Using the Economic Value of the Firm as a Basis for Assessing the Value of Process Improvements

In building a business case for increased process maturity, a measurable return for each benefit must be established. Increased predictability is known to be one of the benefits of process improvement. However, quantifying financial benefits from improvements in predictability is not as straightforward as quantifying financial benefits of other improvements such as increased productivity and decreased rework.. We propose evaluating investments in software engineering infrastructure using well-accepted economic and financial models. These models are in general based upon the theory that the inherent value of the firm is defined as the present value of all its future profits. By measuring the increase in the present value of the firm contributed by improved cost predictability we can approximate its financial value to the organization. This can yield better, more sophisticated business cases for investing in process improvement as well as resulting in more efficient allocation of resources.