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

2. 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. 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. 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. 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. 6 Theory W: WinWin Achievement Theorem Making winners of your success-critical stakeholders requires: i.Identifying all of the success-critical stakeholders (SCSs). ii.Understanding how the SCSs want to win. iii.Having the SCSs negotiate a win-win set of product and process plans. iv.Controlling progress toward SCS win-win realization, including adaptation to change.

7. 7 VBSE Theory 4+1 Structure

8. 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. 9 Dependency Theory - Example

10. 10 Utility Theory - Example

11. 11 Decision Theory - Example

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

13. 13 Control Theory - Example Value Realization Feedback Control

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

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

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

17. 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. 18 Initial VBSE Theory: 4+1 Process – With a great deal of concurrency and backtracking

19. 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. 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. 21 Initial VBSE Theory: 4+1 Process, Step 1 – With a great deal of concurrency and backtracking

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

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

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

25. 25 Expanded Order Processing System Benefits Chain

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

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

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

29. 29 EasyWinWin OnLine Negotiation Steps

30. 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)) -- Cost/Schedule/RELY: pick any two” points For 100-KSLOC set of features Can “pick all three” with 77-KSLOC set of features

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

33. 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. 34 MilestoneDue DateBudget ($K)Cumulative Budget ($K) Inception Readiness1/1/200400 Life Cycle Objectives1/31/2004120 Life Cycle Architecture3/31/2004280400 Core Capability Drivethrough7/31/20046501050 Initial Oper. Capability: SW9/30/20043501400 Initial Oper. Capability: HW9/30/200421003500 Developed IOC12/31/20045004000 Responsive IOC3/31/20055004500 Full Oper. Cap’y CCD7/31/20057005200 FOC Beta9/30/20054005600 FOC Deployed12/31/20054006000 Annual Oper. & Maintenance3800 Annual O&M; Old System7600 Order Processing System Schedules and Budgets

35. 35 Order Processing System: Expected Benefits and Business Case

36. 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. 37 Initial VBSE Theory: 4+1 Process, Step 7 – With a great deal of concurrency and backtracking

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

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

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

41. 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. 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. 43 Value-Based Expected/Actual Outcome Tracking Capability

44. 11/26/200344 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. 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. 46 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. 33-41. B. Boehm, and R. Ross, Theory-W Software Project Management: Principles and Examples, IEEE Trans. SW Engineering., July 1989, pp. 902-916. W. Brogan, Modern Control Theory, Prentice Hall, 1974 (3 rd 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. References - I

47. 47 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. References - II

48. 48 VBSE-Q&A