IT4520Q – Software Engineering Economics.

Firt Semester, Academic Year 2021-2022

Assignment No. 2

Group 9

1. Clarify the benefits of Software Engineering Economics perspectives

The Software Engineering Economics KA is concerned with making decisions within

the business context to align technical decisions with the business goals of an
organization. Topics covered include fundamentals of software engineering
economics (proposals, cash flow, the time-value of money, planning horizons,
inflation, depreciation, replacement and retirement decisions); not for-profit decision-
making (cost-benefit analysis, optimization analysis); estimation; economic risk and
uncertainty (estimation techniques, decisions under risk and uncertainty); and
multiple attribute decision making (value and measurement scales, compensatory and
non-compensatory techniques).

The major benefit of an economic perspective on software engineering is that it

provides a balanced view of candidate software engineering solutions, and an
evaluation framework that takes account not only of the programming aspects of a
situation, but also of the human problems of providing the best possible information
processing service within a resource-limited environment. Thus, for example, the
software engineering economics approach does not say, “we should use these
structured structures because they are mathematically elegant” or “because they run
like the wind” or “because they are part of the structured revolution.” Instead, it says
“we should use these structured structures because they provide people with more
benefits in relation to their costs than do other approaches.” And besides the
framework, of course, it also provides the techniques that help us to arrive at this
conclusion.

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2. Clarify the challenges of Software Engineering Economics

The original objectives of software engineering economics: to provide a better

quantitative understanding of how software people make decisions in resource-
limited situations.

Software development costs are increasing. The more clearly we as software

engineers can understand the quantitative and economic aspects of our decision
situations, the more quickly we can progress from a pure seat-of-the-pants approach
on software decisions to a more rational approach that puts all of the human and
economic decision variables into clear perspective. Once these decision situations are
more clearly illuminated, we can then study them in more detail to address the deeper
challenge: achieving a quantitative understanding of how people work together in the
software engineering process.

Given the rather scattered and imprecise data currently available in the software
engineering field, it is remarkable how much progress has been made on the software
cost estimation problem so far. But there is not much further we can go until better
data becomes available. The software field cannot hope to have its Kepler or its
Newton until it has had its army of Tycho Brahes, carefully preparing the well-
defined observational data from which a deeper set of scientific insights may be
derived.

3. Clarify the roles and knowledge required from Software Engineering

Economics to enterprise leaders (CEO, COO, Chairwoman,…)

ROLES

Chair: Technically the leader of the corporation, the board chair is responsible for
running the board smoothly and effectively. Their duties typically include
maintaining strong communication with the chief executive officer and high-level
executives, formulating the company's business strategy, representing management
and the board to the general public and shareholders, and maintaining corporate
integrity. The chair is elected from the board of directors.

Inside Directors: These directors are responsible for approving high-level budgets
prepared by upper management, implementing and monitoring business strategy, and

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approving core corporate initiatives and projects. Inside directors are either
shareholders or high-level managers from within the company.

Outside Directors: While having the same responsibilities as the inside directors in
determining strategic direction and corporate policy, outside directors are different in
that they are not directly part of the management team. The purpose of having
outside directors is to provide unbiased perspectives on issues brought to the board.

Management Team

Chief Executive Officer (CEO): As the top manager, the CEO is typically responsible
for the corporation's entire operations and reports directly to the chair and the board
of directors. It is the CEO's responsibility to implement board decisions and
initiatives, as well as to maintain the smooth operation of the firm with senior
management's assistance.

Chief Operations Officer (COO): Responsible for the corporation's operations, the
COO looks after issues related to marketing, sales, production, and personnel. Often
more hands-on than the CEO, the COO looks after day-to-day activities while
providing feedback to the CEO. The COO is often referred to as a senior vice
president.

Chief Financial Officer (CFO): Also reporting directly to the CEO, the CFO is
responsible for analyzing and reviewing financial data, reporting financial
performance, preparing budgets, and monitoring expenditures and costs.

