Value of Commercial Software Development under Technology Risk
نویسندگان
چکیده
Risk, or exposure to uncertainty, is an inherent part of software development. It is therefore an important factor in software investment decisions. This paper presents a disciplined approach to treating technology risk—an approach that links software development decisions to be linked to the financial markets. The approach relies on the premise that uncertainty creates value when managed properly. The paper demonstrates the utility of securities in estimating the risk underlying an investment in software development. It accomplishes this objective by means of a familiar development scenario that is subject to the uncertainty of a particular software technology: Java. The estimate of the underlying risk helps determine the value of the scenario. The valuation is performed through real options analysis, a financial technique well suited to deal with investment decisions under uncertainty. This kind of analysis is likewise applicable when Java is substituted by another software technology, such as the Extensible Markup Language (XML). Keywords—Software economics, decision-making, real options, real options analysis, uncertainty, investment analysis, financial valuation, risk, Java, XML
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