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  1. 1. The Role of Business Case Analysis in Software Engineering Donald J. Reifer Guest Lecturer USC Center for Software Engineering
  2. 2. Why Write a Book on Software Business Cases? <ul><li>Over the years, I have observed that many software engineers don’t know how to justify proposed changes or improvements using either economic analyses methods or business cases </li></ul><ul><li>In many of these cases, these engineers are trying to justify changes technically to managers who come from a non-technical background (financial, marketing, etc.) </li></ul><ul><li>The book was written to serve as a textbook for teaching software engineers to win the war of the budget </li></ul>
  3. 3. For Software, Change is Constant Agile methods Streamlined processes Best engineering practices Metrics-based management COTS-based systems Architecture-first Process paradigms Component-based composition Reuse/patterns Product-lines Rapid development Experience factory Searching for ways to do the job faster, better and cheaper
  4. 4. Impacts in Making Needed Changes Are Many <ul><li>Technical changes </li></ul><ul><ul><li>Paradigms, methods and tools engineers use to do the work </li></ul></ul><ul><li>Management changes </li></ul><ul><ul><li>Infrastructure, methods & tools managers use to plan, organize, staff, direct and control the work </li></ul></ul><ul><li>Organizational changes </li></ul><ul><ul><li>Decision-making infrastructure seniors used to establish vision and guide action </li></ul></ul>
  5. 5. Business Cases Focus on Quantifying Impact of Changes <ul><li>As understood by most, engineering decisions involve many options and difficult tradeoffs </li></ul><ul><ul><li>May be several feasible solutions for the problem </li></ul></ul><ul><ul><li>The optimal solution is determined by evaluating the tradeoffs in the many dimensions of the solution space </li></ul></ul><ul><ul><ul><li>Cost/schedule, functionality and performance envelopes </li></ul></ul></ul><ul><li>Software engineering provides you the methods and tools to understand the tradeoffs and select the best answer (typically under constraints) </li></ul>
  6. 6. This Role Is Controversial <ul><li>I cannot recommend this book to be part of the SEI Series on Software Engineering. First, it does not really address engineering issues. Rather, it discusses how business reasoning and models apply to a variety of issues confronting software organizations. This is of value and important to such organizations. However, it is somewhat outside of the scope of software engineering. So, in my judgment, it is outside the scope of the series, although relevant due primarily to cases or illustrations described in the manuscript. </li></ul><ul><li>----- SEI Reviewer </li></ul>
  7. 7. What Are we Going to Cover? <ul><li>Part I - Fundamental Concepts </li></ul><ul><ul><li>Chapter 1 : Improvement is Everybody’s Business </li></ul></ul><ul><ul><li>Chapter 2 : Making a Business Case </li></ul></ul><ul><ul><li>Chapter 3 : Making the Business Case: Principles, Rules, and Analysis Tools </li></ul></ul><ul><ul><li>Chapter 4 : Business Cases that Make Sense </li></ul></ul><ul><li>Part II - The Case Studies </li></ul><ul><ul><li>Chapter 5 - Playing the Game of Dungeons and Dragons: Process Improvement Case Study </li></ul></ul><ul><ul><li>Chapter 6 : Quantifying the Costs/Benefits: Capitalizing Software Case Study </li></ul></ul><ul><ul><li>Chapter 7 : Making Your Numbers Sing: Architecting Case Study </li></ul></ul><ul><ul><li>Chapter 8 : Maneuvering the Maze: Web-Based Economy Case Study </li></ul></ul>Making the Software Business Case: Improvement by the Numbers
  8. 8. Coverage (Continued) <ul><li>Part III - Finale </li></ul><ul><ul><li>Chapter 9 : Overcoming Adversity: More Than a </li></ul></ul><ul><ul><li>Pep Talk </li></ul></ul><ul><li>Appendix A : Recommended Readings </li></ul><ul><li>Appendix B : Compound Interest Tables </li></ul><ul><li>Acronyms </li></ul><ul><li>Glossary </li></ul>
  9. 9. View Software As A Business Profession 1998 2008 % Change - Computer scientists 97,500 212,100 118 - Computer engineers 299,300 622,100 108 - Computer support specialists 429,300 868,700 102 - Systems analysts 616,900 1,194,200 94 - Database administrators 87,400 154,900 77 - Paralegal personnel 136,000 220,400 62 - Medical assistants 252,200 398,000 58 - Human services workers 268,400 409,900 53 - Residential counselors 189,900 277,800 46 - Engineering managers 326,200 468,000 44 - Medical records technicians 92,400 132,900 44 - Dental assistants 228,900 325,400 42 Source : Bureau of Labor Statistics Fastest-Growing Occupations
  10. 10. Understand the Software Industry is in Constant Turmoil Marketplace model in transition End-user programming Computer as an appliance Collaboration via seamless networks Systems of systems concepts Software continues to provide the edge dot.com meltdown
  11. 11. Improvement Framework Time to Market Cost Productivity Quality Reduce Avoid/Cut Increase Improve There needs to be some compelling business reason for making an improvement, else it won’t be approved
