Average Total Cost of Software Development

As an economist l like terms like Average Total Cost or unit cost. Average total cost is just total costs divided by output (quantity of the software produced). These terms are somewhat alien in the field of software development.

The problem is what a unit in software is and what represents total cost. Total Costs Total cost should include all costs to create and maintain the software product. It would include all requirements gathering, design, and analysis, coding, testing, maintaining and enhancing the software product. Many software organizations only include coding (or development) costs which greatly understate the actual cost of software development.

Labor costs are the most significant ingredient in software costs. Other costs can be training, software, equipment, travel, and entertainment.

Units
The amount of functionality delivered (see www.SoftwareMetrics.Com)

Average Total Costs
The equation is Total Cost divided by Units Produced. In terms of software it is total cost divided by function points (or functionality delivered). The lower the average cost the higher the rate of productivity.

Average Total Cost equals Average Variable Cost plus Average Fixed Costs

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