Overview

Financial analyses of a DFTS process are meant to provide visibility and control for effective decision-making. Important nonfinancial metrics and control mechanisms also are needed. However, you shouldn't lose sight of customer requirements. Sound financial return is one of the desired outcomes of a DFTS initiative that is designed to meet customer requirements while also meeting the software developer's internal objectives. This chapter discusses four financial approaches to evaluating economic imperatives of a DFTS deployment: Cost of Software Quality (CoSQ), Activity-Based Costing (ABC), Taguchi's Quality Loss Function (QLF), and financial evaluation of a DFTS investment. This chapter illustrates the need to address quality problems upstream and the cost advantage of doing so. Investments made in upstream preventive measures provide a much higher payoff than development models that rely on corrective measures downstream, or worse, on corrective measures that follow failure during customer usage. This chapter discusses the classification, implementation, payback, benefits, and pitfalls of CoSQ. Then it covers the relevance, establishment, and benefits of ABC in a software context. This is followed by life-cycle costs and QLF in a software context. Finally, financial evaluation of a DFTS investment is presented, together with other financial and nonfinancial metrics required for effective visibility, accountability, control, and decision-making.

Chapter Outline

• Why DFTS Entails Different Financial Analyses

• Cost and Quality: Then and Now

• Cost of Software Quality

• Cost of Software Quality Over the Life Cycle

• CoSQ and Activity-Based Costing

• Quality Loss Function in Software

• Financial Evaluation of a DFTS Investment

• Key Points

• Additional Resources

• Internet Exercises

• Review Questions

• Discussion Questions

• Problems

• Endnotes