  12. 12. Making the Leap Forward Innovators Early Adopters Early Majority Late Majority Laggards Source : G. Moore, Crossing the Chasm Change takes time and is hard to accomplish
  13. 13. CMMI Level 5 - Technology Innovation Seven Step Process <ul><li>Establish improvement objectives </li></ul><ul><li>Improvement proposal collection & analysis </li></ul><ul><li>Identify innovations </li></ul><ul><li>Perform cost/benefit analysis </li></ul><ul><li>Perform pilot </li></ul><ul><li>Select candidate improvements </li></ul><ul><li>Provide feedback </li></ul>Source : Ahern, CMMI Distilled
  14. 14. Challenges Associated with Making Organizational Changes <ul><li>Lack of incentives </li></ul><ul><li>“ Good of the firm” versus “Good of the project” </li></ul><ul><li>Infrastructure shortfalls </li></ul><ul><li>Few meaningful metrics </li></ul><ul><li>Limited cash available </li></ul><ul><li>Reward system must be altered </li></ul><ul><li>Reward system must be altered to emphasize “good of firm” </li></ul><ul><li>Policies, processes and decision making structure changes </li></ul><ul><li>Must collect data to quantify impact of changes </li></ul><ul><li>To get funded, must make compelling business case </li></ul>
  16. 16. Making Changes: Eight Lessons Learned <ul><li>Tie improvement to organizational goals </li></ul><ul><li>Emphasize making product-oriented improvements </li></ul><ul><li>Demonstrate value that justifies improvements </li></ul><ul><li>Make new processes how you do business </li></ul><ul><li>Recognize major barriers are psychological & political </li></ul><ul><li>Change your culture to one that rewards risk-taking </li></ul><ul><li>If you don’t have the talent, buy it </li></ul><ul><li>Use numbers to overcome post-decision dissonance </li></ul>
  17. 17. Why Change - Five Good Reasons? <ul><li>Keeping up with the competition </li></ul><ul><ul><li>Playing catch-up is always a motivation for change </li></ul></ul><ul><li>Achieving economic benefits </li></ul><ul><ul><li>Having a compelling business reason also works </li></ul></ul><ul><li>Supporting new product needs </li></ul><ul><ul><li>Tying change to a product need justifies investment </li></ul></ul><ul><li>Avoiding legal entanglements </li></ul><ul><ul><li>Sometimes changes are needed to comply with the law </li></ul></ul><ul><li>Achieving efficiencies </li></ul><ul><ul><li>Streamlining/simplifying process also justifies change </li></ul></ul>
  18. 18. Are You Ready for Change? <ul><li>Examine the following: </li></ul><ul><ul><li>Consistency with business goals </li></ul></ul><ul><ul><li>Compatibility with level of process maturity </li></ul></ul><ul><ul><li>Consistency with corporate culture </li></ul></ul><ul><ul><li>Compatibility with investment strategies </li></ul></ul><ul><ul><li>Achievability within desired timetable </li></ul></ul><ul><li>If warranted, be willing to take the risk </li></ul><ul><ul><li>The opportunity should be justifiable in terms of the risk/returns </li></ul></ul>
  19. 19. Corporate Cultures Compared <ul><li>Seeks opportunity for improvement </li></ul><ul><li>Action-oriented and willing to take risks </li></ul><ul><li>Team-oriented </li></ul><ul><li>Rewards innovation </li></ul><ul><li>Learns from failure </li></ul><ul><li>Creative, imaginative, pliant and flexible </li></ul><ul><li>Prefers the status quo </li></ul><ul><li>Avoids change and risk </li></ul><ul><li>Territorial by nature </li></ul><ul><li>Rewards followers, not innovators </li></ul><ul><li>Penalizes failure </li></ul><ul><li>Persistent, authoritative and rigid </li></ul>Entrepreneurial Culture Old-Fashioned Culture
  20. 20. Success is a Numbers Game <ul><li>Will this proposal save money, cut costs, increase productivity, speed development or improve quality? </li></ul><ul><li>Have you looked at the tax and financial implications of the proposal? </li></ul><ul><li>What’s the impact of the proposal on the bottom line? </li></ul><ul><li>Are our competitors doing this? If so, what are the results they are achieving? </li></ul><ul><li>Who are the stakeholders and are they supportive of the proposal? + Many more tough questions </li></ul>Answer Basic Business-Related Questions
  21. 21. Business Cases Supply You with the Numbers <ul><li>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 </li></ul><ul><ul><li>Most software engineers prepare detailed technical rather than business justifications </li></ul></ul><ul><ul><li>Many of their worthwhile proposals are rejected by management as a consequence </li></ul></ul><ul><ul><li>Use of business cases to complement the technical case can greatly increase their chances of success </li></ul></ul>
  22. 22. Business Versus Technical Cases Factors (5 is best) Java C/C++ - Core language features 2 4 - Degree of standardization & portability 3 4 - Object-oriented support 3 5 - Reuse facilities (library, browser, etc.) 3 4 - Web programming support 5 2 - Optimizing compilers available 4 5 - Bindings available 5 5 - Rich libraries available 3 4 - Compiler support tools available 4 5 - Inexpensive visual tools available 3 3 - Oriented toward your products 5 2 Score 40 43
