Software development organizations, venture capitalists, financial organizations, angel investors, government funding agencies etc. need to evaluate software development/research project proposals. Surprisingly, many projects are evaluated based on gut feeling and evaluation is highly subjective without any rationale. Liking for the technology, gut feeling that the technology will click or Return on Investment will be high etc. decide whether it is worth investing in a project or whether a project should be taken up for development. To bring in objectivity to project evaluation, project evaluation using a 2 dimensional model was proposed by Peter J. Jenning and James J Horning [Ref: "Risks of Linear Thinking", March 2002 issue of Communications of ACM]. In this model, software development is viewed in two dimensions, based on the answer to the questions:
(a) inspired by considerations of utility and value? (b) seeks advancement of software technology?
Based on the answers to these questions, four software development sectors are created and projects can be assigned one of these sectors. The axes in the two dimensions can be continuous i.e., one can assign different values in stead of just yes/no answers to the above two questions. This model will attain significance mainly for analyzing the risks associated with the projects. Certainly, this kind of categorization of projects is more useful as compared to the linear model in whch a project is categorized as user-focused or technology-focused.
In this article, a model is proposed that can be used to evaluate software projects and this is a three dimensional model. In this model, the project evaluation is done based on answers to the following three questions:
(a) Is the project technology-driven?
(b) Is the project user-driven?
(c) Is the project money-driven?
We can make a very simple model by giving yes/no answers to these questions. Alternatively, we can assign different values (say between 0 and 1) to quantify our evaluation of the project based on its driving forces (technology, user and money). Of course, the second approach will make the model a bit complicated but nevertheless is very important for quantitative approach to project evaluation and risk analysis.
The third question given above is mainly to find out whether there are immediate financial returns or not. Today, many enterprises are driven by short term gains rather than any long term approach to enterprise development. This question is very important because it explains the short term goals of many entrepreneursthey want immediate return on their investment.
This model can be used by all those involved in project evaluation or evaluation of enterprises at the time of IPO: angel investors, venture capitalists, entrepreneurs, government R & D funding agencies, financial institutions, project managers and also the general public investing in stocks.
For illustration, based on the boolean answer to each of the three questions (yes, no), software development projects can be categorized as shown in the table below:
|Tech-driven?||User-driven?||Money-driven?||Types of Projects|
|Yes||Yes||Yes||Voice over IP, wireless Internet (Excellent projects for VC funding)|
taken up by
industrial R&D labs)
|Yes||No||Yes||Industry feels there is
a great market, but no
|Yes||No||No||Futuristic R&D projects
such as Inter-Planetary
|No||Yes||Yes||Most commercial projects
in software industry such
as customized software
projects to provide
services to the citizens;
Software that is
categorized as freeware.
|No||No||Yes||Many dotcom projects of
|No||No||No||Most projects taken up
university students to
fulfill the degree
Out of the eight categories of the projects, projects with no-no-yes are the most dangerous projects. Some entrepreneurs whose goal is just to make fast buck got onto the bandwagon of software development during 1998-2000 and as a result the dotcom bubble burst. It is due to lack of this three-dimensional thinking amongst the angel investors, venture capitalists as well as the public who invested in these dotcom companies.
Another interesting category is yes-no-yes category. Entrepreneurs get fascinated by a technology and sense good money, however, the possible acceptance by the users cannot be ascertained till the technology is fully developed. Automatic speech recognition systems is one such example of such a category. Unless technology matures to a great extent, user acceptance is difficult; but industry felt otherwise. Many technocrats burnt their money by developing these systems. AT&T's video phone in 1970's is yet another example, it was (and is) still a great technology, high returns were expected but the user acceptance was not known during those days of development.
However, note that different persons may assign different boolean values (yes/no) to the same project based on their perceptions about technology, use and return on investment. But the "three-dimensional thinking" based on this model is important to the project managers for assessing the projects while carrying out feasibility studies and for carrying out risk analysis.
We are now witnessing, once again, many exciting developments in the IT industryan accelerated growth in the market, more jobs, more new projects being taken up, more venture capital funding, more angel investors and more IPOs. Unless a careful approach is followed by all the persons concerned in project evaluation using the "three dimensional thinking", this boom may turn out to be yet another dotcom bubble waiting to burst.About the Author
Dr. K.V.K.K. Prasad is a Ph.D. from Indian Institute of Technology, Kharagpur. He is presently Director (Technology) in Innovation Communication Systems Ltd., Hyderabad, India; and manages R&D and commercial hardware/software development projects for defense and civilian applications. Phone: +91-98486-33777