Marginal Cost

Marginal cost is different from Average Cost.  Average cost is total costs divided by total functionality created.  Marginal cost is the cost of adding one more unit of functionality to a software product.

Why is this concept important for software development?

The marginal cost curve looks something like the Nike Swoosh.   Marginal costs rise as software projects get large.  The reason for this is many software organizations do not have the discipline and necessary infrastructure to support large scale software development.   The fewer infrastructures the faster marginal costs will raise. 

In other words if you try to build something that is large and you do not have the skill set to build it the unit costs are going to go up rapidly.  People are going to be standing around looking for stuff to-do.  

Organizations need to find its sweet spot where productivity or unit cost is the lowest.

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Published in: on December 30, 2009 at 01:01  Leave a Comment  
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