Foundations of Software Design in Theories of Contingent Value

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9804078 Current software design doctrine rests on largely structural concepts: information hiding, spiral processes, delaying decisions, program families, reuse, etc. These idiosyncratic concepts are not explained or unified by scientific theory or mathematical models. At their heart is a common emphasis on flexibility in software products and processes. Flexibility incurs costs, e.g., as investments in architecture. What has remained unclear, even in principle, is what flexibility is worth, on what parameters and relations its value depends, and thus under what circumstances investments in it are warranted. This work will appeal to the theory of real options in an attempt to develop a scientific account of the value of flexibility as a framework for understanding important software design principles. Real options theory models the value of flexibility in capital budgeting and corporate strategy through analogies with financial options, such as call options on stocks. Conditions for using arbitrage-based pricing are unlikely to hold for many design decisions, so valuations will sometimes depend on subjective estimates of parameters. Even so, the real options view appears to provide an intellectual framework within which designers can reason about the value of flexibility as afforded by such mechanisms as modularity and phased project structures.***