.
- dmos62 6y agoAlso, what if engineering is good, but sales is bad? Engineers might exceed their productivity goals, but it wouldn't amount to profit.
- andrey_utkin 6y agoThen from the internal market economics PoV, here's how it looks: Engineering: costs (salaries + infra) are covered by revenue (services rendered to exec team). Executive team: costs (execs salaries, expenses to pay engineers and sales for their services, accumulating interest to be returned to investors if any) are NOT covered by revenue (which comes from customers). I find this decomposition incredibly neat and enabling solving the right problems.
- andrey_utkin 6y ago> but if you include the cost of that higher salary reducing his value would that also reduce the salary you want to pay? Doesn't make sense. It indeed doesn't. Where did you get that idea? It's not as complicated as you probably think. If the engineer has rendered services which are worth his salary + his actual expenses to achieve that, he has earned exactly his salary, high or low.
- marcus_holmes 6y agoEngineer A built the new widget that Sales have been talking about for months. This immediately generates $1m in revenue. Engineer B removed some tech debt. Future efforts to build widgets will take less time to build. Engineer C rewrote the backend to prevent a vulnerability exposure that could have lead to disaster. Who was most productive? Who deserves a raise?
- andrey_utkin 6y agoEach of these tasks, or ongoing commitments, has a clear price when you run an organization the Internal Economics way. Whoever consistently "earns" more than their salary this way, deserves a raise.
- blackbear_ 6y agoThe key question is how do you quantify earnings/savings? In the example: Future efforts to build widgets will take less time to build -> How to quantify ? Vulnerability exposure that could have lead to disaster -> How to quantify ? What you are saying is nice and clean on paper but simply impossible in practice.
- andrey_utkin 6y agoIt's an investment problem for those who hold the money in the organization. Say, we have an organisation consisting of exec team and engineering team. Engineering team has a bright idea that a certain undertaking will reduce time to make one widget. They bring this case to exec team. "It will reduce the cost of a widget from X1 to X2, the project will take T time and cost C." If exec team sees this investment interesting and possible, they make that investment. The worth of the project is simply its cost C. Exec team willingly paid, and if they got what they wanted for it, they should be happy with "productivity". (Similarly to how you don't bemoan "productivity" of the baker you buy your bread from.)
- blackbear_ 6y agoYes. Again, properly estimating X1, X2, T and C is so difficult in most cases that this strategy is not really applicable (notable example: technical debt).