New Development Labor Cost Percentage
This guideline describes how to measure New Development Labor Cost Percentage to evaluate new software application investment.
Main Description

Overview

The New Development Labor Cost Percentage metric is used for measure the portion of the organization’s overall IT labor cost devoted to development of new software application capabilities, whether they are significant enhancements (new features) to existing applications or entirely new applications. This is a major IT financial performance indicator and is heavily influenced by software operational cost factors.

Measurement

Method New Development Labor Cost Percentage = Application New Development Labor Cost / Total IT Labor Cost - where

Application New Development Labor Cost = Total labor costs for new software application development/enhancement across the entire IT organization. Cost should be quantified in terms of currency (e.g., dollars).

Total IT Labor Cost = Total labor costs for the entire IT organization. Cost should be quantified in terms of currency (e.g., dollars).

Measurement Analysis

New Development Labor Cost Percentage provides an indication of the organization’s ability to meet the needs of the business through software innovation. Rendered as a percentage, this metric facilitates trend charting and comparisons from period to period to determine performance over time.

The target New Development Labor Cost Percentage is highly dependent upon the degree innovation required by the business and the application technologies and environments. The optimal value is set by IT management but must be evaluated in the context of overall business needs and financial constraints. However, it is generally desirable to increase new development investment as long as it does not also drive up the cost of application maintenance.