Purpose
New Development Labor Cost Percentage is a major IT financial performance indicator and is heavily influenced by
software operational cost factors.
Definition
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).
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.
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