1、September 2001,Copyright RCI, 2001,1,Business Case Analysis,Donald J. ReiferUniversity of Southern California and Reifer Consultants, Inc.,September 2001,Copyright RCI, 2001,2,Aim of Presentation,Introduce you to the subject of business case analysis and walk you through my book Highlight significan
2、t concepts and focus on what you need to do to succeed Discuss how to use software cost models like COCOMO II to help prepare business cases Hopefully, motivate you to read and use the book in practice, the classroom and for fun,September 2001,Copyright RCI, 2001,3,Why Write a Book on Software Busin
3、ess Cases?,Over the years, I have observed that software engineers dont know how to prepare sound business cases and improvement justifications However, these same engineers are being asked to justify recommended investments using business cases as software is being capitalized The book was written
4、to fill this void and to serve as a textbook for those teaching the subject,September 2001,Copyright RCI, 2001,4,I Didnt Write it for the Money,Those writing books do it for recognition and self-satisfaction Authors dont write technical books to make lots of money If my publisher sold 5,000 copies o
5、f the book, I would make about $15/hour,September 2001,Copyright RCI, 2001,5,Table of Contents,Part I - Fundamental Concepts Chapter 1: Improvement is Everybodys Business Chapter 2: Making a Business Case Chapter 3: Making the Business Case: Principles, Rules, and Analysis Tools Chapter 4: Business
6、Cases that Make Sense,Part II - The Case Studies Chapter 5 - Playing the Game of Dungeons and Dragons: Process Improvement Case Study Chapter 6: Quantifying the Costs/Benefits: Capitalizing Software Case Study Chapter 7: Making Your Numbers Sing: Architecting Case Study Chapter 8: Maneuvering the Ma
7、ze: Web-Based Economy Case Study,September 2001,Copyright RCI, 2001,6,Contents (Continued),Part III - Finale Chapter 9: Overcoming Adversity: More Than aPep Talk Appendix A: Recommended Readings Appendix B: Compound Interest Tables Acronyms Glossary,September 2001,Copyright RCI, 2001,7,Unique Featur
8、es of Book,Web site:Look for updates Converse with author Realistic case studies Actual management briefings as part of case studies,http:/ 2001,Copyright RCI, 2001,8,Fundamentals,Must view software as a business Must use business measures to justify improvementsMaking the leap forward involves over
9、coming the resistance to change,Key Point Summary,Time to Market CostProductivity Quality,Increase Improve,Reduce Avoid/Cut,September 2001,Copyright RCI, 2001,9,Success is a Numbers Game,Will this proposal save money, cut costs, increase productivity, speed development or improve quality? Have you l
10、ooked at the tax and financial implications of the proposal? Whats the impact of the proposal on the bottom line? Are our competitors doing this? If so, what are the results they are achieving? Who are the stakeholders and are they supportive of the proposal?,Answer Business-Related Questions,Septem
11、ber 2001,Copyright RCI, 2001,10,Business Cases Supply You with the Numbers,Business Case = the materials prepared for decision-makers to show that the proposed idea is a good one and that the numbers that surround it make sound financial sense Most software engineers prepare detailed technical rathe
12、r than business justifications Many of their worthwhile proposals are rejected by management as a consequence Use of business cases will increase your chances of success,September 2001,Copyright RCI, 2001,11,Business Process Framework,Business Planning Process,Tradeoff and Analysis Processes,Softwar
13、e Development Process,Analytical Methods,Models,Guidelines forDecision-Making,Process The business case process proceeds in parallel and Framework interfaces with the software development process “Principles, Rules and Tools for Business Case Development”,September 2001,Copyright RCI, 2001,12,The Bu
14、siness Planning Process,1. Prepare white paper,2. Demonstrate technical feasibility,3. Conduct market survey,4. Develop business plan,5. Prepare business case,6. Sell the idea and develop support base,7. Get readyto execute,GQM ResultsIdea or proposal,Proof of Concept,Approval togo-ahead,September 2
15、001,Copyright RCI, 2001,13,Nine Business Case Principles,Decisions are made relative to alternatives If possible, use money as the common denominator Sunk costs are irrelevant Investment decisions should recognize the time value of money Separable decisions must be considered separately,Decisions sh
16、ould consider both quantitative and qualitative factors The risks associated with the decision should be quantified if possible The timing associated with making decisions is critical Decision processes should be periodically assessed and continuously improved,September 2001,Copyright RCI, 2001,14,M
17、any Rules to Use as Guidelines,Prepare business cases in language to communicate to management Define all of your terms thoroughly Bring in the outside experts to help if needed Double and triple check your numbers,Never state a number without bounding it Remember, numbers will come back to haunt yo
18、u Never talk cost reduction; use avoidance instead Always relate your numbers to benchmarks and your competition,Preparation Presentation,September 2001,Copyright RCI, 2001,15,Many Tools and Techniques,Break-even analysis Cause and effect analysis Cost/benefit analysis Value chain analysis Investmen
19、t opportunity analysis Pareto analysis Payback analysis Sensitivity analysis Trend analysis,Analysis Techniques,September 2001,Copyright RCI, 2001,16,Supportive Tools,Decision support systems Tax planning and schedules Trade studies and analysis Spreadsheets Comparative analysis Trade studies and an
