1. Value-Based Software Engineering II: Theory, Process, and Case Study
LiGuo Huang
Computer Science and Engineering
Southern Methodist University

2. Outline VBSE Theory Motivation and Context
“Theory” Definitions and Criteria
VBSE Process and Case Study
Elements and Contributions
Theory-driven process
Supply chain case study
Conclusions and Future Research

3. “Theory” Definitions 1960 definition: System of general laws
Spatially and temporally unrestricted; nonaccidental
1994 definition: System for explaining a set of phenomena
Specifies key concepts, laws relating concepts
Not spatially and temporally unrestricted
Better for people-intensive activities
A system for explaining a set of phenomena that specifies the key concepts that are operative in the phenomena and the laws that relate the concepts to each other

4. Criteria for a Good Theory
Utility: Addresses critical success factors vs. trivial
Generality: Covers a wide range of situations and concerns
Procedural, technical, economic, human
Practicality: Helps address user’s needs
Prediction, diagnosis, solution synthesis, best-practice generation
Preciseness: Situation-specific, accurate guidance
Parsimony: Avoids excess complexity; simple to learn and use
Falsifiability: Coherent enough to be empirically refuted

5. Theory W: Enterprise Success Theorem – An informal proof
Theorem: Your enterprise will succeed if and only if it makes winners of your success-critical stakeholders
Proof of “if”: Everyone that counts is a winner. Nobody significant is left to complain.
Proof of “only if”:
Nobody wants to lose. Prospective losers will refuse to participate, or will counterattack. The usual result is lose-lose.

6. Theory W: WinWin Achievement Theorem
Making winners of your success-critical stakeholders requires:
Identifying all of the success-critical stakeholders (SCSs).
Understanding how the SCSs want to win.
Having the SCSs negotiate a win-win set of product and process plans.
Controlling progress toward SCS win-win realization, including adaptation to change.

7. VBSE Theory 4+1 Structure

8. VBSE Component Theories
Theory W (Stakeholder win-win)
Enterprise Success Theorem, Win-Win Achievement Theorem
Dependency Theory (Product, process, people interdependencies)
Systems architecture/performance theory, costing and scheduling theory; organization theory
Utility Theory
Utility functions, bounded rationality, Maslow need hierarchy, multi-attribute utility theory
Decision Theory
Statistical decision theory, game theory, negotiation theory, theory of Justice
Control Theory
Observability, predictability, controllability, stability theory

9. Dependency Theory - Example

10. Utility Theory - Example

11. Decision Theory - Example

12. Decision Theory – Example (2)
- RE due to inadequate plans - RE due to market share erosion
- Sum of risk exposures

13. Control Theory - Example
Value Realization Feedback Control

14. VBSE Process Mapping Onto Spiral/RUP/MBASE Milestones:
I – Inception Readiness Phase

15. VBSE Process Mapping Onto Spiral/RUP/MBASE Milestones:
II – Inception Phase

16. VBSE Process Mapping Onto Spiral/RUP/MBASE Milestones:
III – Elaboration, Construction, Transition Phases

17. Outline VBSE Theory Motivation and Context
“Theory” Definitions and Criteria
VBSE Theory Elements and Process
Elements and Contributions
Theory-driven process
Supply chain example
Conclusions and Future research

18. Initial VBSE Theory: 4+1 Process – With a great deal of concurrency and backtracking

19. Example Project: Sierra Mountainbikes
Based on what would have worked on a similar project
Quality leader in specialty area
Competitively priced
Major problems with order processing
Delivery delays and mistakes
Poor synchronization of order entry, confirmation, fulfillment
Disorganized responses to problem situations
Excess costs; low distributor satisfaction

20. Order Processing Project Goals
Goals: Improve profits, market share, customer satisfaction via improved order processing
Questions: Current state? Root causes of problems? Keys to improvement?
Metrics: Balanced Scorecard of benefits realized, proxies
Customer satisfaction ratings; key elements (ITV: in-transit visibility)
Overhead cost reduction
Actual vs. expected benefit and cost flows, ROI