The CFO is required to present this information to the board of directors at regular
intervals and provide it to shareholders and regulatory bodies such as the Securities
and Exchange Commission (SEC). Also usually referred to as a senior vice president,
the CFO routinely checks the corporation's financial health and integrity.

KNOWLEDGE REQUIREMENT

The Software Engineering Economics is concerned with making decisions within the
business context to align technical decisions with the business goals of an
organization. Topics covered include fundamentals of software engineering
economics (proposals, cash flow, the time-value of money, planning horizons,

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inflation, depreciation, replacement and retirement decisions); not for-profit decision-
making (cost-benefit analysis, optimization analysis); estimation; economic risk and
uncertainty (estimation techniques, decisions under risk and uncertainty); and
multiple attribute decision making (value and measurement scales, compensatory and
non-compensatory techniques).

4. Clarify some research approaches on Software Engineering Economics

4.1. Cost-benefit analysis

Cost-benefit analysis is a general method that is often used in engineering. What is

typical of cost-benefit analysis is that all considerations that are relevant for the
choice between different options are eventually expressed in one common unit,
usually a monetary unit, like dollars or euros.

Cost-benefit analysis may be an appropriate tool if one wants to optimize the

expected economic value of a design. Still, even in such cases, some additional value
laden assumptions and choices need to be made. One issue is how to discount future
benefits against current costs (or vice versa). The choice of discount rate may have a
major impact on the outcome of the analysis. One might also employ different choice
criteria once the cost-benefit analysis has been carried out. Sometimes all of the
options in which the benefits are greater than the costs are considered to be
acceptable. However, one can also choose the option in which the net benefits are
highest, or the option in which the net benefits are highest as a percentage of the total
costs.

4.2. Cost modeling

A cost model is a set of mathematical relationships arranged in a systematic sequence

to develop a cost methodology in which outputs, namely cost estimates, are derived
from inputs. These inputs include quantities and prices. Cost models can vary from a
simple one-formula model to an extremely complex model that involves hundreds or
even thousands of calculations.

Cost models can be classified in several ways. One basis for classification would be
the complexity of manipulation of the inputs, secondly according to the function they
serve and lastly according to the likelihood of repetitive use. Earlier various software

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cost estimation models have been suggested and studied by many researchers (Kim
and Lee, Kafura and Henry, Kaur, Mittal and Parkash, Maxwell, Brian and Smith).

Cost estimation is one of the most challenging tasks in project management. It is to

accurately estimate needed resources and required schedules for software evelopment
projects. The software estimation process includes estimating the size of the software
product to be produced, estimating the effort required, developing preliminary project
schedules, and finally, estimating overall cost of the project. Accurate cost estimation
is important because:
 It can help to classify and prioritize development projects with respect to an
overall business plan.
 It can be used to determine what resources to commit to the project and how
well these resources will be used.
 It can be used to assess the impact of changes and support replanning.
 Projects can be easier to manage and control when resources are better
matched to real needs.
 Customers expect actual development costs to be in line with estimated costs.
TYPES OF COST MODELS:
 COCOMO model
 SEER-SEM model
 PRICE-S
 SLIM
 COPMO model
 Function point analysis (FPA)
Cost Estimation models are good for budgeting, tradeoff analysis, planning and
control, and investment analysis. As they are calibrated to past experience, their
primary difficulty is with unprecedented situations.

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References

[1] Huỳnh Quyết Thắng. Kinh tế công nghệ phần mềm. Nhà xuất bản Bách Khoa Hà
Nội, 2016. ISBN 978-604-93-8864-4

• Chapter 1 (Tổng quan về Kinh tế công nghệ phần mềm)

[2] Barry Boehm, Kevin Sullivan. “Software Economics: A Roadmap”, 2000.

[3] Pierre Bourque, Richard E. (Dick) Fairley. Guide to the Software Engineering
Body of Knowledge Version 3.0. IEEE Computer Society Products and Services,
2014. ISBN-10: 0-7695-5166-1

• Chapter 12 (Software Engineering Economics)

[4] (2012). International Journal of Engineering Research and Technology IJERT.

[Erscheinungsort nicht ermittelbar], ESRSA Publ.

and other materials from the Internet.