Financial Structures in software projects
To ensure effective management of capital investments in software projects a good financial structure is essential. With the current trend in outsoaring, this aspect is even more important.
The capital budgeting models need to take into consideration the managerial flexibility available to the organizations. For instance, depending on the risks, the manager can decide to cancel or change the course of direction of the software project.
One of the successful ways of doing this is a phase based approach. During the first phase, the software project budget is approved only to define a vision, scope and achieve concurrence among all stakeholders. The primary focus is to address significant business and requirements risks which must be addressed. Based on the results of this phase, reevaluation of the business case is made and the budget for the next phase is approved for mitigating the architectural risks that have great impact on the system. Following the demonstration of the architecture that mitigates the risks a further reevaluation of the business case is done to make sure the return on investment is still good. At this point, the estimation for the software project budget is much clearer as the bigger risks are already mitigated and budget for developing the operational system can be approved.
This systematic approach to managing the risks and return on capital investments puts good financial controls and monitors through out the life of the software projects.
Spiral models available for developing the projects allows the managers and CFO’s to implement this type of mechanisms In the case of outsourcing, these structures provide a greater contractor control and a bonus payment scheme at each phase could be given for better results. Organizations will have better control to change the course of direction or to change the financial control will encourage good performance by the contractor.
As a side note, from the contractor’s perspective a time and material type contact until the risks are mitigated (during the first two phases) is beneficial. Overall, this approach would be a win-win for both parties.
The capital budgeting models need to take into consideration the managerial flexibility available to the organizations. For instance, depending on the risks, the manager can decide to cancel or change the course of direction of the software project.
One of the successful ways of doing this is a phase based approach. During the first phase, the software project budget is approved only to define a vision, scope and achieve concurrence among all stakeholders. The primary focus is to address significant business and requirements risks which must be addressed. Based on the results of this phase, reevaluation of the business case is made and the budget for the next phase is approved for mitigating the architectural risks that have great impact on the system. Following the demonstration of the architecture that mitigates the risks a further reevaluation of the business case is done to make sure the return on investment is still good. At this point, the estimation for the software project budget is much clearer as the bigger risks are already mitigated and budget for developing the operational system can be approved.
This systematic approach to managing the risks and return on capital investments puts good financial controls and monitors through out the life of the software projects.
Spiral models available for developing the projects allows the managers and CFO’s to implement this type of mechanisms In the case of outsourcing, these structures provide a greater contractor control and a bonus payment scheme at each phase could be given for better results. Organizations will have better control to change the course of direction or to change the financial control will encourage good performance by the contractor.
As a side note, from the contractor’s perspective a time and material type contact until the risks are mitigated (during the first two phases) is beneficial. Overall, this approach would be a win-win for both parties.
posted by Rama Pothineni at 10:55 AM
1 Comments:
Thanks for this blog. It is really helpful.
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