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Extreme Programming Explained by Kent Beck

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Chapter 3. Economics of Software Development

We need to make our software development economically more valuable by spending money more slowly, earning revenue more quickly, and increasing the probable productive lifespan of our project. But most of all we need to increase the options for business decisions. [1]

By adding up the cash flows in and out of the project, we can simply analyze what makes a software project valuable. By taking into account the effect of interest rates, we can calculate the net present value of the cash flows. We can further refine our analysis by multiplying the discounted cash flows by the probability that the project will survive to pay or earn those cash flows.

With these three factors—

  • Cash flows in and out

  • Interest ...

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