The New ROI in Software Development

Feb 27, 2004

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This chapter is from the book 

Software by Numbers: Low-Risk, High-Return Development

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Summary of the Terms

Briefly, the terms introduced so far can be summarized as follows:

Return on investment: The amount of undiscounted cash (profit) returned by the project over the lifecycle, divided by the undiscounted cash (investment) used to fund the project over the lifecycle, expressed as a percentage.
Self-funding point: The number of time periods until the business no longer needs to inject cash into the project to sustain it.
Present value: The value of future cash converted to the present time.
Discounted cash flow: The cash flow with PV corrections applied to each period.
Net present value: The sum of the DCF.
Breakeven time: The time until the NPV of the project becomes positive (i.e., the point at which the project is making real money).
Internal rate of return: The interest rate at which the NPV becomes zero.

Now let's see how this all works in practice.

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