Task: Prepare Asset Financial Estimates
Estimate financial aspects of asset program.
Disciplines: Asset Governance
Purpose
Determine the financial burden on your organization to implement asset program.
Relationships
RolesPrimary Performer: Additional Performers:
InputsMandatory:
    Optional:
    • None
    Outputs
      Main Description

      Reuse Financing Estimate

      For general economic estimates, consider two categories: producer costs and consumer benefits. In the area of producer costs, there are startup costs and ongoing costs. There may be a different funding model for the startup costs than for the ongoing costs. The simple image below illustrates some items to consider tracking along with some sample values.

      End of year 1
      Producer Costs
      Startup
      Reuse management 150,000
      Workproduct creation 350,000
      Asset repository creation 500,000
      Tools creation  100,000
      Training/marketing  75,000
      Other  50,000
      Total Startup $1,225,000 $0 $0
      Ongoing 
      Reuse management 150,000 150,000
      Workproduct creation 600,000 1,000,000
      Asset repository maintenance  100,000 100,000
      Tools maintenance 50,000 75,000
      Training/Marketing    25,000 50,000
      Other  10,000 20,000
      Total Ongoing Costs $0 $935,000 $1,395,000
      Total Startup and Ongoing Costs $1,225,000 $935,000 $1,395,000
      Consumer Benefits 
      Total Asset ROI  50,000 500,000 1,500,000
      Dev Resources Saved  50,000 100,000 500,000
      QA Resources Saved 50,000  50,000 100,000
      Dev Mgr Resources Saved  50,000 50,000 200,000
       
      Total Benefits  $200,000 $700,000 $2,300,000
       
      Net Results -$1,025,000 -$235,000 $905,000


      A sample of reuse financing estimates is found in Example: Asset Financial Estimate.

      In typical funding situations, the funds are allocated for the activities to deliver the artifacts for the project. This relationship changes with the reuse model, where the funding for assets and their artifacts may provide value for several projects.

      There are several models for funding the reuse team and related reuse efforts.

      1. Overhead funding: the costs for the reuse team are handled in the pool of overhead expenses.
      2. Tax funding: each application development project pays a tax which covers the cost of the reuse team.
      3. Payments for assets / services: the application development teams pay for the assets and services they use from the reuse team.

      The organization needs to determine its funding model for conducting asset-based development. An initial recommendation is to start with overhead funding, and then shift to payments for assets and services. The purpose of this recommendation is to provide time for startup costs, and then move to another funding model such as for services or assets, when the initial value has been verified. For instance, you can use the overhead funding model throughout the startup phases and then shift to an asset and services funding model thereafter.

      Estimating Asset ROI

      Estimating the return on investment for an asset is a challenging task. There are few models in practice today that accomplish this. One model comes from Jeffrey Poulin's work on estimating ROI for code assets. An example of this is found in Example: Asset ROI Calculator.

      Estimating Project ROI

      Estimating the return on investment for a project using assets is also a challenging task. Using repository metrics for asset consumption is one approach. An example of using a spreadsheet for estimating the costs of asset use and tool use on a project is in Example: Project Asset ROI.

      Steps
      Conduct Estimates

      Determine the general asset program cost estimates. In order to estimate this, the Reuse Strategy needs to be understood, as well as the Resource Adoption and Incentive Plan and the Resources and Training Plan. These artifacts provide the scope and timing for resources to work on asset manufacturing, management, and use.

      With the general asset financial estimates prepared, now conduct some initial return on investment analysis. Certainly this should be done for larger, coarse-grained assets, and not on smaller, fine-grained assets initially.

      Determine Initial Funding Approach

      With the initial cost estimates, the funding approach needs to be determined. Often the overhead funding approach is used to launch the initial asset activities. This overhead funding may be done at the enterprise level, within the scope of a business unit, or on a project.

      In general, the benefits generally need to be realized and proven before moving to other funding approaches.

      Determine Long-Term Funding Approach

      More mature asset programs may use a tax approach on each project to fund the asset efforts in the long run. This generally occurs when the asset efforts have proven viable to the enterprise.

      Another key consideration for funding is to examine the structure for applying asset-based development in the organization. If there will be a central asset manufacturing team, then the funding model requires more formal attention. However, if asset manufacturing gets pushed to each of the projects with occasional, less-formal manufacturing teams springing up to make the assets reusable, then often the funding gets moved to each of the projects and gets folded in to the project's cost model.

      Illustrations