  23. 23. Business Versus Technical Cases Factors (5 is best) Java C++ - Popularity - improve resumes 5 5 - Training opportunities available 5 4 - Literature and books available 5 5 - Consultants & subcontractors available 5 3 with language skills - Staff maintains competency in language/tools 2 4 - Retooling and retraining costs 1 5 - Transition costs associated with learning 1 5 curve (bring staff up to speed) ___ ___ Subtotal 24 31 Combined Score 64 74
  24. 24. The Business 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 ready to execute GQM Results Idea or proposal Proof of Concept Approval to go-ahead
  25. 25. Aligning Goals as the First Step Goal - successful technology transition Q1 - ready for use? Q2 - benefits quantified? Q3 - costs of use understood? M1 - availability of tools M1 - cost avoidance in $ M1 - startup costs M2 - availability of M2 - time-to-market delta M2 - operational training M3 - quality delta costs M3 - availability of M3 - opportunity methods costs M4 - availability of infrastructure Use the G-Q-M Paradigm
  26. 26. Let’s Step Through the Process <ul><li>Prepare white paper </li></ul><ul><ul><li>State what you are trying to do crisply </li></ul></ul><ul><li>Demonstrate technical feasibility </li></ul><ul><ul><li>Let’s you prove the idea’s value </li></ul></ul><ul><ul><li>Let’s management see, smell and touch evidence that you can deliver as promised </li></ul></ul><ul><li>Conduct market survey </li></ul><ul><ul><li>Determine the market need for your idea </li></ul></ul><ul><ul><li>Understand what the competition is doing and what your customers want </li></ul></ul><ul><ul><li>Focus on market creation, not sharing </li></ul></ul><ul><ul><li>Get to market first, be nimble and take risks to seize the opportunity </li></ul></ul>
  27. 27. More on the Process <ul><li>Develop business plan </li></ul><ul><ul><li>Needed before idea will be funded </li></ul></ul><ul><ul><li>Such plans summarize how you will make or save money, not how you’ll get the job done </li></ul></ul><ul><li>Prepare business case </li></ul><ul><ul><li>Convince sponsor idea makes both good technical and business sense </li></ul></ul><ul><li>Sell the idea </li></ul><ul><ul><li>Package for sales/champion </li></ul></ul><ul><li>Get ready to execute </li></ul><ul><ul><li>Plan the project thoroughly </li></ul></ul><ul><ul><li>Start recruiting key staff </li></ul></ul><ul><ul><li>Work communications and outreach </li></ul></ul><ul><ul><li>Search out facilities to co-locate team and for demos </li></ul></ul><ul><ul><li>Prepare your operational concepts </li></ul></ul>
  28. 28. Business Process Framework Business Planning Process Tradeoff and Analysis Processes Software Development Process Analytical Methods Models Guidelines for Decision-Making Process The business planning process proceeds in parallel Framework and interfaces with the software development process “ Principles, Rules and Tools for Business Case Development”
  29. 29. Nine Business Case Principles <ul><li>Decisions should be made relative to alternatives </li></ul><ul><li>If possible, use money as the common denominator </li></ul><ul><li>Sunk costs are irrelevant </li></ul><ul><li>Investment decisions should recognize the time value of money </li></ul><ul><li>Separable decisions must be considered separately </li></ul><ul><li>Decisions should consider both quantitative and qualitative factors </li></ul><ul><li>The risks associated with the decision should be quantified if possible </li></ul><ul><li>The timing associated with making decisions is critical </li></ul><ul><li>Decision processes should be periodically assessed and continuously improved </li></ul>
  30. 30. Success Tactics <ul><li>Address the cultural issues first - they’re the hardest </li></ul><ul><li>Keep senior management informed of your progress </li></ul><ul><li>Build alliances with programs and people </li></ul><ul><li>Publicize successes and spread the word widely </li></ul><ul><li>Mix it with the middle managers and critics </li></ul><ul><li>Don’t be afraid to change in mid-stream </li></ul><ul><li>Deliver something that you can brag about </li></ul><ul><li>Be perceived as successful by others </li></ul><ul><li>Work continuously to improve the improvement infrastructure you’ve set up </li></ul>
  31. 31. Use Engineering Economics as its Analytical Basis <ul><li>Takes cost of money into account </li></ul><ul><ul><li>A $$ today is worth more than tomorrow due to inflation </li></ul></ul><ul><li>Takes compounding into account </li></ul><ul><li>Normalizes future expenditures using current year dollars as a basis for comparison </li></ul><ul><li>Lets you establish a minimum attractive rate of return </li></ul>FW = P (1 + i) N PV = FW/(1 + i) N Future Worth Present Value