21. Initial VBSE Theory: 4+1 Process, Step 1 – With a great deal of concurrency and backtracking

22. Frequent Protagonist Classes
Sierra Moutainbikes: Susan Swanson, new CEO
Bicycle champion, MBA, 15 years’ experience
Leads with goals, open agenda

23. Initial VBSE Theory: 4+1 Process, Step 2 – With a great deal of concurrency and backtracking

24. DMR/BRA* Results Chain
Order to delivery time is
an important buying criterion
ASSUMPTION
INITIATIVE
OUTCOME
Contribution
Contribution
OUTCOME
Reduced order processing cycle
(intermediate outcome)
Implement a new order
entry system
Reduce time to process order
Increased sales
Reduce time to deliver product
*DMR Consulting Group’s Benefits Realization Approach

25. Expanded Order Processing System Benefits Chain

26. Initial VBSE Theory: 4+1 Process, Step 3 – With a great deal of concurrency and backtracking

27. Initial VBSE Theory: 4+1 Process, Step 4 – With a great deal of concurrency and backtracking

28. The Model-Clash Spider Web: Master Net
- Stakeholder value propositions (win conditions)

29. EasyWinWin OnLine Negotiation Steps

30. Red cells indicate lack of consensus.
Oral discussion of cell graph reveals unshared information, unnoticed assumptions, hidden issues, constraints, etc.

31. Tradeoffs among Cost, Schedule, and Reliability – 100K-SLOC Project
(RELY, MTBF (hours))
For 100-KSLOC set of features
Can “pick all three” with 77-KSLOC set of features
-- Cost/Schedule/RELY:
pick any two” points

32. Initial VBSE Theory: 4+1 Process, Step 5 – With a great deal of concurrency and backtracking

33. Business Case Analysis
Estimate costs and schedules
COCOMO II and/or alternative for software
PRICE H or alternative for hardware
COSYSMO for systems engineering
Estimate financial benefits
Increased profits
Reduced operating costs
Compute Return on Investment
ROI = (Benefits – Costs) / Costs
Normalized to present value
Identify quantitative metrics for other goals
Customer satisfaction ratings
Ease of use; In-transit visibility; overall
Late delivery percentage

34. Order Processing System Schedules and Budgets
Milestone
Due Date
Budget ($K)
Cumulative Budget ($K)
Inception Readiness
1/1/2004
Life Cycle Objectives
1/31/2004
120
Life Cycle Architecture
3/31/2004
280
400
Core Capability Drivethrough
7/31/2004
650
1050
Initial Oper. Capability: SW
9/30/2004
350
1400
Initial Oper. Capability: HW
2100
3500
Developed IOC
12/31/2004
500
4000
Responsive IOC
3/31/2005
4500
Full Oper. Cap’y CCD
7/31/2005
700
5200
FOC Beta
9/30/2005
5600
FOC Deployed
12/31/2005
6000
Annual Oper. & Maintenance
3800
Annual O&M; Old System
7600

35. Order Processing System: Expected Benefits and Business Case

36. Project Strategy and Partnerships
Partner with eServices, Inc. for order processing and fulfillment system
Profit sharing using jointly-developed business case
Partner with key distributors to provide user feedback
Evaluate prototypes, beta-test early versions, provide satisfaction ratings
Incremental development using MBASE/RUP anchor points
Life Cycle Objectives; Architecture (LCO; LCA)
Core Capability Drivethrough (CCD)
Initial; Full Operational Capability (IOC; FOC)
Architect for later supply chain extensions

37. Initial VBSE Theory: 4+1 Process, Step 7 – With a great deal of concurrency and backtracking

38. Earned Value System Cost Time Budgeted Cost of Work Scheduled Specs
Plans
Analyses
Proto-
types

39. Earned Value System Cost Time Budgeted Cost of Work Scheduled Specs
Work Performed
Project Expenditures
Cost
Time
Specs
Plans
Analyses
Proto-
types

40. “Earned Value” Tracks Cost, Not Value
Develop/update
plans, BCWS
Perform
to plans
BCWP>
BCWS?
cost ?
Determine corrective actions
Yes No
BCWS: Budgeted Cost of Work Scheduled
BCWP: Budgeted Cost of Work Performed

