Abstract
Software firms invest in process improvements in order to benefit from decreased costs and/or increased productivity sometime in the future. Such efforts are seldom cheap, and they typically require making a business case in order to obtain funding. We review some of the main techniques from financial theory for evaluating the risk and returns associated with proposed investments and apply them to process improvement programs for software development. We also discuss significant theoretical considerations as well as robustness and correctness issues associated with applying each of the techniques to software development and process improvement activities. Finally we introduce a present value technique that incorporates both risk and return that has many applications to software development activities and is recommended for use in a software process improvement context.
Similar content being viewed by others
References
Brigham, E., and Gapenski, L. 1997. Financial Management: Theory and Practice, 8th ed., Dryden Press, Chapter 9.
Brealey, R., and Myers, S. 1996. Principles of Corporate Finance, 5th ed., McGraw-Hill, Chapters 5 and 12.
Curtis, W. 1995. Building a cost-benefit case for software process improvement. Notes from tutorial given at the Seventh Software Eng. Process Group Conf., Boston, MA, May.
Dion, R. 1993. Process improvement and the corporate balance sheet, IEEE Software July, pp. 28–35.
Eickelmann, N. 1999. Development of return on investment ROI model and metrics for software system independent verification and validation. Center Software Initiative Proposal CSIP for the NASA Software IV & V Facility, January 12.
Harrison, W., Raffo, D., and Settle, J. 1999a. Process improvement as a capital investment: risks and deferred paybacks. Proc. Pacific Northwest Software Quality Conf., Portland, Oregon, October.
Harrison, W., Raffo, D., and Settle, J. 1999b. Measuring the value from improved predictions of software process improvement outcomes using risk-based discount rates. First Workshop on Eco -nomics-Driven Software Eng. Res., Los Angeles, CA, May 17.
Hayes, W., and Zubrow, D. 1995. Moving on up: data and experience doing CMM-based software process improvement. Sev enth Software Eng. Process Group Conf., Boston, MA, May 23.
Herbsleb, J., Zubrow, D., Siegel, J., Rozum, J., and Carleton, A. 1994. Software process improvement: state of the payoff, Am Programmer 7(9):2–12.
Jones, C. 1996. The pragmatics of software process improvements, Software Process Newslett. Software Eng. Technical Council Newslett., No. 5, Winter, pp. 1–4.
Lipke, W., and Butler, K. 1992. Software process improvement: a success story. CrossTal No. 38, November, pp. 29–31, 39.
McGibbon, T. 1996. A business case for software process improvement. Data Analysis Center for Software State-of-the-Art Report, prepared for Rome Laboratory, September 30. WWW URL: http:// www.dacs.dtic.mil / techs / roi.soar / soar.html.
O'Neill, D. 1989. Software Inspections Course and Lab, Pittsburgh, PA, Software Engineering Institute, Carnegie Mellon University.
O'Neill, D. 1995. National software quality experiment: results 1992–1995. Proc Sev enth Annual Software Technol. Conf., Salt Lake City, UT, April 9–14, 1995, Hill Air Force Base, UT, Software Technology Support Center.
O'Neill, D. 1996. National software quality experiment: results 1992–1996. Proc. Eighth Annual Software Technol. Conf., Salt Lake City, UT, April 21–26, 1996, Hill Air Force Base, UT, Software Technology Support Center.
Quirk, J.P., and Terasawa, K.L. 1987. The choice of discount rate applicable to government resource use: theory and limitations. Rand Publication Series R-3464-PA & E, December.
Raffo, D.M. 1996. Modeling software processes quantitatively and assessing the impact of potential process changes on process performance. Ph.D. Dissertation, Graduate School of Industrial
Administration, Carnegie Mellon University, Published by UMI Dissertation Services, Ann Arbor, MI.
Raffo, D.M., and Kellner, M.I. 1999. Predicting the impact of potential process changes: a quantitative approach to process modeling. Elements of Software Process Assessment and Improvement IEEE Computer Society Press.
Raffo, D., Settle, J., and Harrison, W. 1999. Estimating the financial benefit and risk associated with process changes. First Workshop on Economics-Driven Software Engineering Res., Los Angeles, CA, May 17.
Slaughter, S., Harter, D., and Krishnan, M. 1998. Evaluating the cost of software quality, Commun. ACM August, pp. 67–73.
Vienneau, R. 1995. The present value of software maintenance, J. Parametrics April, pp. 18–36.
Author information
Authors and Affiliations
Rights and permissions
About this article
Cite this article
Harrison, W., Raffo, D., Settle, J. et al. Technology Review: Adapting Financial Measures: Making a Business Case for Software Process Improvement*. Software Quality Journal 8, 211–231 (1999). https://doi.org/10.1023/A:1008971726703
Issue Date:
DOI: https://doi.org/10.1023/A:1008971726703