  32. 32. Many Available Techniques <ul><li>Break-even analysis </li></ul><ul><li>Cause and effect analysis </li></ul><ul><li>Cost/benefit analysis </li></ul><ul><li>Value chain analysis </li></ul><ul><li>Investment opportunity analysis </li></ul><ul><li>Pareto analysis </li></ul><ul><li>Payback analysis </li></ul><ul><li>Sensitivity analysis </li></ul><ul><li>Trend analysis </li></ul>Analysis Techniques Source : Boehm, Software Engineering Economics
  33. 33. Example - Cost Benefit Analysis <ul><li>Want to bring in training to learn a modern set of methods </li></ul><ul><li>How would you justify the investment? </li></ul><ul><ul><li>Should you use Cost Benefits, ROI or other approach? </li></ul></ul><ul><li>How would you pay for the training? </li></ul><ul><ul><li>Is this a capital, project or customer expense? </li></ul></ul><ul><li>What are the windows of opportunity and how would you capitalize on them? </li></ul><ul><ul><li>Is there State funds available? Can we partner? Is there mid-year or year-end funds available? </li></ul></ul>
  34. 34. Doing a Cost Benefit Analysis <ul><li>Non-recurring costs </li></ul><ul><ul><li>Course acquisition ____ </li></ul></ul><ul><ul><li>Course conduct ____ </li></ul></ul><ul><li>Recurring costs </li></ul><ul><ul><li>Course maintenance ____ </li></ul></ul><ul><ul><li>Continuing education ____ </li></ul></ul><ul><li>Tangible savings </li></ul><ul><ul><li>Cost avoidance ____ </li></ul></ul><ul><ul><li>Cost savings ____ </li></ul></ul><ul><li>Intangible savings </li></ul><ul><ul><li>Reduced turnover ____ </li></ul></ul><ul><ul><li>Improved morale ____ </li></ul></ul>Total ____ Total ____ Total Costs ____ Total ____ Total Benefits ____ Total ____ Cost/Benefit Ratio = PV (Total costs ( $) /Total Benefits ( $) )
  35. 35. Getting Management Approval <ul><li>Why should they invest in training instead of other alternatives? </li></ul><ul><ul><li>There needs to be a compelling business reason, else why make the effort </li></ul></ul><ul><ul><li>This must be the most attractive option examined </li></ul></ul><ul><li>Why invest now instead of some later time? </li></ul><ul><ul><li>Need to show problem is important & funds are available </li></ul></ul><ul><li>What do I have to do if I say yes to the proposal? </li></ul><ul><ul><li>Must show them that their efforts will be minimal; you’ve done all of the leg work and all they have to do is sign </li></ul></ul>
  36. 36. Many Supportive Tools <ul><li>Decision support systems </li></ul><ul><ul><li>Tax planning and schedules </li></ul></ul><ul><ul><li>Trade studies and analysis </li></ul></ul><ul><li>Spreadsheets </li></ul><ul><ul><li>Comparative analysis </li></ul></ul><ul><ul><li>Trade studies and analysis </li></ul></ul><ul><li>Software cost models </li></ul><ul><ul><li>Parametric analysis </li></ul></ul><ul><ul><li>Trade studies and analysis </li></ul></ul>Software packages
  37. 37. Including Estimating Models like COCOMO II - Of Course Sizing Model Estimating Model Risk Model * Benchmark analysis * Parametric analysis * Comparative analysis * Trade studies * Life cycle cost analysis * “What-if” analysis
  38. 38. Business Case Information Needs <ul><li>Business cases </li></ul><ul><ul><li>Recurring costs </li></ul></ul><ul><ul><li>Non-recurring costs </li></ul></ul><ul><ul><li>Tangible benefits </li></ul></ul><ul><ul><li>Intangible benefits </li></ul></ul><ul><li>Benchmarks </li></ul><ul><ul><li>Competitive comparisons </li></ul></ul><ul><ul><li>Industry norms </li></ul></ul><ul><li>Metrics </li></ul><ul><ul><li>Management measures </li></ul></ul><ul><li>Financial data </li></ul><ul><ul><li>Inflated labor costs </li></ul></ul><ul><ul><li>Labor categories/rates </li></ul></ul><ul><ul><li>Overhead/G&A rates </li></ul></ul><ul><ul><li>Past costs/performance </li></ul></ul><ul><ul><li>Tax rates/legalities </li></ul></ul><ul><li>Marketing information </li></ul><ul><ul><li>Demographic data </li></ul></ul><ul><ul><li>Market position </li></ul></ul><ul><ul><li>Sales forecast </li></ul></ul>
  39. 39. Plan to Emphasize Cost Avoidance <ul><li>Justify using cost avoidance not reduction </li></ul><ul><li>Keep cost & productivity considerations separate </li></ul><ul><li>Tap money when it becomes available </li></ul><ul><li>Know what cost you can control and who controls the others </li></ul><ul><li>Package numbers for consumption by seniors </li></ul><ul><li>Don’t assume the numbers won’t be scrutinized </li></ul><ul><li>Don’t assume you know what your current costs are and how they are allocated to cost centers </li></ul><ul><li>Don’t confuse management by combining cost and profit in same proposal </li></ul><ul><li>Don’t mix cost accounts when justifying ideas </li></ul>Things to Do Things Not to Do
  40. 40. Packaging Business Cases for Management Consumption <ul><li>Convincingly summarize the numbers at the start </li></ul><ul><li>Define your terms precisely - communicate meaning using examples </li></ul><ul><li>Be conservative with your numbers </li></ul><ul><li>Quantify tangible benefits in monetary terms </li></ul><ul><li>Don’t mix capital expenditures with project budgets </li></ul><ul><li>Use ranges for cost/benefits whenever possible </li></ul><ul><li>Portray the PV of your benefits in this year’s dollars </li></ul><ul><li>Focus attention on the business, not technical issues </li></ul>
