institute for software excellence make or buy? a value-based approach to tco analysis dr. nicole...
TRANSCRIPT
![Page 1: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/1.jpg)
Institute For Software Excellence
Make or Buy?A Value-Based Approach to TCO Analysis
Dr. Nicole RadziwillJames Madison University
ISE09 – 8:00am Wednesday, May 26, 2010
![Page 2: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/2.jpg)
Motivation
• The price of purchasing software is typically very low (<10%) compared to the how much it really costs – in total – to acquire and use a software product over its lifetime
• Even free software can be expensive!
MacCormack, A. (2003). The true costs of software. Computerworld, 5/29/2003. http://www.computerworld.com/s/article/81590/The_True_Costs_of_Software?taxonomyId=18&pageNumber=2
2
![Page 3: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/3.jpg)
Objectives
• Summarize the Total Cost of Ownership (TCO) concept
• Discuss the components of TCO• Identify the limitations of a TCO analysis in the
context of a real software selection problem• Present a value-based extension of TCO
analysis that helps you factor in other considerations that are useful in “Make vs. Buy” decisions
3
![Page 4: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/4.jpg)
TCO Can Help Answer:
• Should we buy a Commercial Off-the-Shelf (COTS) solution and customize it?
• Should we build our software from scratch?
• Should we use open source software?
• Should we use Software-as-a-Service (SaaS)?
4
![Page 5: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/5.jpg)
Components of TCO
• What costs can be associated with software development over a 3, 5 or 10-year maintenance cycle?
5
![Page 6: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/6.jpg)
Components of TCO
According to Capers Jones:• Initial cost of building an application• Cost of enhancing the app with new features• Cost of repairing defects and bugs• Cost of customer support• Cost of refactoring• Removal of error-prone modulesJones, C. (2007). Geriatric Issues of Aging Software. Crosstalk, Dec. 2007.
6
![Page 7: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/7.jpg)
Components of TCO
• Cost to purchase software• Cost to customize software• Licenses for named or concurrent users• Cost of infrastructure that software will run on:
servers, network connections, network upgrades to support higher loads or number of transactions
• Staffing: training, maintenance, support, administration, incidental personnel
• COSTS OF QUALITY!
7
![Page 8: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/8.jpg)
TCO Templateshttp://www.scribd.com/doc/16727390/TCO-for-Software-App-Template
International Conference on Software Quality - ICSQ 09
8
![Page 9: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/9.jpg)
Barriers to TCO Analysis
• Lack of relevant data (or inability to find appropriate and relevant data)
• Difficulty of determining the right costs to factor into the TCO calculation
• Difficulty of determining the TCO itself• Organizational culture• Irrelevance of analysis in certain situationsCf. Ellram, L. (1994). A Taxonomy of TCO Models. Journal of Business
Logistics. 15(1), 171-192.
9
![Page 10: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/10.jpg)
There are Alternatives…
• Multiple attribute utility theory (MAUT)
• Multi-objective programming
• Analytical hierarchy process (AHP)
10
![Page 11: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/11.jpg)
But….
• These methods can be complex, and are still based on costing… it’s hard to integrate qualitative concerns.
• Total Cost isn’t always the only factor you need to consider. The most cost effective software might be really difficult to customize or maintain.
• How do you factor these considerations into your Make vs. Buy decision?
11
![Page 12: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/12.jpg)
Context of the Problem
• A new observatory needs to select a database, a messaging system, a data processing system, and an asset management system
• Wants to select a cost-effective option that will yield the highest value over the 3-year lifetime of the construction project
12
![Page 13: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/13.jpg)
3D Total Cost of Ownership• Three Dimensions are:
– Priority of Selection Criteria/Requirements– % of criteria that can satisfied at each priority level– Relative TCO, which is Total Cost of Ownership (TCO) relative to the most
expensive candidate for a subsystem
• We are looking for options with:– Ability to Satisfy all Observatory Requirements (100% through out-of-
the-box functionality or customizations; selected subsystems MUST cross the 1.0 satisfiability line)
– High Value (vertical lines indicate that we can satisfy many more requirements with only a small investment)
– Lowest TCO (lines as far left as possible)
• Only Oracle DB, IBM Maximo asset management, and Platform data processing systems meet all three selection criteria
• Both JBoss and IBM MQ high value candidates for messaging system
![Page 14: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/14.jpg)
What’s Needed for 3D TCO
• Prioritized requirements (examples have three levels of prioritization for COTS, four for software-from-scratch)
• Satisfiability: know what proportion of the requirements are satisfied at each priority level
• An estimate of TCO over a selected time horizon for each priority level (example uses 3 year TCO)
• Normalize all satisfiability estimates to LARGEST satisfiability• Normalize all TCO estimates to LARGEST for each subsystem
14
![Page 15: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/15.jpg)
International Conference on Software Quality - ICSQ 09
15
![Page 16: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/16.jpg)
Monday, April 10, 2023
Footer goes here 16
DATABASE
MESSAGING (CMES)
DATA PROCESSING (DPMS)
ASSET MANAGEMENT (AM/OSM)
![Page 17: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/17.jpg)
Monday, April 10, 2023
Footer goes here 17
DATABASE
MESSAGING (CMES)
DATA PROCESSING (DPMS)
ASSET MANAGEMENT (AM/OSM)
Infor
JBoss
IBM MQ
Kepler
IFS
RedHat JBPM
Oracle
IBM DB2
IBM
IBM
Oracle AQ
IBM Maximo
Platform
![Page 18: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/18.jpg)
![Page 19: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/19.jpg)
Infor
JBoss
IBM MQ
Kepler
IFS
RedHat JBPM
Oracle
IBM DB2
IBM
IBM
Oracle AQ
IBM Maximo
Platform
![Page 20: Institute For Software Excellence Make or Buy? A Value-Based Approach to TCO Analysis Dr. Nicole Radziwill James Madison University ISE09 – 8:00am Wednesday,](https://reader035.vdocuments.mx/reader035/viewer/2022062307/55167cc95503469d698b5c14/html5/thumbnails/20.jpg)
Identifying Best Candidates
• Line should hit the top of the chart (indicating 100% satisfiability of requirements)
• Steep slope indicates that you get more requirements satisfied with just a little more investment in terms of TCO
• Line should be as far left as possible indicating lower TCOs
20