Dynamic Optimization of Software Enhancement Effort
6 Pages Posted: 2 Nov 2007 Last revised: 27 Jan 2013
Date Written: 2007
As the competition in the software development business grows fiercer, the features provided in the software become more and more important. With the growing popularity of open source software and the advent of new software delivery models, such as software-as-a-service, the traditional software vendors cannot compete on price in the long run. Therefore, they need to compete by increasing the number of features provided to customers. Moreover, the new entrants and the open source software vendors also need to provide increased number of features continuously in order to penetrate the market. Hence, these software firms need to invest judiciously in the software enhancement effort such that their revenue is maximized at the minimum possible cost. In addition, this strategy should be dynamic in order to capture the dynamic nature of the market. Therefore, we propose a dynamic optimization approach to obtain the optimal software enhancement effort over time. In this paper, we consider the value of adding more features as well as the impact of more bugs introduced while adding new features. Most of the past literature ignore the fact that the value of adding more features is not realized immediately by users. Therefore, we consider that there is a lag between the addition of new features and the increase in system's value. We also present several interesting managerial insights that can be used by software vendors to efficiently allocate resources based on the values of related parameters.
Keywords: Software enhancement, optimal control theory, software features, dynamic optimization
JEL Classification: C61
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