Making the Software Business Case: Improvement by the Numbers (SEI Series in Software Engineering S)

321 Pages·2001·2.443 MB·English

by  Donald J. Reifer

M a k i n g
t h e S o f t w a r e
B u s i n e s s C a s e
Improvement by the Numbers
D o n a l d J . R e i f e r
A d d i s o n – W e s l e y
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Library ofCongress Cataloging-in-Publication Data
Reifer,Donald J.
Making the software business case : improvement by the numbers/ Donald J.Reifer.
p. cm.
Includes bibliographical references and index.
ISBN 0-201-72887-7
1.Computer software—Development—Management. I.Title.
QA 76.76.D47 R445 2001
005.1'068—dc21
2001027937
Copyright © 2002 by Addison-Wesley
All rights reserved.No part ofthis publication may be reproduced,stored in a retrieval system,or transmitted,in any form,
or by any means,electronic,mechanical,photocopying,recording,or otherwise,without the prior consent ofthe publisher.
Printed in the United States ofAmerica.Published simultaneously in Canada.
ISBN 0-201-72887-7
Text printed on recycled paper
1 2 3 4 5 6 7 8 9 10 — CRS — 0504030201
First printing,August 2001
Contents
Foreword ix
Preface xi
Acknowledgments xvii
PART I FUNDAMENTAL CONCEPTS 1
1 Improvement Is Everybody’s Business 3
Viewing Software as a Business 3
Change Is the Nature ofSoftware 6
Making the Giant Leap Forward 9
Success Is a Numbers Game 13
Improvement Cycles and Tricycles 15
Improvement by the Numbers 18
Business versus Technical Cases 20
Why Change? 22
Are You Ready to Change? 24
Getting Your Boss to Commit 26
How This Book Can Help You 28
Summary 29
2 Making a Business Case 31
TheWhats,Whys,andWhensofBusiness Cases 31
The Business Case Process 34
Setting Improvement Goals Using the GQM Paradigm 35
iii
iv CONTENTS
Developing Business Cases: The Front-End Process 37
Prepare White Paper 38
Demonstrate Technical Feasibility 39
Conduct Market Survey 39
Develop Business Plan 40
Prepare Business Case 42
Presell the Idea and Develop Support Base 42
Get Ready to Execute 43
Putting the Process to Work 44
Tying the Business Process to the Software Development
Life Cycle 44
Business Cases: Stepping Through the Life Cycle 47
Life Cycle Objective Milestone 47
Life Cycle Architecture Milestone 48
Initial Operational Capability Milestone 49
Full Release Milestone 49
Summary 50
3 Making the Business Case: Principles,
Rules, and Analysis Tools 53
Tooling the Process 53
Business Case Principles 54
Present Value and Future Worth 56
A Smorgasbord ofAnalysis Techniques 59
Breakeven Analysis 59
Cause-and-Effect Analysis 60
Cost/Benefit Analysis 60
Value Chain Analysis 62
Investment Opportunity Analysis 63
Pareto Analysis 64
Payback Analysis 65
Sensitivity Analysis 65
Trend Analysis 66
Tools ofthe Trade 66
Packaging the Business Case for Management
Consumption 70
Avoiding Taxes and Tax Penalties 71
Summary 75
CONTENTS v
4 Business Cases That Make Sense 77
The Parable ofthe Chinese Emperor 78
Process Improvement Using Productivity Increases
as a Justification 79
Cost Avoidance versus Cost Reduction 83
Software Capitalization Approaches 85
Depreciation Concepts 88
Quick-to-Market Strategies 89
Architecting Products Using Time to Market
as Justification 92
Make-versus-Buy Analysis 95
Moving to a Web-Based Economy 96
Capital Is Abundant 97
Concerns Associated with Electronic Commerce 97
Determining Value ofStartups 98
Summary 100
PART II THE CASE STUDIES 103
5 Playing the Game of Dungeons and
Dragons: Process Improvement
Case Study 105
Setting the Stage 105
Current Business Climate 111
Developing a Game Plan 116
Start the Process by Involving Stakeholders 119
Develop a Top-Level Vision and Strategy 120
Define the Work to Be Performed 120
Build Partnerships 123
Plan to Sell,Sell,and Sell 124
Process Maturity: Are the Investments Justified? 124
Accelerating Productivity Gains Through Process 125
Early Defect Detection and Correction 127
Exploitation ofCOTS 128
Movement to Product Lines,Architecture,
and Systematic Reuse 128
Quantifying the Return on Investment 131
