Making the Software Business Case Improvement by the Numbers

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Edition: 1st
Format: Paperback
Pub. Date: 2001-09-05
Publisher(s): Addison-Wesley Professional
List Price: $34.99

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Summary

"Just the understanding and insights you will pick up about how people encounter and cope with combinations of technical, social, political, and economic opportunities and challenges make the book a joy to read and worth much more than the price of it alone." --Barry Boehm, from the Foreword This practical handbook shows you how to build an effective business case when you need to justify--and persuade management to accept--software change or improvement. Based on real-world scenarios, the book covers the most common situations in which business case analyses are required and explains specific techniques that have proved successful in practice. Drawing on years of experience in winning the "battle of the budget," the author shows you how to use commonly accepted engineering economic arguments to make your numbers "sing" to management. The book provides examples of successful business cases; along the way, tables, tools, facts, figures, and metrics guide you through the entire analytic process. Writing in a concise and witty style, the author makes this valuable guidance accessible to every software engineer, manager, and IT professional. Highlights include: How and where business case analyses fit into the software and IT life cycle process Explanations of the most common tools for business case analysis, such as present-value, return-on-investment, break-even, and cost/benefit calculation Tying the business process to the software development life cycle Packaging the business case for management consumption Frameworks and guidelines for justifying IT productivity, quality, and delivery cycle improvement strategies Case studies for applying appropriate decision situations to software process improvement Strategic guidelines for various business case analyses With this book in hand, you will find the facts, examples, hard data, and case studies needed for preparing your own winning business cases in today's complex software environment. 0201728877B09102001

Author Biography

Donald J. Reifer is the president of Reifer Consultants, Inc., a firm that specializes in helping clients implement changes that are financially justified. During his more than 30 years of industry and government experience, he has grown businesses, managed major projects, led recovery teams, and implemented improvement strategies globally. Most important, he has helped clients sell change based on the numbers. His numerous other publications include several popular books on software management.



