Jun 19, 2011
Welcome to the Software Process and Measurement Cast 139!
In the SPaMCAST 139 we begin an exploration of financial metrics. The first class of financial metrics is those metrics that are used to decide which projects should be done. I call these return metrics and they ask the questions: Should we do this project? And more broadly, are their better uses for our assets? Generally these are questions are asked at the beginning of a project but can be equally powerful at different times during the project life cycle. Return metrics are focused on the financial aspect of project but less tangible assets can be incorporated. Attributes such as risk and strategy are examples of attributes that are often quantified and incorporated.
Examples of this class of metric include Return on Assets (ROA), Return on Investment (ROI), payback period and Internal Rate of Return (IRR). In all cases these metrics account for income, a hurdle rate (interest rate or expected rate of return) and a comparison cost either based on assets, income, or equity. While these ratios are a rich source of decision making information, what they are not are tools to manage a project or programs.
We begin with Return on Assets (ROA) is a ratio of the earnings generate from a project compared to the assets used to generate that revenue. ROA is a classic financial metric that when applied to projects, is typically used as a technique for project acceptance or in retrospective as a tool to evaluate overall performance.
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SPaMCAST 140 features my interview with Raja Bavani from Mindtree. We discussed his recent article,“The 10 best influences on software product engineering.” THis is a fantastic interview that gives context to the world of software engineering we inhabit.