  41. 41. When Communicating with Senior Managers, Remember <ul><li>They are like elephants, they never forget a number once uttered </li></ul><ul><li>They will hear only what they want to hear </li></ul><ul><li>Simple is better - package charts with at most five bullets </li></ul>
  42. 42. Chapter 5 - Justifying Process Improvement <ul><li>Purpose of case </li></ul><ul><ul><li>Justify investments in process improvement </li></ul></ul><ul><li>Goals of effort </li></ul><ul><ul><li>Develop numbers that get management to buy into near- and long-term investment tactics </li></ul></ul><ul><li>Constraints </li></ul><ul><ul><li>Deal with the firm’s related process improvement folklore, biases and history </li></ul></ul>
  43. 43. Organizational Structure Senior Management Engineering Field Support Manufacturing Program Mgmt Process Group QA Group Senior Staff * Systems * Fabrication * Field service * Software * Assembly * Training * Digital design * Production * Test & evaluation Project A Line of Business Management * Fund functional groups * Coordinate * Facilitate Your home Aerospace firm
  44. 44. History of Process Improvement Maturity Level 1985 1987 1989 1991 1993 1995 1997 1999 Now Level 3 - a customer requirement Reach Level 3 - corporate goal 5 4 3 2 1 Process budget axed Acquisition falls through Firm positioned to be acquired Process group reformed Seniors get serious about process Aim- Reach Level 4 in 2 years
  45. 45. The SEI Software CMM <ul><li>Used by many to characterize the maturity of the processes used to develop software </li></ul><ul><li>Important because: </li></ul><ul><ul><li>Employed as a means to benchmark firms </li></ul></ul><ul><ul><li>Acts as a framework for structuring improvements </li></ul></ul><ul><ul><li>Shown to have positive effect on productivity, quality and cost </li></ul></ul><ul><ul><li>Makes it easier to tackle a big software job like the one you are working on </li></ul></ul>
  46. 46. The Software CMM - Requirements management - Software project planning - Software project tracking and oversight - Software subcontract management - Software qualify assurance - Software configuration management - Organization process focus - Organization process definition - Training program - Integrated software management - Software product engineering - Inter-group coordination - Peer reviews - Quantitative process management - Software quality management - Defect prevention - Technology change management - Process change management 3 2 4 5 Contains: - 5 Maturity Levels - 18 Key Process Areas - 318 Key Practices
  47. 47. CMM Lessons Learned <ul><li>Takes 18 to 30 months to move a maturity level </li></ul><ul><ul><li>From Level 1 to 2 - average of 25 months </li></ul></ul><ul><ul><li>From Level 2 to 3 - average of 23 months </li></ul></ul><ul><ul><li>From Level 3 to 4 - average of 36 months </li></ul></ul><ul><li>Average investment to move up a maturity level is several million </li></ul><ul><li>The gains attributable to early error detection and correction are substantial (20X cheaper) </li></ul><ul><li>The average increase in productivity attributable to process improvement is 10 percent </li></ul>
  48. 48. Software Improvement Strategy Strategy Discipline the Software Process Standardize Products Professional workforce Quicken use of new technology * Proactive, not * Architecture- * Career paths * Project sponsors reactive based * Skill-based for IR&D * Optimizing * Massive reuse education and * Good idea * CMM-based * Open systems training programs * ISO-certified * Product lines * Distance * Technology * Components learning roadmap
  49. 49. More Background Information <ul><li>Overall experience </li></ul><ul><ul><li>Workforce averages 20 years experience </li></ul></ul><ul><li>Staff capabilities and morale </li></ul><ul><ul><li>Good - newcomers more open to change </li></ul></ul><ul><li>Education & training </li></ul><ul><ul><li>Myriad of training opportunities available </li></ul></ul><ul><li>World-class facilities and environment </li></ul><ul><ul><li>Undercapitalized, but making improvements primarily to reduce personnel turnover </li></ul></ul><ul><li>Technology adoption </li></ul><ul><ul><li>IR&D for software tripled after major client criticized management </li></ul></ul>
  50. 50. Rules of Engagement <ul><li>Let the numbers do the talking </li></ul><ul><li>Don’t assume that Program Managers understand software (they are clue-less) </li></ul><ul><li>Justifications must be made at the project level </li></ul><ul><li>You must address past experience, both pro & con </li></ul><ul><li>Your plan must focus on near-term results </li></ul><ul><li>Any software processes must be compatible with your existing management infrastructure </li></ul><ul><li>You must track/demonstrate accomplishment of goals </li></ul>
  51. 51. Process Group Organization Manager (New) Process Developer (Vacant) Process Developer (Vacant) Metrics Analyst (New) Project Liaison (Consultant) Project Liaison (Consultant) Curriculum Developer (Part-Timer) Curriculum Developer (Part-Timer)