0201728877AB08212001

Table of Contents

Foreword ix
Preface xi
Acknowledgments xvii
PART I FUNDAMENTAL CONCEPTS 1(102)
Improvement Is Everybody's Business
3(28)
Viewing Software as a Business
3(3)
Change Is the Nature of Software
6(3)
Making the Giant Leap Forward
9(4)
Success Is a Numbers Game
13(2)
Improvement Cycles and Tricycles
15(3)
Improvement by the Numbers
18(2)
Business versus Technical Cases
20(2)
Why Change?
22(2)
Are You Ready to Change?
24(2)
Getting Your Boss to Commit
26(2)
How This Book Can Help You
28(1)
Summary
29(2)
Making a Business Case
31(22)
The Whats, Whys, and Whens of Business Cases
31(3)
The Business Case Process
34(1)
Setting Improvement Goals Using the GQM Paradigm
35(2)
Developing Business Cases: The Front-End Process
37(7)
Prepare White Paper
38(1)
Demonstrate Technical Feasibility
39(1)
Conduct Market Survey
39(1)
Develop Business Plan
40(2)
Prepare Business Case
42(1)
Presell the Idea and Develop Support Base
42(1)
Get Ready to Execute
43(1)
Putting the Process to Work
44(1)
Tying the Business Process to the Software Development Life Cycle
44(3)
Business Cases: Stepping Through the Life Cycle
47(3)
Life Cycle Objective Milestone
47(1)
Life Cycle Architecture Milestone
48(1)
Initial Operational Capability Milestone
49(1)
Full Release Milestone
49(1)
Summary
50(3)
Making the Business Case: Principles, Rules, and Analysis Tools
53(24)
Tooling the Process
53(1)
Business Case Principles
54(2)
Present Value and Future Worth
56(3)
A Smorgasbord of Analysis Techniques
59(7)
Breakeven Analysis
59(1)
Cause-and-Effect Analysis
60(1)
Cost/Benefit Analysis
60(2)
Value Chain Analysis
62(1)
Investment Opportunity Analysis
63(1)
Pareto Analysis
64(1)
Payback Analysis
65(1)
Sensitivity Analysis
65(1)
Trend Analysis
66(1)
Tools of the Trade
66(4)
Packaging the Business Case for Management Consumption
70(1)
Avoiding Taxes and Tax Penalties
71(4)
Summary
75(2)
Business Cases That Make Sense
77(26)
The Parable of the Chinese Emperor
78(1)
Process Improvement Using Productivity Increases as a Justification
79(4)
Cost Avoidance versus Cost Reduction
83(2)
Software Capitalization Approaches
85(3)
Depreciation Concepts
88(1)
Quick-to-Market Strategies
89(3)
Architecting Products Using Time to Market as Justification
92(3)
Make-versus-Buy Analysis
95(1)
Moving to a Web-Based Economy
96(4)
Capital Is Abundant
97(1)
Concerns Associated with Electronic Commerce
97(1)
Determining Value of Startups
98(2)
Summary
100(3)
PART II THE CASE STUDIES 103(132)
Playing the Game of Dungeons and Dragons: Process Improvement Case Study
105(38)
Setting the Stage
105(6)
Current Business Climate
111(5)
Developing a Game Plan
116(8)
Start the Process by Involving Stakeholders
119(1)
Develop a Top-Level Vision and Strategy
120(1)
Define the Work to Be Performed
120(3)
Build Partnerships
123(1)
Plan to Sell, Sell, and Sell
124(1)
Process Maturity: Are the Investments Justified?
124(7)
Accelerating Productivity Gains Through Process
125(2)
Early Defect Detection and Correction
127(1)
Exploitation of COTS
128(1)
Movement to Product Lines, Architecture, and Systematic Reuse
128(3)
Quantifying the Return on Investment
131(5)
Getting Everyone Involved in Playing the Game
136(1)
Reinventing and Refreshing the Organization
137(2)
Summary
139(4)
Quantifying the Costs/Benefits: Capitalizing Software Case Study
143(34)
You've Got a Problem
143(4)
Organization Profile
147(3)
Initial Operational Concept
150(1)
Capital Decision-Making Process
151(1)
Make-versus-Buy Analysis
152(9)
Using In-House Tools
153(2)
Improved Software Tool Licensing
155(1)
Facility Modifications
156(2)
Equipment Lease or Purchase
158(3)
Putting Software Cost Models to Work
161(7)
Step 1: Estimate the Size of the Job
164(1)
Steps 2--4: Estimate Effort Using COCOMO II
165(3)
Performing Risk Analyses
168(1)
Managers Are Techies
168(1)
Which Equipment and Tools
168(1)
Addressing ``What-If'' Questions
169(3)
Making Your Numbers Believable
172(2)
Summary
174(3)
Making Your Numbers Sing: Architecting Case Study
177(32)
The Grand Proposal
177(7)
Developing a Strategy
184(4)
Readying the Financials
188(4)
Determining the Numbers
192(7)
WBS 1.0: Architecture Development
192(2)
WBS 2.0: Education and Training
194(2)
WBS 3.0: Infrastructure Development
196(1)
WBS 4.0: Process and Product Development
197(1)
WBS 5.0: Project Management
198(1)
Trimming the Fat
199(2)
Justifying Your Recommendations
201(5)
Why Pursue Product Lines in the First Place?
206(1)
Summary
207(2)
Maneuvering the Maze: Web-Based Economy Case Study
209(26)
For Openers
209(3)
Finding a Likely Candidate
212(5)
Determining the ``Value'' of a Firm
217(3)
Computing How Much to Pay
220(6)
To Buy or Not to Buy
226(2)
Avoiding the Traps
228(3)
Going Global
231(1)
Timing Is Strategy
232(1)
Summary
233(2)
PART III FINALE 235(22)
Overcoming Adversity: More Than a Pep Talk
237(20)
The Wary Traveler
237(1)
You Too Can Be Successful
238(3)
Change Tactics Abound
241(3)
Avoid the Many Traps
244(1)
Focus on the Things That Count
245(2)
Other Interesting Uses of Numbers
247(5)
Shut Down or Continue
247(2)
Upgrade or Replace
249(1)
Risk Analysis
250(2)
Where's the Technology Heading?
252(2)
Summary
254(3)
Appendix A: Recommended Readings 257(8)
Appendix B: Compound Interest Tables 265(4)
Acronyms 269(4)
Glossary 273(10)
Index 283

