1 CS 501 Spring 2003 CS 501: Software Engineering Lecture 7 Business Aspects of Software Engineering

2 CS 501 Spring 2003 Administration Feasibility report Submit an message to with the report as an attachment. If you wish to revise your report, resend everything with a clear message in the body of the . Possible formats are.doc,.pdf,.html,.ps, or.txt. Choice of layout, format, etc. are your decision. How would the client like to see the report?

3 CS 501 Spring 2003 High Level Decision Making Big software projects are of strategic important for organizations The senior management have a duty to understand the strategic decisions, the cost options, and the risks. Senior personnel requirement: individual who is familiar with both the strategic business aspects and the computing aspects of projects, e.g., Chief Information Officer Consultant Does not require detailed technical expertise

4 CS 501 Spring 2003 Product Manager When software is a product or part of a product, somebody must look at it as a product Product manager: Sees software as a product with many aspects: Function -- What does it do? Market -- Who is it for? Sales -- What price, advertising, sales channels? Packaging -- What media, bundling, packaging, documentation? Legal -- What licenses, legal protections, etc.?

5 CS 501 Spring 2003 In-house Computing Departments Organization Central computing department, reporting through a Chief Information Officer Decentralized model with computing distributed across the organization, reporting to operational units Expertise Full in-house design and software development expertise Outsourcing with project management in-house Even if development is contracted to consultants, software houses, etc., organizations need considerable in-house expertise to oversee the work.

6 CS 501 Spring 2003 Business Models: Bespoke Software Software is tailored to specific environment Very large applications (e.g., air traffic control) Small-scale, highly specific applications (e.g., Cornell dormitory keys) Development options Software is written in-house Software is written by contractor Product may be owned by supplier or customer. Maintenance may be in-house or by contractor.

7 CS 501 Spring 2003 Business Models: Package with Modifications Software house develops general purpose package Client Licenses package Source code is modified for client's specific needs Business consideration Modifications may be by software house or in-house team Maintenance may be by software house or in-house team Legal issues include: access to source code, ownership of modifications, avoiding being locked-in to a supplier Examples: Corporate pay-roll systems, accounting systems for small businesses, etc.

8 CS 501 Spring 2003 Business Models: Package Without Modifications Package Licensed in Binary Form Only Package typically has many options, including configuration options Package may be a self-contained application or may be designed as a component to incorporate in applications Legal considerations: usually there is a clear distinction between the package (license from supplier) and application. Examples: Database systems, mathematical packages, etc.

9 CS 501 Spring 2003 Business Models: Embedded Systems Software bundled with hardware product Product is seen by the user as a hardware product, even if the software development is the major part of the cost Examples: Global Positioning System, automobile engine control, PalmPilot

10 CS 501 Spring 2003 Outsourcing Concept: Contract with software house to develop software for an organization. Benefits: Software house may be better organized to recruit staff, and manage projects. Clear visibility. No need to build an in- house team for a single project. Small organization cannot have all the expertise to cover a complex project. Disadvantages: Software house may not have the same goals as the organization (e.g., incentive to prolong project, to build software that can be used in other projects). Organizations need considerable in-house expertise to oversee the work. Must not over-estimate the expertise of the software house.

11 CS 501 Spring 2003 Free-Lance Software Development You and a few friends create a company to develop software. You are offered a contract to write bespoke software. How much should you charge per hour? You plan to work 40 hours a week for 50 weeks of the year and want to earn $50,000. Hourly rate = $50,000 / (40 x 50) = $25 But...

12 CS 501 Spring 2003 Free-Lance Software Development Salary$50,000 Benefits$15,000 Rent, equipment, etc.$10,000 Fees, services, etc.$15,000 Travel and misc.$10,000 TOTAL EXPENSE $100,000 Hours worked 2,000 less administration 400 less marketing 350 BILLABLE HOURS 1,250 Hourly rate = $100,000 /1,250 = $80

13 CS 501 Spring 2003 Free-Lance Software Development You MUST have a contract with the customer. It may be a simple letter or a complex agreement. What should it contain? Are you being paid by the hour? Or by completion of the task? What acceptance tests will be done? Who decides when the job is done? Who owns the software? What licenses does the other party have? Who provides hardware, software that is required, supplies, etc.? WHEN WILL YOU GET YOUR MONEY!

14 CS 501 Spring 2003 Fixed and Variable Cost: Packaged Software Example: The initial development cost of a software product is $1 million. The cost of packaging and distribution of each copy is $5. Technical support costs average $15 per copy. The package sells for $200 per copy. Fixed cost = $1 million Variable cost = $20

15 CS 501 Spring 2003 Fixed and Variable Costs: Profit or Loss $1.5M $1.0M $0.5M Unit sales 2,5005,0007,500 Revenue Costs

16 CS 501 Spring 2003 Profit or Loss? If you sell 7,500 copies do you make a profit of $350K? Did you borrow money to cover the start-up period? How much interest did you pay? What about taxes? Cash flow When will you be paid (always late)? When do you have to pay your bills? Risk What extra costs do you have if the product is a year late? What if you only sell 5,000 copies? If you increase the price, does your revenue go up or down?

17 CS 501 Spring 2003 Unorthodox Business Models: Shareware Shareware Producer writes a software package. Distribution is open, but requests a fee, e.g., $50. Users who pay the fee may get a small benefit, e.g., no message when they start up the software. Some people have received substantial revenue this way.

18 CS 501 Spring 2003 Unorthodox Business Models: Open Source Examples: Linux, Apache, Perl Market leaders High quality General model Shared development A central developer provides overall coordination Distribution of source code is completely open Personal examples: TCP/IP for Vax/VMS Python

19 CS 501 Spring 2003 Notes on Open Source Software may be open source, but packaging and services can be profitable businesses (e.g., Red Hat, IBM Linux). For more information about open source software, see: Many open source software projects are managed on the SourgeForge system: Open source software development and distribution is particularly suitable for organizations such as universities who develop software for the public good.

20 CS 501 Spring 2003 Open Source License Sample open source license (GNU General Public License): Free redistribution Source code available Derived works permitted Integrity of the author's source code No discrimination against persons or groups Protection against unscrupulous patents No discrimination against fields of endeavor License must not be specific to a product