The Last Great Frontier

For a typical business-investment decision, the desirability of the investment is determined by weighing the return on investment against the cost of capital. An investment that produces a return greater than the cost of capital all things considered will be a good investment.^[17] (This is a simplified explanation. See the citations for more complete explanations.)

Cost of capital is typically around 10 percent. In many business contexts, an investment with a return of 15 percent or 20 percent would be considered compelling. Improved software practices, however, do not offer returns of 15 percent or 20 percent. According to the examples in Table 13-2 (as well as studies cited at the beginning of the chapter), improved software practices provide returns ranging from 300 percent to 1, 900 percent and average about 500 percent. Investments with these levels of returns are extraordinary virtually unprecedented in business. These returns are higher than Internet stocks in the late 1990s. They're higher than successful speculation in the commodities markets. They're almost as good as winning the lottery, and they represent an unrivaled opportunity for any business that isn't already using these practices.

The reason for these exceptionally high returns is tied directly to the discussions in Chapters 1 and 2 improved practices have been available for decades, but most organizations aren't taking advantage of them. Risk of adopting these practices is low; payoff is high. All that's needed is the organizational resolve to use them.