. R. Malan and K. Wentzel, Economics of Software Reuse Revisited, Proceedings, 3 Irvine Software Symposium, UC Irvine, April 1993, pp. 109-121.  Home/Search   Document Not in Database   Summary   Related Articles   Check

....approach, the analyst might try adjusting cash flows downward and then discounting at the risk free rate, in the style of certainty equivalents. This approach is also incorrect, and reveals a misunderstanding about the nature of project specific versus systematic risk. As a specific example, Malan and Wentzel [1993] propose that cash flows associated with future reuse of a component (the good outcome) be multiplied with a probability p reflecting the possibility that the reuse instance might not be actualized (the bad outcome) Are these probabilities some kind of certainty equivalence adjustment as seen ....

.... in the game. Indeed, game theoretic approaches are currently being integrated into real options theory in this context [Smit and Ankum 1993] Competitive preemption, of course, is the rationale behind much of the current focus on time to market in the software industry [Jacobson et al. 1997] Malan and Wentzel [1993] have analyzed the value of reduced time to market in terms of traditional Discounted Cash Flow. However, since the benefits sought tend to be more strategic than operational, the options and game theoretic approaches mentioned above are a more promising avenue for exploring this kind of issue. ....

Malan, R., and K. Wentzel (1993), "Economics of Software Reuse Revisited," Proceedings of the Third Irvine Software Symposium, Department of Computer Science, University of California at Irvine, Irvine, CA.

....techniques for reuse oriented cost estimation, it is and will remain a very challenging and difficult task as indeed it is in all of corporate finance. Techniques for quantifying economic benefits that are of particular interest in reuse, such as decreased time to market, are emerging only now [8]. But agreement is being reached among many that working time (e.g. engineering hours [7] expressed in dollar amounts is an especially useful and realistic way of capturing economic benefits and costs associated with a reuse program. Considerable work has also been done in the measuring of ....

....been used most extensively in work at Hewlett Packard. In [7] the application of the NPV approach to evaluate two multi year corporate reuse projects is described. At the component level, the use of the approach is illustrated to rank components, either in terms of priority or as alternatives. In [8], techniques are also described to account for time to market and risk in a reuse context. That work is firmly grounded in accepted principles of corporate finance and forms a point of departure for the following discussion. Most people are comfortable in dealing with money amounts from the past ....

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R. Malan and K. Wentzel, "Economics of Software Reuse Revisited," Proc. 3rd Irvine Software Symposium, Irvine, 1993.

....down using the second or third suggestion above, and maintenance costs similarly (although summing per system would be inappropriate) 2) The producer maintains some reusable software, as a series of upgrades. Each upgrade is distributed to all consumers. The paper that suggests this strategy [5] presents the following model: Step 7: Break down other benefits and costs The only suggested ways in the literature to break down other benefits and costs is to sum them per system or per component. This may be appropriate if you already calculate per system or component in development benefits ....

Ruth Malan and Kevin Wentzel. Economics of software reuse revisited. Technical Report HPL-93-31, Hewlett-Packard, 1993.

....and validates each with respect to validation question 1 (see section 1.2.2) Section 5 concludes and proposes further work. 2 A framework for comparing economic models of reuse Much of the reuse economics literature has emphasised reuse as an investment (e.g. Bollinger and Pfleeger, 1990, Malan and Wentzel, 1993, Poulin, 1997b] According to Favaro [1996] assessment of the worth of reuse as an investment can be split into two activities: 1. Cost estimation. Reuse activities are assigned financial values. The output of cost estimation is a collection of cash flows associated with reuse, over the ....

....from now, is: PV = CF (1 d) y (4) The discount rate d can reflect inflation 15 , a risk free interest rate 16 , the prime interest rate (the rate banks charge their preferred customers) Reifer, 1997, p. 137] the company s hurdle rate (the investment s earnings if put to other use) [Malan and Wentzel, 1993], the opportunity cost of not making an alternative investment, and market risk (that is, risk that is not specific to a particular investment 17 ) For detailed discussions, see Withey [1996] and Favaro et al. 1998] 2.1.2 Net Present Value (NPV) Perhaps the most intuitive way of comparing ....

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Ruth Malan and Kevin Wentzel. Economics of software reuse revisited. Technical Report HPL-93-31, Hewlett-Packard, 1993.

....of an existing system. By investing in architecture up front, substantial savings can be realized later on,and the turnaround time on releases can drop, improving rather than harming opportunity cost. One successful example is Hewlett Packard s software infrastructure for their printer line [Malan Wentzel 93] However, DeMarco estimates that the first release of a novelsystem costs three times as much when developed with a well planned architecture [DeMarco 95] This cost represents a high risk since today s farsighted architecture can be tomorrow s inappropriate architecture. Indeed, Parnas says, ....

R. A. Malan and K. Wentzel. Economics of software reuse revisited. In Proceedings of the 3rd Irvine Software Symposium, pages 109--121, April 1993.

....investment in a quality software architecture can result in substantial savings each time a new program in the family is to be created. This theory has been validated in practice by successful examples 7 such as the implementation of software for a range of different HewlettPackard printers [Malan Wentzel 93] 2. Limitations of Parnas Approach Although the development of program families may be more cost effective when using Parnas design principles, such development is still not without high cost. DeMarco estimates that a well planned architecture can triple the expense of a new software system ....

R. A. Malan and K. Wentzel. Economics of software reuse revisited. In Proceedings of the 3 rd Irvine Software Symposium: 109-121, April 1993.

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. R. Malan and K. Wentzel, Economics of Software Reuse Revisited, Proceedings, 3 Irvine Software Symposium, UC Irvine, April 1993, pp. 109-121.

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