  52. 52. Start - Why Focus on Process? Why (Goal): Questions: Metrics: Models: Increase Productivity and Meet Customer Requirements Measured What Why this how? option? option? SLOC/hour Do Process Other ROI Nil improvement approach COCOMO SEI Maturity Non-discounted Model ROI
  53. 53. Recommended Process 1. Involve the Stakeholders 2. Develop a vision and strategy 3. Define the work to be performed 4. Build partnerships 5. Promote the results * Expectations * Measures of success Vision statement * WBS dictionary * Game plan Positive public relations Pilot results
  54. 54. Work Breakdown Structure <ul><li>Process development </li></ul><ul><li>Education & training </li></ul><ul><li>Process roll-out/project support </li></ul><ul><li>Process assessment </li></ul><ul><li>Promotion & outreach </li></ul><ul><li>Support environment </li></ul>1.1 Write processes/practices 1.2 Review processes/practices 1.3 Improve process/practices 2.1 Develop/update courseware 2.2 Conduct courses 3.1 Pilot processes/gather feedback 3.2 Provide support to projects 3.3 Deploy metrics/statistical controls 3.4 Perform statistical analysis 4.1 Conduct periodic assessments 5.1 Promote results 5.2 Publish newsletter, articles, and so on 6.1 Establish web site 6.2 Establish process asset library
  55. 55. Process Group Budget = $2.4M/year <ul><li>Process development </li></ul><ul><ul><li>4 employees ($700K) </li></ul></ul><ul><li>Education & training </li></ul><ul><ul><li>2 part-timers ($200K) </li></ul></ul><ul><ul><li>$250K for seminars </li></ul></ul><ul><li>Process roll-out/project support </li></ul><ul><ul><li>2 consultants ($450K) </li></ul></ul><ul><ul><li>Retirees with credibility </li></ul></ul><ul><li>Process assessment </li></ul><ul><ul><li>$200K for outside facilitator </li></ul></ul><ul><li>Promotion and outreach </li></ul><ul><ul><li>$250K to prepare news-letter, work with clients and attend conferences </li></ul></ul><ul><li>Support environment </li></ul><ul><ul><li>$350K for web site development </li></ul></ul>
  56. 56. Proposed Operational Concepts <ul><li>Process development </li></ul><ul><li>Transition </li></ul><ul><li>Deployment </li></ul><ul><li>CM </li></ul><ul><li>QA </li></ul><ul><li>Distribution management </li></ul><ul><li>User support </li></ul><ul><li>Exploit industry experience by hiring outside assessment firm </li></ul><ul><li>Pilot to demo feasibility, do things middle managers think important </li></ul><ul><li>E&T JIT; dedicated project liaisons </li></ul><ul><li>Steering group CCB; shared/reused assets distinction </li></ul><ul><li>Use process to assure processes </li></ul><ul><li>Access via web site </li></ul><ul><li>FAQ; metrics; dedicated support for users </li></ul>
  57. 57. Your Justification Approach <ul><li>Justify process budget by: </li></ul><ul><ul><li>Showing the impact of accelerating productivity improvement from 10% to 20% annually </li></ul></ul><ul><ul><li>Looking at impact of early error detection/correction </li></ul></ul><ul><ul><li>Assessing the impact of COTS usage strategy </li></ul></ul><ul><ul><li>Evaluating the impact of moving to an architecture-based reuse strategy </li></ul></ul><ul><li>Show intangibles as added value </li></ul>
  58. 58. Accelerating Productivity from 10 to 20 Percent Annually Conservative estimate of savings is $4 million/year
  59. 59. Productivity Versus Cost <ul><li>Cost and productivity are related, but are influenced by different factors </li></ul><ul><li>To increase your productivity, you should address: </li></ul><ul><ul><li>Staff skills/expertise, process maturity and tools </li></ul></ul><ul><li>To reduce cost, you should attack: </li></ul><ul><ul><li>Overhead, scope of the job and efficiencies </li></ul></ul><ul><li>There are cases where improvements in your productivity result in increased costs </li></ul>
  60. 60. Early Error Detection/Correction <ul><li>Benefit of achieving Level 4 is a reduction in errors by a factor of between 20 and 25% </li></ul><ul><ul><li>Majority caught early in requirements and design phases </li></ul></ul><ul><li>Cost avoidance associated with early defect removal is $20/defect </li></ul><ul><li>For the 12 major programs in your firm, you compute cost avoidance is 1.2 million calculated as follows: </li></ul>(12 jobs/year)(10 defects 1 /KSLOC)(500KSLOC/job) = 60Kdefects/year (60K defects/year)($20/defect (avoidance)) = $1.2 million/year 1 As jobs enter test and evaluation; goal is 0.1 defect/KSLOC on delivery
  61. 61. Exploitation of COTS <ul><li>Benefits of enterprise-wide licensing can be substantial </li></ul><ul><ul><li>At the corporate level, this includes major software packages like DBMS </li></ul></ul><ul><ul><li>At the project level, this includes software tools and specialized software like operating systems </li></ul></ul><ul><li>As part of your Level 4 initiative, you plan to put in a licensing process that allows you to lever your buying power and save $1 million/year </li></ul>