Excerpts

For years, I have watched software engineers struggle to justify investments of every kind and examine cost-effectiveness issues. Although they know how to present the technical issues and alternatives crisply and simply, they just can''t seem to pull the numbers together. Those who try never seem to paint a convincing picture. While they fumble, the opportunity slips away. Or they are eaten alive as they pitch their ideas because they cannot answer the hard questions posed about costs/benefits, which typically involve the financials and business justifications. For example, engineers frequently fail to factor the cost of money and/or tax implications into the consideration (depreciation, R&D tax credits, and so on). If they had examined these considerations, they might have recommended a different course of action. Why Write This Book? The failure of engineers to adequately address the business aspects of decisions has created opportunities for me throughout my career. I have built a profitable business and a national reputation by showing my clients how to make the numbers sing for management. I have also learned many lessons and developed many tricks of the trade, which have enabled me to repeatedly help my clients win the battle of budget. The primary purpose of this book is to communicate these lessons to other people who need them so that they can take advantage of what I''ve learned. Because of their importance, I believe that every engineer should be taught how to prepare business cases as part of their undergraduate and graduate education. After 30 years in the field, I have an endless supply of case studies that I can use to illustrate why this important topic needs to be taught to everyone involved in an organization, from the top executive to a new recruit. For example, can you envision the CEO of a major international firm standing on a chair to see the charts from the back of the room? That''s exactly what happened when I projected the results of a productivity analysis to executives. The numbers were so important to the CEO that he almost fell over backward as the chair he stood on wobbled in his effort to see them. The moral of this story is that, independently of whatever you say, your numbers will do your talking for you when executives are in the room. The primary goal of this book is to help you understand how to develop a successful business case. To help you learn, I present principles and case studies. Because of its importance, the book focuses attention on the process of business case development, not the case itself. After reading the book, your task is to generalize and apply what you have learned in your own work environment. As part of this effort, you will have to figure out what will work for you and adapt the advice offered accordingly. Business cases are typically prepared throughout the software development life cycle. Some are prepared along with the business plans used to justify new projects and product developments. Others are devised on the spot to justify changes and improvement activities. My focus in the book is on the latter because they tend to be the most difficult to pull off. Because such initiatives ask for money, the expenditures involved must be justified quantitatively in terms of the costs/benefits. When you finish this book, you will understand how to quantify the numbers. But using them effectively in your organization will be up to you. For Whom Is This Book Intended? I wrote this book primarily for software engineers and managers, who frequently don''t seem to have the foggiest idea of what it takes to prepare a business case. They may have great technical ideas, but most find it difficult to package the concepts to make the costs/benefits associated with pursuing them appealing to management. To do this, they need to highlight the cost savings, reduction in time to market, cost avoidance, and/or productivity improvement. Justifying expenditures for some good technical idea in terms of its return on investment is something that they haven''t been taught in their university training or their opening stint in industry. To sell their ideas, they need to learn how to package them so that they are convincing to management. My underlying assumption is that software engineers will be tasked to justify the improvements that they and their bosses recommend. If this is not the case, don''t read any further. Instead, give your copy of this book to someone who needs help in preparing business cases. As well as software engineers, I think people in the following positions could benefit from this book: Managers and executives:Those who act as sponsors and champions of a change when they''re convinced that it has both technical and business merits Buyers of products and services:Those who use the technical and business data presented to justify a variety of purchasing decisions (equipment, tools, training, and so on) Entrepreneurs:Those who package the technical ideas in such a way that they stimulate investment by stockholders or venture capitalists Process group leaders:Those who seek to justify continued investment in process improvement (based on the returns, competitive reasons, and so on) Programmers:Those who use the architectures, processes, tools, and techniques that software engineers generate or select to develop and/or maintain software products and systems Students:Those pursuing undergraduate or graduate degrees in either computer science or information management. Both have a need for a book that shows them how to prepare and execute a business case. Researchers:Surprisingly, many researchers don''t know how to prepare business cases aimed at soliciting industry sponsorship. This book will help them acquire the support they need to put their ideas into practice. In other words, anyone interested in the topic could get a few pointers from the material presented, especially in the case studies. What''s in the Book? If you are looking for a general-purpose textbook on business plans and cases, look elsewhere. This book isn''t written for you. There are general management textbooks on the subject that will address your need for structure and guidance. Instead, this book addresses software improvements and what you need to do to justify them in terms of their costs/benefits. Yes, it treats the business case and provides instructions on how to build one. But it also provides examples of what it takes to succeed with the business case in the form of case studies. Most of these cases are taken from real life; I''ve embellished them to hide identities and illustrate lessons learned. However, software improvements involve more than just process. They might entail justifying capital investments, moving to product line architectures, or valuing the purchase price to be paid for a firm. This is not a cookbook on business cases. Cookbooks by their nature infer that results are repeatable. Put a pinch of this and an ounce of that together and bake the mixture at 400 degrees for 10 minutes and a similar result will be generated almost every time. However, the improvement opportunities I''ve been associated with, even when conducted within similar organizations, are by their nature different almost every time. That''s because there are so many factors involved that it is almost impossible to develop a generic formula for improvement. In response, I provide a process framework, not recipes, for making improvements. The underlying message of this book is that there needs to be some compelling reason for making organizational changes or proposed improvements. Otherwise, why pursue them? Within this context, business cases are used to gather and present the facts needed to sh

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