41. A Real Earned Value System
Current “earned value” systems monitor cost and schedule, not business value
Budgeted cost of work performed (“earned”)
Budgeted cost of work scheduled (“yearned”)
Actual costs vs. schedule (“burned”)
A real earned value system monitors benefits realized
Financial benefits realized vs. cost (ROI)
Benefits realized vs. schedule
- Including non-financial metrics
Actual costs vs. schedule

42. Benefits Realization Feedback Process
Develop/update
business case;
time-phased cost,
benefit flows;plans
Perform
to plans
Benefits
being
realized?
Assumptions
still valid?
Determine corrective actions
Yes No

43. Value-Based Expected/Actual Outcome Tracking Capability

44. Planning and Control Summary
Good planning and control requires
Framework of techniques
Much up-front work on plans
Commitment to control
Good P&C can produce self-fulfilling estimates
Project plans are living entities
P&C techniques aren’t personnel evaluation devices
P&C techniques aren’t necessarily routinizing

45. Conclusions and Future Research
VBSE Theory applied well to the supply chain example.
Application to other domains, situations should further uncover its underlying capabilities, shortcomings and assumptions.
It satisfies the main criteria for a good theory (utility, generality, practicality, preciseness, parsimony, and falsifiability) reasonably well so far.
Future work is geared towards testing the theory per se and improvising it.

46. References - I
C. Baldwin & K. Clark, Design Rules: The Power of Modularity, MIT Press, 1999.
S. Biffl, A. Aurum, B. Boehm, H. Erdogmus, and P. Gruenbacher (eds.), Value-Based Software Engineering, Springer, 2005 (to appear).
D. Blackwell and M. Girshick, Theory of Games and Statistical Decisions, Wiley, 1954.
B. Boehm, C. Abts, A.W. Brown, S. Chulani, B. Clark, E. Horowitz, R. Madachy, D. Reifer, and B. Steece, Software Cost Estimation with COCOMO II, Prentice Hall, 2000.
B. Boehm and L. Huang, “Value-Based Software Engineering: A Case Study, Computer, March 2003, pp
B. Boehm, and R. Ross, Theory-W Software Project Management: Principles and Examples, IEEE Trans. SW Engineering., July 1989, pp
W. Brogan, Modern Control Theory, Prentice Hall, 1974 (3rd ed., 1991).
P. Checkland, Systems Thinking, Systems Practice, Wiley, 1981.
C. W. Churchman, R. Ackoff, and E. Arnoff, An Introduction to Operations Research, Wiley, 1957.
R. M. Cyert and J.G. March, A Behavioral Theory of the Firm, Prentice Hall, 1963.
C. G. Hempel and P. Oppenheim, Problems of the Concept of General Law, in (eds.) A. Danto and S. Mogenbesser, Philosophy of Science, Meridian Books, 1960.

47. References - II
R. Kaplan & D. Norton, The Balanced Scorecard: Translating Strategy into Action, Harvard Business School Press, 1996.
R. L. Keeney and H. Raiffa, Decisions with Multiple Objectives: Preferences and Value Tradeoffs, Cambridge University Press, 1976.
A. Maslow, Motivation and Personality, Harper, 1954.
J. Rawls, A Theory of Justice, Belknap/Harvard U. Press, 1971, 1999.
J. Thorp and DMR, The Information Paradox, McGraw Hill, 1998.
R. J. Torraco, Theory-building research methods, in R. A. Swanson & E. F. Holton III (eds.), Human resource development handbook: Linking research and practice pp. 114–137, Berrett-Koehler, 1997.
S. Toulmin, Cosmopolis: The Hidden Agenda of Modernity, U. of Chicago Press, 1992 reprint edition.
J. von Neumann and O. Morgenstern, Theory of Games and Economic Behavior, Princeton University Press, 1944.
A. W. Wymore, A Mathematical Theory of Systems Engineering: The Elements, Wiley, New York, 1967.

48. VBSE-Q&A 48 48