  62. 62. COTS Pluses and Minuses <ul><li>Cheaper; but does not come for free </li></ul><ul><li>Available immediately </li></ul><ul><li>Known quality (+ or -) </li></ul><ul><li>Vendor responsible for evolution/maintenance </li></ul><ul><ul><li>Don’t have to pay for it </li></ul></ul><ul><li>Can use critical staff resources elsewhere </li></ul><ul><li>License costs can be high </li></ul><ul><li>COTS products are not designed to plug & play </li></ul><ul><li>Vendor behavior varies </li></ul><ul><li>Performance often poor </li></ul><ul><li>Vendor responsible for evolution/maintenance </li></ul><ul><ul><li>Have no control over the product’s evolution </li></ul></ul>Pluses Minuses
  63. 63. COTS Critical Success Factors <ul><li>Successful firms: </li></ul><ul><ul><li>Make COTS-based system tradeoffs early </li></ul></ul><ul><ul><li>Try before they buy </li></ul></ul><ul><ul><li>Avoid modifying COTS at all costs </li></ul></ul><ul><ul><li>Reconcile products with their architectures </li></ul></ul><ul><ul><li>Emphasize use of standards and open interfaces </li></ul></ul><ul><ul><li>Understand that COTS doesn’t come for free </li></ul></ul><ul><ul><li>Plan to manage parts/technology obsolescence </li></ul></ul><ul><ul><li>Make the vendor a part of the team, whenever possible </li></ul></ul><ul><ul><li>Negotiate enterprise-wide licenses for COTS products </li></ul></ul><ul><ul><li>Influence future paths the vendor will take </li></ul></ul><ul><ul><li>Address the cultural and process issues </li></ul></ul>
  64. 64. COTS Success Strategies <ul><li>Process </li></ul><ul><ul><li>Merge COTS life cycle into your organizational framework </li></ul></ul><ul><ul><li>Make needed tradeoffs </li></ul></ul><ul><ul><li>Think both technical and business issues </li></ul></ul><ul><li>Products </li></ul><ul><ul><li>Fit COTS components into product line strategies </li></ul></ul><ul><ul><li>Maintain open interfaces </li></ul></ul><ul><ul><li>Manage technology refresh </li></ul></ul><ul><li>People </li></ul><ul><ul><li>Make COTS vendors a part of your team </li></ul></ul><ul><ul><li>Increase awareness of COTS experience </li></ul></ul><ul><ul><li>Provide workforce with structure and information </li></ul></ul><ul><li>Institutional </li></ul><ul><ul><li>Improve purchasing and licensing processes </li></ul></ul><ul><ul><li>Maintain market watch </li></ul></ul><ul><ul><li>Capture past performance </li></ul></ul>
  65. 65. Architecture-Based Reuse <ul><li>Architectures are the framework you use to pull your product lines together </li></ul><ul><ul><li>They are domain-specific and standards-based </li></ul></ul><ul><ul><li>They encapsulate generality and variability </li></ul></ul><ul><li>They guide selection & use of high-leverage assets </li></ul><ul><ul><li>Establish the building blocks and codes </li></ul></ul><ul><li>They allow you to take full advantage of both COTS components and reusable assets </li></ul><ul><ul><li>Cost to build for reuse must be factored into analysis </li></ul></ul><ul><ul><li>Benefits of reuse adhere to the 3 times rule </li></ul></ul>
  66. 66. Three Views of an Architecture Technical Architecture - Information processing standards - Human-computer interface standards System Architecture - Components and topology - Networks and connectivity - Capacity/performance Operational Architecture - Information needs - User functions - Performance bounds
  67. 67. Radar Architecture Example Platform Posix kernel Multi-threading executive Activity Managers Measurement Functions Sensor Manager Libraries Mathematical libraries Inputs
  68. 68. Reuse-Based Development Paradigm Domain Analysis Domain Design Domain Model Asset Development Requirements Software Integration Operations & Analysis Development & Test Maintenance Software Reuse Library Architecture Project-specific deliverables Products for sale Scope Requirements Purchased products Domain Engineering Assets Assets Applications Engineering
  69. 69. COCOMO II Reuse Model ESLOC = ASLOC [AA + AAF(1 + 0.02(SU)(UNFM))] AAF < 0.5 100 ESLOC = ASLOC [AA + AAF + (SU)(UNFM)] AAF > 0.5 100 Where: AAF = 0.4 (DM) + 0.3 (CM) + 0.3 (IM) SU = Software Understanding (zero when DM = 0 & CM = 0) UNFM = Programmer Unfamiliarity AA = Assessment and Assimilation ASLOC = Adapted SLOC ESLOC = Equivalent new SLOC
  70. 70. The Impact of Reuse Conservative estimate of savings is $10 million/year
  71. 71. Reuse Cost/Benefit Worksheet <ul><li>Non-Recurring Costs </li></ul><ul><ul><li>Domain engineering - done on IR&D </li></ul></ul><ul><ul><li>Reusable assets - project funded </li></ul></ul><ul><ul><li>Infrastructure development - done by process group </li></ul></ul><ul><li>Recurring Costs (per year) </li></ul><ul><ul><li>Architecture maintenance $200K </li></ul></ul><ul><ul><li>Asset maintenance 500K </li></ul></ul><ul><ul><li>Process updates 100K </li></ul></ul><ul><li>Tangible Benefits </li></ul><ul><ul><li>Cost avoidance $10 million </li></ul></ul><ul><li>Intangible Benefits </li></ul><ul><ul><li>Deliver 12 months earlier than the norm </li></ul></ul><ul><ul><li>10 times reduction in efforts at delivery </li></ul></ul><ul><ul><li>Architecture stable, proven and can be demonstrated to clients </li></ul></ul><ul><ul><li>Scheduling algorithms can be optimized and improved </li></ul></ul>Total Costs $800K Total Benefits $10 million
