Track: The Enterprise-IT Ecology

Abstract: Although software products, projects, and processes can have considerable business value "as is," much of their value, in general, is in the form of options to adapt in the future when currently uncertain conditions become better understood. An option, in this sense, confers a right or ability to invest in an action in the future when the payoff for taking that action is better understood. The value of such an option is the present value on a contingent payoff (in that one might never exercise the option) net of the cost of obtaining the option. Many technical maneuvers in software product and process design, including modular architecture design, phasing of development processes, and the delaying of commitments to requirements, have the effect of creating such options. An important challenge is to help developers and managers to think more effectively about the business value of such options, and, in particular, how to increase the net present value of products, projects, and processes by designing in the right options. In this talk I'll discuss a financial-mathematical approach to reasoning about options. Making such techniques usable by practicing designers and managers remains an open challenge. The promise, however, is to link technical decisions to financial value in a manner that is both well grounded in theory and effective in practice.