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Financial Pricing of Software Development Risk Factors
September/October 2010 (vol. 27 no. 5)
pp. 65-73
Michel Benaroch, Syracuse University
Ajit Appari, Dartmouth College
The ability to price (monetize) software development risks can benefit various aspects of software development. Cost estimators predict project cost by adjusting a project's nominal cost on the basis of risk factors' (cost drivers') expected values, but the predicted cost is often inaccurate because risk factors' actual values normally deviate from expectations. Because variability is a widely used risk measure in finance, this risk-pricing method relates risk factor variability to project cost variability. The method estimates two parameters for each risk factor: extra cost incurred per unit exposure and project sensitivity. Several areas can benefit from the benchmark risk-pricing parameters obtained when applying this method with a cost estimator such as Cocomo.

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Index Terms:
risk management, economics, software development, risk factors, financial pricing, Cocomo, project sensitivity, extra cost per unit exposure
Citation:
Michel Benaroch, Ajit Appari, "Financial Pricing of Software Development Risk Factors," IEEE Software, vol. 27, no. 5, pp. 65-73, Sept.-Oct. 2010, doi:10.1109/MS.2010.28
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