20、alysis Software cost models Parametric analysis Trade studies and analysis,Software packages,September 2001,Copyright RCI, 2001,17,Use Engineering Economics As Your Basis,Takes cost of money into account A $ today is worth more than tomorrow due to inflation Takes compounding into account,Normalizes
21、 future expenditures using current year dollars as a basis for comparison Lets you establish a minimum attractive rate of return,FW = P (1 + i)N PV = FW/(1 + i)N,Future Worth Present Value,September 2001,Copyright RCI, 2001,18,Business Case Information Needs,Business cases Recurring costs Non-recurr
22、ing costs Tangible benefits Intangible benefits Benchmarks Competitive comparisons Industry norms Metrics Management measures,Financial data Inflated labor costs Labor categories/rates Overhead/G&A rates Past costs/performance Tax rates/legalities Marketing information Demographic data Market positi
23、on Sales forecast,September 2001,Copyright RCI, 2001,19,Preparing a COTS Business Case,Non-recurring costs Tangible benefits - Market research/purchasing - Cost avoidance - Package assessment - Reduced taxes (credits - Package tailoring & tuning and depreciation) - Glue code/wrapper development Inta
24、ngible benefits Recurring costs - Market drives features - Glue code maintenance - Vendor maintains the - Licensing/purchasing product (good and bad) - Market watch/test-bed - Package mature (better - Relationship management quality/more robust) - Technology refresh - Lever the marketplaceTOTAL TOTA
25、L,September 2001,Copyright RCI, 2001,20,Computing Costs/Benefits,Use COCOTS Estimates most of the non-recurring costs Recurring costs should be estimated, for now, using rules of thumb Relationship management Nurtures relationships and develops partnerships Technology refresh Market watch looks for
26、better value for $,Use COCOMO II Estimates benchmark costs for option of developing code from scratch or legacy Calibrate model for domain Use maintenance model to include rest of life cycle Intangibles Hard to quantify the cost and schedule impacts Even if you did quantify them, lots of controversy
27、,Costs Benefits,September 2001,Copyright RCI, 2001,21,Presenting the Business Case,Determine decision timeline (5 years) Take PV of B/C Ratio Calculate ROIMake a second pass to include depreciation,Try to quantify the intangibles Discuss the impact, but dont dilute the numbers using it (credibility)
28、 List pluses and minuses of options considered Make a recommendation based on the information presented,ROI = ?/year,ROI = ?/year,September 2001,Copyright RCI, 2001,22,COTS Pluses and Minuses,Cheaper; but does not come for free Available immediately Known quality (+ or -) Vendor responsible for evol
29、ution/maintenance Dont have to pay for it Can use critical staff resources elsewhere,License costs can be high COTS products are not designed to plug & play Vendor behavior varies Performance often poor Vendor responsible for evolution/maintenance Have no control over the products evolution,Pluses M
30、inuses,September 2001,Copyright RCI, 2001,23,COTS Critical Success Factors,Successful firms: Make COTS-based system tradeoffs early Try before they buy Avoid modifying COTS at all costs Reconcile products with their architectures Emphasize use of standards and open interfaces Understand that COTS do
31、esnt come for free Plan to manage parts/technology obsolescence Make the vendor a part of the team, whenever possible Negotiate enterprise-wide licenses for COTS products Influence future paths the vendor will take Address the cultural and process issues,September 2001,Copyright RCI, 2001,24,The COT
32、S Life Cycle,Requirements,Design,Implementation,Integration & Test,Deploy,Operate & Maintain,Evaluate, Select& Acquire,Tailor,Renew,Refresh,COTS tends to have a life cycle of its own,September 2001,Copyright RCI, 2001,25,COTS Success Strategies,Process Merge COTS life cycle into your organizational
33、framework Make needed tradeoffs Think both technical and business issues Products Fit COTS components into product line strategies Maintain open interfaces Manage technology refresh,People Make COTS vendors a part of your team Increase awareness of COTS experience Provide workforce with structure an
34、d information Institutional Improve purchasing and licensing processes Maintain market watch Capture past performance,September 2001,Copyright RCI, 2001,26,Lots of Other Business Yardsticks,Cost of Sales Cost/Benefit Ratio Debt/Equity Ratio Earnings/Share Overhead Rate Return on Assets Price/Sales R
35、atio Rate of Return Return on Earnings,September 2001,Copyright RCI, 2001,27,Putting Cost Models to Work,I use cost models in my book to: Create benchmarks to compute benefits for a typical project Assess available options and perform sensitivity analysis Quantify risk and its cost and schedule cons
36、equences Address the many “what-if” questions that arise via parametric analysis,September 2001,Copyright RCI, 2001,28,Summary and Conclusions,For software engineers to prosper in business, they need to learn to prepare business cases The technical merit of engineering issues needs to be quantified
37、and the associated business issues discussed when making recommendations for improvement Hopefully, my book will help software engineers to perform these duties and succeed - as theyve worked for me over the years,September 2001,Copyright RCI, 2001,29,For Example: Making Your Numbers Believable,Conc
38、epts: Cash Flow Impacts Cost Basis Cost/Benefits Estimate Fidelity Present Value (PV) Profit and Loss Risks and Their Impacts Sources of funds Tax implications,September 2001,Copyright RCI, 2001,30,Final Thoughts,Numbers can be your ally when asking for money When asking for money, talk your managements language not ours Dont be casual about numbers, be precise If you want to learn more, read my book,
