Economic evaluation of software projects — A systematic approach

This paper presents a heuristic approach for the application of investment appraisal techniques to the software industry, in an attempt to overcome some common problems, and thus improve the quality of decision-making in new product development. A financial model, in which critical causal variables are identified, is built to analyse the impact of the software development and sales process. Non-critical variables are ascribed values based on previous data or judgmental special assumptions (several sets of such values can be used whenever sensitivity analysis is required) and ranges of critical variables leading to financial breakeven are determined. These ranges are used to evaluate attainability, points deserving review, and critical success issues for the software project. A simple model is summarily described.