Software as a company asset. How can its value be measured?
The idea of considering software as a company asset is rather complicated to explain, but it has proved of fundamental importance in understanding software’s true value. Just like the workers and machines involved in the production of a product or service, software can be counted among the resources at a company’s disposal which entail a cost.
An understanding of this cost facilitates the calculation of a more detailed production budget, providing important insights into the real costs of production. Consequently, the company can gain a clearer view of the profits it needs to make in order to balance its budget.
What values are required to measure software?
Before exploring in more detail how to calculate the value of software as an asset, it is important to consider how a service is evaluated (including the costs of the software used to supply it).
According to the most recent definition of a service, included in the ISO 20000 regulations, a service must not be considered a product in itself, as it forms part of a means of supplying value, so it is an advantage for those who use it.
The calculation of the real value of a service then takes into consideration the functional user requirements (or FUR), or what the service actually offers, which are added to the non-functional requirements (NFR), or how and how much the service is accessible to the end user.
By being aware of this basic concept it is clear that everything becomes measurable. The important thing is to know which values to look for and which units of measurement should be used to identify them. A good example of this definition is the use of kilos (measurement) to identify the weight (feature) of a person (entity).
In a similar way the software (entity) is defined by its complexity (feature), which can be measured in many different ways (one of the most well-known being the v(G), also known as a complexity indicator). In addition, the subjective aspects of those who use it (gathered via specific surveys) may also be included.
General formulae for calculating the value of software
Many companies make the mistake of calculating a software’s asset value using only the simple formula: Quantity of Work (Q)/Quantity of time (T). This method is very inaccurate and risks causing considerable earnings to be lost.
In order to measure the correct value of a software then, it is essential to identify its key points. The first of these is the user requirement (UR): the functionalities and the quality that whoever commissioned it expects it to have.
By understanding the client’s expectations, it is possible to determine the amount of work necessary (Q) to fulfil all the requirements. According to this parameter, it is then possible to estimate the amount of time needed (T) in order to complete all commissioned work.
In addition to this, we can add the Assets, in other words the person who creates the software and the tools they use. With this information it is possible to determine the corresponding amount (C). In ICT, measurable assets may include the hardware used, any third party software, people involved in the project and logistic factors.
Advantages of software as an asset
The main advantage deriving from the consideration of software as an asset is that of being able to track your company’s production potential. By working out a history of production it becomes easier to make forecasts for the future, in order to estimate costs and time frames more accurately.
An awareness of the functional and non-functional costs means that the correct value is attributed to the software, so that the company can avoid un-necessary financial losses.
Translated by Joanne Beckwith