Getting Everyone Involved in Playing the Game 136
vi CONTENTS
Reinventing and Refreshing the Organization 137
Summary 139
6 Quantifying the Costs/Benefits:
Capitalizing Software Case Study 143
You’ve Got a Problem 143
Organization Profile 147
Initial Operational Concept 150
Capital Decision-Making Process 151
Make-versus-Buy Analysis 152
Using In-House Tools 153
Improved Software Tool Licensing 155
Facility Modifications 156
Equipment Lease or Purchase 158
Putting Software Cost Models to Work 161
Step 1:Estimate the Size ofthe Job 164
Steps 2–4:Estimate Effort Using COCOMO II 165
Performing Risk Analyses 168
Managers Are Techies 168
Which Equipment and Tools 168
Addressing “What-If”Questions 169
Making Your Numbers Believable 172
Summary 174
7 Making Your Numbers Sing:
Architecting Case Study 177
The Grand Proposal 177
Developing a Strategy 184
Readying the Financials 188
Determining the Numbers 192
WBS 1.0:Architecture Development 192
WBS 2.0:Education and Training 194
WBS 3.0:Infrastructure Development 196
WBS 4.0:Process and Product Development 197
WBS 5.0:Project Management 198
Trimming the Fat 199
Justifying Your Recommendations 201
CONTENTS vii
Why Pursue Product Lines in the First Place? 206
Summary 207
8 Maneuvering the Maze: Web-Based
Economy Case Study 209
For Openers 209
Finding a Likely Candidate 212
Determining the “Value”ofa Firm 217
Computing How Much to Pay 220
To Buy or Not to Buy 226
Avoiding the Traps 228
Going Global 231
Timing Is Strategy 232
Summary 233
PART III FINALE 235
9 Overcoming Adversity: More Than
a Pep Talk 237
The Wary Traveler 237
You Too Can Be Successful 238
Change Tactics Abound 241
Avoid the Many Traps 244
Focus on the Things That Count 245
Other Interesting Uses ofNumbers 247
Shut Down or Continue 247
Upgrade or Replace 249
Risk Analysis 250
Where’s the Technology Heading? 252
Summary 254
Appendix A: Recommended Readings 257
Appendix B: Compound Interest Tables 265
Acronyms 269
Glossary 273
Index 283
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Foreword
Some ofthe most frustrating and helpless feelings I’ve had in my career are asso-
ciated with reviews I’ve done ofsoftware projects that are about to be terminated.
Frequently, the people involved have been working hard as a closely knit team.
They’ve come up with creative solutions to difficult problems.Their product has
good modular structure and has been carefully tested.But when it’sprovided to
potential users,nobody is very interested in it.They say,“Those are nice capabili-
ties, but they address only about two percent of my operational problem.” Or
“That would help some ofmy operations,but I can’t afford thetime it would take
to keep its database up to date.”Or “You’ve got a great wayto access all that infor-
mation,but it’s not the information I need to make decisions.”
At those times,I have wished that I had been able to do the review at the
beginning of the project rather than at the end.Problems like this can generally
be identified and avoided with a relatively straightforward business case analysis.
A good business case analysis estimates the proposed initiative’s development,
transition,and operational costs and relates these costs to the estimated benefits,
both quantitative and qualitative.Such business cases also provide a framework
for tradeoffanalysis,enabling you to determine the conditions under which the
benefits realized will be worth the investment.And it enables you and your fel-
low stakeholders to distinguish between the situations in which there is a good
chance of success,from the situations in which there is virtually no chance that
the benefits will be worth the investment, and where it’s healthier to drop the
project early rather than pursue it to an expensive and frustrating failure.
Business case analysis is often perceived to be an esoteric art practiced only
by financial wizards.But its essentials involve relatively simple and intuitive alge-
braic formulas and concepts such as compound interest.
ix