Waltzing with Bears: Managing Risk on Software Projects

18. Value Quantification

In the beginning—the early days of the IT industry—the justification of new systems products was pretty straightforward. The systems we were installing then were usually replacements for manual clerical schemes. The labor saved was the value, and the development expense was the cost. The cost-benefit study came up with nice formulations like this:

To show we had a hardheaded respect for the time value of money, we expressed the various streams of costs and savings in terms of net present value (NPV). We could make easy statements of the form, “deciding to kick this project off now is the equivalent of adding a net present ...