Software companies face relentless pressure to reduce costs, improve quality, and improve time-tomarket. To accomplish these objectives and to remain competitive, companies must improve their software development processes. Many process changes have been proposed as part of the Capability Maturity Model (CMM), SPICE, ISO and other standards. Financial techniques have been applied to assess the economic value of various process improvement activities. These include simple payback and cost-benefit ratios standard present value, risk and return formulations and options theory. In this paper, we introduce the notion of defect potential and propose a framework and high level model that, better accounts for fixed and variable costs and can be used for valuing and justifying process improvement activities.
Raffo, David; Harrison, Warren; Settle, John; and Eickelmann, Nancy, "The Role of Defect Potential in Understanding the Economic Value of Process Improvements" (2000). AMCIS 2000 Proceedings. 423.