Constructive Costing Model

The Constructive Costing Model (COCOMO) is a method that is used to estimate or evaluate the cost of software development. COCOMO was developed by Barry Boehm and was first published in 1981. There are three levels of COCOMO, namely basic, intermediate and detailed. COCOMO can be applied in three classes of software projects: Organic mode – relatively small projects with a small experienced team, which usually have a small amount of source code Semidetached mode – projects are more complicated than organic mode and involve teams of more people with mixed experience, has at most 300 000 lines of source code Embedded mode – software project must be developed according to a rigid set of hardware and software requirements, usually a combination

This model is good for quick, early, rough estimates of the software project. However, the accuracy of the Basic COCOMO model is limited because all factors are not considered. The Basic COCOMO model takes the following form:

Effort Applied (E)= 〖a_b (KLOC)〗^(b_b ) …person-months

Development Time (D)= 〖c_b (Effort Applied)〗^(d_b ) …months

People required (P)=(Effort Applied)/(Development Time) …persons where KLOC is the estimated number of lines of code (in thousands). The coefficients in the above equations are pre-determined and vary according to the class of software project, i.e. organic, semidetached or embedded.

Intermediate COCOMO is an extension of the Basic model that computes software development effort by adding a set of "cost drivers", that will determine the effort and duration of the project. These cost drivers are split into four categories, namely personnel, product, hardware and project attributes. Each of these categories has a number of subsidiary attributes which are taken into account when costing the software. In total, there are 15 subsidiary attributes. Some of these include: Complexity of the product Memory constraints Software engineering compatibility Use of software

In Detailed COCOMO, the sum of all the estimated efforts is taken by adding all the individual efforts required at each phase.

There are several different methods one can use when evaluating the value of a software project. One of these methods is the “discounted cash flow approach”, where the value of the software project is determined as the present value of projected future net cash flows. This is also known as the Net Present Value approach (NPV). Using this method, the cash flows are only projected for the expected remaining life of the software project (usually ±5 years). The evaluator determines the discount rate reflecting the risk of attaining the projected results, as well as other more general risks.

NPV is an approach used in capital budgeting where the present value of cash inflows is subtracted by the present value of cash outflows. It measures the profitability of a project by comparing the value of money today to its future value, taking inflation and returns into account. NPV analysis is sensitive to the reliability of future cash inflows that an investment or project will yield. The NPV formula