In some cases, where benefits are measured in terms of cost
avoidance and the situation is not highly dynamic, one can
effectively apply net present value techniques. A good
example in the software domain deals with investments in
software product lines and reusable components. Several
useful models of software reuse economics have been
developed, including effects of present value [22] and also
reusable component half-life [46]. An excellent
compendium of economic factors in software reuse is [58].
Even with software reuse, however, the primary value
realized may not be in cost avoidance but rather in reduced
time to market, in which case the value model must account
for the differential benefit flows of earlier or later market
penetration. Some organizations in established competitive
marketplaces (e.g., telecommunications products) have
quite sophisticated (and generally proprietary) models of
the sensitivity of market share to time of market
introduction. In other domains, such as entrepreneurial
new ventures, models relating market share to time of
market introduction are generally more difficult to
formulate.
Another major challenge in modeling costs, benefits, and
value is the need to deal with uncertainty and risk.
Example sources of uncertainty are market demand, need
priorities of critical stakeholders or early adopters, price,
macro-economic conditions (e.g., shrinking markets in Asia
or Latin America), technology unknowns, competitor
unknowns, and supply scarcities. These uncertainties have
spawned an additional sector of the economy which
performs consumer surveys, market projections, technology
evaluations, etc., and sells them to organizations willing to
buy information to reduce risk.
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