The Business Value of Software The Business Value of Software By Michael D.S. Harris CRC Press Boca Raton and London CRC Press Taylor & Francis Group 6000 Broken Sound Parkway NW, Suite 300 Boca Raton, FL 33487-2742 © 2018 by Taylor & Francis Group, LLC CRC Press is an imprint of Taylor & Francis Group, an Informa business No claim to original U.S. Government works Printed on acid-free paper International Standard Book Number-13: 978-1-4987-8286-9 (Hardback) This book contains information obtained from authentic and highly regarded sources. Reasonable efforts have been made to publish reliable data and information, but the author and publisher cannot assume responsibility for the validity of all materials or the consequences of their use. The authors and publishers have attempted to trace the copyright holders of all material reproduced in this publication and apologize to copyright holders if permission to publish in this form has not been obtained. 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Trademark Notice: Product or corporate names may be trademarks or registered trademarks, and are used only for identification and explanation without intent to infringe. Library of Congress Cataloging- in- Publication Data Names: Harris, Michael D. S., author. Title: The business value of software / Michael Harris. Description: Boca Raton : Taylor & Francis, a CRC title, part of the Taylor & Francis imprint, a member of the Taylor & Francis Group, the academic division of T&F Informa, plc, [2017] Identifiers: LCCN 2017006007| ISBN 9781498782869 (hb : acid-free paper) | ISBN 9781498782906 (e) Subjects: LCSH: Business--Data processing. | Computer software--Development. Classification: LCC HF5548.2 .H374 2017 | DDC 005.068--dc23 LC record available at https://lccn.loc.gov/2017006007 Visit the Taylor & Francis Web site at http://www.taylorandfrancis.com and the CRC Press Web site at http://www.crcpress.com Contents Preface ................................................................................................................xi Acknowledgments ............................................................................................xiii Author ................................................................................................................xv Acronyms .........................................................................................................xvii 1 Why Software Value? ..............................................................................1 Why Not Information Technology Value More Generally? .........................1 Who Should Care about the Business Value of Software? ............................4 What Is the Business Value of Software? ......................................................5 Impact of Perspective on Business Value..................................................6 Software Value Sidestep ..........................................................................7 Software Value Life Cycle........................................................................8 What Role Does Time Play in the Business Value of Software? .............10 A More Sophisticated Definition of the Business Value of Software ......10 What Do We Mean by Software Value as an Asset and Software Value as a Flow? .........................................................................................11 Current Approach to Managing the Business Value of Software as an Asset ..........................................................................................................11 Financial Perspective .............................................................................12 Software Maintenance Perspective ........................................................12 Portfolio Management Perspective ........................................................13 Current Approach to Maximizing the Flow of Software Business Value ...14 What Is Lost When Software Value Is Invisible? ........................................18 2 Six Things the C-Suite Should Know about Software Value ................19 Chief Executive Officer ..............................................................................21 The Board ..................................................................................................22 Chief Financial Officer ..............................................................................23 Chief Marketing Officer ............................................................................25 Chief Digital Officer ..................................................................................26 Chief Information Officer ..........................................................................28 Lenses ........................................................................................................29 Summary ...................................................................................................31 v vi ◾ Contents 3 Make the Business Value of Software Visible .......................................33 Why Visible? .............................................................................................33 Why Learning? ......................................................................................35 Why Status? ..........................................................................................36 How Visible? Information Radiators ..........................................................39 Value of Problem Status Visualization.......................................................42 Value of Process Status Visualization .........................................................43 Value of Solution Status Visualization .......................................................51 Summary ...................................................................................................51 4 Forms of Software Value .......................................................................53 Financial Forms of Software Business Value ..............................................55 Software as an Asset or an Expense ............................................................56 GASB Statement 42 .............................................................................60 How to Capitalize Agile? .......................................................................61 The Dark Side of Software Capitalization and Amortization? ...............62 Software as Revenue .............................................................................66 Non-Financial Forms of Software Value ....................................................68 Software Reputation ..............................................................................68 Technical Debt ......................................................................................69 Data and Information ...........................................................................69 Open Source .........................................................................................70 Summary ...................................................................................................70 5 Establishing Software Value Strategies ................................................71 Lean Software Development ......................................................................72 Removal of Waste ..................................................................................72 Pull Not Push .......................................................................................73 Monitor and Control Variation in the Process but Not in the Inputs ....74 Reinertsen’ s Principles for Optimizing Value Flow through Product Development ...........................................................................75 Kanban ................................................................................................77 A Portfolio Management Kanban System ..............................................80 Cost of Delay and Weighted Shortest Job First .....................................82 Connecting Up the Dots between Portfolio Management and Development Teams .................................................................................84 End-to-End Business Value ...................................................................87 Orphan Stories ......................................................................................88 SAFe Portfolio Layer and Software Value ..............................................88 SAFe Value Stream Layer and Software Value .......................................89 Summary ..................................................................................................90 Contents ◾ vii 6 Business Value from Products and Programs .......................................91 Product or Program? ..................................................................................91 Similarities between Products and Programs .........................................91 Differences between Products and Programs .........................................94 Software Value for Product/Program with Enabling Portfolio Strategy .....94 Value Streams ........................................................................................95 Value Stream Mapping and Analysis .....................................................97 Software Value for Product/Program without Enabling Portfolio Strategy ....................................................................................................100 Product/Program Value in Waterfall Organizations ............................100 Product/Program Value in Agile Organizations ..................................102 Organizations Using Agile and Waterfall ............................................104 Contributions to Maximizing Software Value at the Product/Program Level ........................................................................................................104 Summary .................................................................................................105 7 Establishing Software Value Tactics ...................................................107 The Why and How of Queue Management for Software Development ...108 Waterfall and Queue Management ..........................................................110 Agile and Queue Management ................................................................111 Value Visualization ..................................................................................113 The Problem ........................................................................................113 Why Value Visualization? ....................................................................115 The Value Visualization Framework .........................................................116 VVF Step 4: Define the Cost of Delay ................................................117 VVF Step 5: Quantifying the Economic Value of Stories Once Deployed .............................................................................................118 Resource Allocation at a Tactical Level ....................................................118 Lenses on the VVF ..................................................................................119 A VVF Example ......................................................................................120 Summary .................................................................................................123 8 Metrics for Business Value in Software Development ........................125 Value Metrics for Agile Governance .........................................................126 Traditional Waterfall Metrics ..............................................................126 The Metrics Challenge for Agile ..............................................................127 Software Size ......................................................................................130 Software Productivity ..........................................................................131 Software Complexity and Technology Flexibility ................................131 Software Quality/Reliability ...............................................................132 Customer Collaboration ......................................................................133 viii ◾ Contents Individuals and Interactions ................................................................134 Responding to Change ........................................................................135 Agile Governance Metrics Maturity Evolution ....................................136 Benchmarking Business Value .............................................................140 Summary .................................................................................................146 9 The Software Value Management Office ............................................147 Where Does the SVMO Fit in the Organization? ....................................148 What Is the Mission of the SVMO? .........................................................151 What Are the Functions of the SVMO?...................................................151 Software Value of People ..........................................................................153 How Should the SVMO Itself Be Measured? .....................................153 Portfolio, Product/Program, and Team Measurement .........................154 Software Value Information Available .................................................154 Percentage of Individuals with Access to Software Value Data ............155 Percentage of Individuals Using Software Value Data to Make Informed Decisions .............................................................................155 Software Value Flow Increase versus Last Quarter ..............................155 SVMO and Earned Value Management ..................................................156 Summary .................................................................................................159 10 The Business Value of Software Estimation .......................................161 Software Development Estimates .............................................................163 Where Is the Business Value? ...................................................................164 #NoEstimates Scenarios ...........................................................................170 Standard Corporate Environments ......................................................170 High-Level Estimation (Product and Release) .....................................170 Task-Level Estimation (Iteration and Daily) ........................................171 Commercial/Contractual Work...........................................................171 Budgeting, Estimation, Planning, #NoEstimates, and the Agile Planning Onion .......................................................................................171 Summary .................................................................................................172 11 Mergers and Acquisitions: Software Value and Risks ........................173 Prioritizing the Software Value and Risk Assessment Based on Business Functions ...................................................................................174 Software for Common Functions ........................................................175 Software for New Functions (New to the Acquirer) ............................175 Prioritizing the Software Value and Risk Assessment Based on Lenses ....176 Build-Buy Lens ...................................................................................177 End-Client Lens ..................................................................................179 Profit Lens ...........................................................................................180 Contents ◾ ix Approach to Assessing the Software Value and Risk of a Business ...........180 Software Asset Due Diligence .............................................................182 Software Asset Risk Management .......................................................184 Software Asset Maturity Analysis ........................................................184 Software Asset Integration Management .............................................185 Summary .................................................................................................187 12 Broader Impact of Software Value Management ................................189 Business Value of Cybersecurity ..............................................................189 Value of Unused Software ........................................................................192 Hardware and Software Value .................................................................193 Software and People .................................................................................196 Holistic Value ..........................................................................................199 Other Applications of Value Visualization, Cost of Delay, and WSJF in Information Technology ......................................................................202 Summary .................................................................................................202 Appendix: Waterfall and Agile Software Development Methodologies ......205 Waterfall Development ............................................................................205 Agile Development .................................................................................208 Other Agile Methodologies .................................................................210 References ...................................................................................................213 Index ...........................................................................................................215