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20.5 High Net Present Value

High net present value (NPV) is a way to select SPI methods whose benefits and ROI have been accurately portrayed in future economic terms. It is a simple technique to account for future economic inflation, inflated benefits, and inflated ROI. High NPV is a means to remove the hype from the benefits and remove the hype from the ROI of a SPI method. NPV is used to test the economic validity of a SPI method in terms software executives can believe.

For instance, an eager SPI analyst might proclaim that a SPI method will save a firm $1 million over the next 10 years . After NPV analysis, it turns out that the savings is not actually $1 million but merely $700,000. The cost of implementing the SPI method is $350,000, so the NPV is only 100%. It is best to qualify or validate your benefits and ROI using NPV. Do so before approaching your company's executives with your proposition for investment in one or more SPI methods.

For example, some SPI methods have high ROI values. These values remain high even if we assume an organization already has institutionalized software testing at world-class levels. In other words, the ROI would be even higher had we realistically assumed most organizations do not perform any testing at all. The ROI of the Personal Software Process ^SM , Software Inspection Process, and Team Software Process ^SM is quite high. The ROI of the Software Capability Maturity Model , ISO 9001, and Capability Maturity Model Integration is high too. The ROI values are 4,133, 3,272, 2,826, 871, 229, and 173%, respectively.

The first question your financial officer will ask is, "What's the NPV of these SPI methods?" You can astutely answer 3,217, 2,542, 2,192, 661, 158, and 114%. Notice that the NPV for these SPI methods is 28.49, 28.72, 28.89, 31.81, 45.11, and 51.92% lower than the gross ROI. Yet, all of the SPI methods continue to have an ROI above 100%. These are figures your financial officer is willing to consider. However, remember that even these NPV figures obscure the high costs of these SPI methods. Your chief executive officer will not ignore the budget you are requesting in isolation, based on ROI or NPV figures.