Posts Tagged ‘NPV’
The Cutter Consortium has announced the availability of the Technical Debt Assessment and Valuation Service. The service combines static code analytics with dynamic program analytics to give the client “x-rays” of the software being examined at any desired granularity – from the whole project portfolio to a single instruction. It breaks down technical debt into the areas of coverage, complexity, duplication, violations and comments. Clients get an aggregate dollar figure for “paying back” debt that they can then plug into their financial models to objectively analyze their critical software assets. Based on these metrics, they can make the best decisions about their ongoing strategy for the software development effort under scrutiny.
This new service is an important addition to the enlightened software governance framework that Jim Highsmith, Michael Mah and I have been thinking about and contributing to for sometime now (see Beyond Scope, Schedule and Cost: Measuring Agile Performance and Quantifying the Start Afresh Option). The heart of both the technical debt service and the enlightened governance framework is captured by the following words from the press release:
Executives in charge of software governance have long dealt with two kinds of dollar figures: One, the cost of producing and maintaining the software; and two, the value of the software, which is usually expressed in terms of the net present value associated with the expected value stream the product will generate. Now we can deal with technical debt in the same quantitative manner, regardless of the software methods a company uses.
When expressed in terms of dollars, technical debt ties neatly into value vis-à-vis cost considerations. For a “well behaved” software project, three factors — value, cost, and technical debt — have to satisfy the equation Value >> Cost > Technical Debt. Monitoring the balance between value, cost, and technical debt on an ongoing basis is an effective way for organizations to stay on top of their real progress, and for stakeholders and investors to ensure their investment is sound.
By boiling down technical debt to dollars and tying it to cost and value, the service enables a metrics-driven governance framework for the use of five major constituencies, as follows:
Technical debt assessments and valuation can specifically help CIOs ensure alignment of software development with IT Operations; give CTOs early warning signs of impending project trouble; assure those involved in due diligence for M&A activity that the code being acquired will adapt to meet future needs; enables CEOs to effectively govern the software development process; and, it provides critical information as to whether software under consideration constitutes an asset or a liability for venture capitalists who need to make informed investment decisions.
It should finally be pointed out that the technical debt assessment service and the governance framework it enables are applicable to any software method. They can be used to:
- Govern a heterogeneous environment in which multiple software methods are used
- Make apples-to-apples comparisons between disparate software projects
- Assess project performance vis-a-vis industry norms
Forthcoming Cutter Executive Reports, Executive Updates and Email Advisors on the technical debt service are restricted to Cutter clients. As appropriate, I will publish the latest and greatest news on the subject in the Cutter Blog (which is an open forum I highly recommend).
Acknowledgements: I would like to wholeheartedly thank the following colleagues for inspiring, enlightening and supporting me during the preparation of the service:
- Karen Coburn
- Jennifer Flaxman
- Jonathon Golden
- John Heintz
- Jim Highsmith
- Ken Collier
- Kim Leonard
- Kara Letourneau
- Michal Mah
- Anne Mullaney
- Chris Sterling
- Cindy Swain
- Sarah Wiesbrock
Written by israelgat
May 5, 2010 at 4:40 am
Tagged with Anne Mullaney, CEO, Chris Sterling, Cindy Swain, CIO, Comments, Complexity, Coverage, CTO, Cutter Consortium, Duplication, Governance Framework, Industry Norms, Israel Gat, IT Operations, Jennifer Flaxman, Jim Highsmith, John Heintz, Jonathon Golden, Kara Letourneau, Karen Coburn, Ken Collier, Kim Leonard, M&A, Michael Mah, NPV, Paying Back, Software Method, Technical Debt, Valuation, Venture Capitalist, Violation
I conducted 10 sessions this year on the topic Socializing Agile with Your Executives. The various Agile champions that attended these sessions identified two major obstacles to successful vetting of the topic:
- Lack of hard quantitative data.
- The “It won’t work here” syndrome.
This post is about the first of the two – lack of hard quantitative data. A follow-on post will deal with the second obstacle.
Michael Mah‘s landmark study How Agile Projects Measure Up, and What This Means to You has been my recommendation for the Agile champion who needs to elevate his/her Agile pitch from qualitative to quantitative. This excellent study in nicely supplemented now by The Business Value of Agile Software Methods: Maximizing ROI with Just-in-Time Processes and Documentation by Rico, Sayani and Sone. It is an excellent fit for the champion promoting Agile for the following reasons:
- The book captures, analyzes and synthesizes the results of hundreds of systemic research studies.
- It provides data on the various Agile methods without favoring one over another. Furthermore, the authors are quite explicit in stating that it not the method itself but the fit of a method to a company/culture/environment that counts.
- It places equal weight on costs and benefits of Agile, thereby giving the reader a good grasp on trade-offs. This grasp can be enhanced through free downloads of cost and benefit spreadsheets from the corresponding Download Resource Center.
- A very impressive aspect of this new book is the broad spectrum of the metrics it provides. Just about any business metric your CIO/CFO/CXO might use as the basis for his/her decision-making process, including Real Options Analysis (ROA), is provided. Moreover, the book encourages the use of multiple metrics, clearly indicating the pro and cons of individual metrics. For example:
The business value of Agile methods may be as much as 90% higher than NPV using ROA under extreme market conditions, including high inflation, risk change, and amount of time.
Readers of this blog are familiar with my quip “Don’t take you boss to lunch; take him/her to the daily stand-up meeting.” I would suggest you give The Business Value of Agile Software Methods to your boss at the end of his/her first stand-up meeting. This recommendation is nicely seconded by the following excerpt from Sanjiv Augustine‘s review of the book:
… those looking to build a bullet proof case for agile methods based on solid data and comprehensive research and analysis will find this an invaluable work.
Disclosure: Colleague David F. Rico has kindly sent me a free copy of The Business Value of Agile Software Methods.
Written by israelgat
December 2, 2009 at 5:50 am