  72. 72. Strategy Yields Positive Returns <ul><li>Early Error Reduction </li></ul><ul><li>Cost avoidance = $1.2M/year </li></ul><ul><li>Increased customer satisfaction based on quality </li></ul><ul><li>Exploitation of COTS </li></ul><ul><li>Cost avoidance = $1M/year </li></ul><ul><li>Improved maintenance and </li></ul><ul><li>license leverage with vendors </li></ul><ul><li>Productivity Improvement </li></ul><ul><li>Cost avoidance = $4M/year </li></ul><ul><li>Improved capabilities & capacity </li></ul><ul><li>Systematic Reuse </li></ul><ul><li>Cost avoidance = $10M/year </li></ul><ul><li>Faster to market </li></ul><ul><li>10X quality </li></ul><ul><li>Just starting – expect to reap </li></ul><ul><li>benefits within 3 years </li></ul><ul><li>Process can be built with </li></ul><ul><li>reuse in mind </li></ul>
  73. 73. Return-On-Investment Is High <ul><li>Tangibles </li></ul><ul><li>ROI = Annual Benefits </li></ul><ul><li> Investment </li></ul><ul><li>ROI = $6.2M </li></ul><ul><li> $2.4M </li></ul><ul><li>ROI > 250% per year </li></ul><ul><li>Assumptions : cost avoidances on page 3 </li></ul><ul><li>realized with exception of reuse which </li></ul><ul><li>kicks in after we reach CMM level 4. </li></ul><ul><li>Intangibles </li></ul><ul><li>Better product quality </li></ul><ul><li>Quicker to market </li></ul><ul><li>Increased customer </li></ul><ul><li>satisfaction </li></ul><ul><li>Improved employee </li></ul><ul><li>morale </li></ul><ul><li>Responds directly to customer requirements </li></ul>
  74. 74. When Briefing Management - Always Ask For Help <ul><li>Reaching Level 4 will take 2 years assuming things go as planned </li></ul><ul><li>The major challenge is to get those in the middle on our side (bonus is a good start) </li></ul><ul><li>There are a number of operational challenges </li></ul><ul><ul><li>Need help in staffing process group – getting requisitions through the system is tedious </li></ul></ul><ul><ul><li>Need help in licensing – buyer, legal and staff support </li></ul></ul><ul><li>Must keep the momentum moving </li></ul>
  75. 75. Case Study - Final Thoughts <ul><li>Process improvement is a good investment </li></ul><ul><li>To get management support, a good action plan and solid business case is needed </li></ul><ul><li>When justifying initiatives, cost avoidance is preferred to cost reduction </li></ul><ul><li>When determining benefits, categorize them as tangibles and intangibles </li></ul><ul><li>Be conservative, but make your case using the numbers to justify the investments </li></ul>
  76. 76. Final Points Before We Adjourn <ul><li>Numbers can be your ally when asking for money </li></ul><ul><li>When asking for money, talk your management’s language not yours </li></ul><ul><li>Don’t be casual about numbers, be precise </li></ul><ul><li>To be successful, be perceived as successful </li></ul>
  77. 77. You Can Be Successful <ul><li>Change only if it makes good business sense </li></ul><ul><li>Don’t become enamored with the technology </li></ul><ul><li>Get everyone involved - but not too involved </li></ul><ul><li>Focus changes on product developments </li></ul><ul><li>Look to the future, not the past (sunk costs) </li></ul><ul><li>Be patient and don’t reinvent the wheel </li></ul><ul><li>Do the easy things first to establish credibility </li></ul><ul><li>Be satisfied with a 90 percent solution </li></ul><ul><li>The sum of many small successes is a big success </li></ul>Guidelines
  78. 78. Think Like a Business-Person <ul><li>Talk like a business-person </li></ul><ul><ul><li>Translate technical jargon into business goals </li></ul></ul><ul><li>Act as a business-person </li></ul><ul><ul><li>Assess both the business and technical aspects of the proposal </li></ul></ul><ul><ul><li>Show your bosses you can run a business operation </li></ul></ul><ul><li>Be a business-person </li></ul><ul><ul><li>Focus on the bottom-line using the numbers when you can to make decisions that are good for the firm </li></ul></ul>
  79. 79. Lots of Available Web Resources
  80. 80. Chat Session - 10/29/2001 <ul><li>Scheduled for 7 to 8:20 am on 10/29/2001 </li></ul><ul><li>Provide me your questions prior to end of the week </li></ul><ul><ul><li>My email is dreifer@earthlink.net </li></ul></ul><ul><li>I will sort them and develop answers over the weekend </li></ul><ul><li>Hope this lecture has been stimulating </li></ul>THANKS AND HAVE FUN
  81. 81. Parting Remarks Its time for IBM to perform and then talk, instead of talk and then perform Louis Gerstner Jr., CEO IBM The chief business of the American people is business (not technology). Calvin Coolidge President By working faithfully 8 hours a day, you may eventually get to be a boss and work 12 hours a day. Robert Frost, Poet All management is a numbers game John Welch, Jr., CEO GE Have fun, be successful Don
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