IT Job Market May Improve in 2011

CareerBuilder surveyed IT managers in the United States in charge of hiring. The job site subcontracted the interview work with these IT managers out to Harris Interactive, which did surveys from November 15 through December 2, 2010.

When the numbers were all tabulated, 42 per cent of the managers contacted said they planned to add permanent, full-time IT people in 2011, up from only 32 per cent who said they would hire full-timers in the IT department a year ago. Sixty-six per cent said they will be increasing the compensation of their existing IT staff in 2011 – the average expected pay raise works out to 3 per cent – and 56 per cent of those polled said they were worried about losing their best employees as the economy continues to improve. Salaries for new positions are expected to go up by between 1 and 3 per cent.

British Gas sues Accenture!

British Gas is suing Accenture. Accenture put in place a SAP based system which led to massive complaints against the gas supplier. It turns out that Centrica, British Gas parent, wrote off about 300 million dollars following errors with the system.

British Gas is seeking a multi-million pound damage for the installation of the billing system, which, “caused huge disruption” for the company and its customers. British Gas claims the billing system was riddled with “millions of errors.” Accenture is claiming this is “inaccurate” because it was probably on one million errors not millions, but who is counting.

A preliminary appeal brought by Accenture against British Gas was tossed out by an English judge. “British Gas is now one step closer to holding Accenture to account for the disruption caused to our customers.”

This lawsuit is paving the way for other “users” to sue its outsourced IT development.

IT Economics News Still Bad — sorry!

The information economy still is struggling in the United States.      Telecommunications continue to slash jobs with the labor pool at 927,700 workers, down 1,700 in May and down 49,200 since May 2009. Data processing and hosting companies handed out 2,500 pink slips.

The information sector includes publishing, movies, broadcasting, telecommunications, and data processing and hosting companies has struggled for the past decade.  This sector has lost nearly 844,000 jobs since it peak in 2001 or about 25 percent of the once well paying jobs.

Scaling Music and Software

I am working on a lecture for my economics class about production theory.  Production theory works nicely for software development, music and    information workers too.

Output is the result of labor and capital.  The amount of music produced is the result of musicians (labor) and instruments (capital).    As more and more musicians are added to the process of making music the process of making music becomes more formal and there are overhead costs.

If we start with one musician playing a piano, then there is not much overhead required.  Add  three musicians and you get a quartet and there is some communication that needs to take place.  Add about 96 more musicians and you get an orchestra.

The cost per output (the average product) begins to rise because you have overhead costs.  If you have about 100 or so musicians you need a conductor.   Sheet music is required too (formal documentation not necessarily required for a small group).  We see the marginal cost, the cost to produce additional music, begins to rise.  The reason are additional labor is required that does not produce music directly.

This same model works for software development too.  Output for software is the amount of functionality produced.  As the project scales upward formal processes are just required.   There project resources (labor) required such as a project manager.  Formal methods and documentation is required to help in communication.

So there you have it…. Production theory works for information workers.

Shifting Gears

Anyone who has ever chugged along trying to their teenage child how to drive a stick (manual transmission) can appreciate the complexity of the task. No doubt It is more complicated to teach a teenager (or anyone) how to drive a manual transmission than an automatic transmission. The reason being is in an automatic transmission much of the complexity of driving has been hidden away and is not seen by the driver.

The complexity was not just hidden it was transferred. It was transferred from the driver to the transmission because an automatic transmission is more complex than a manual transmission. An automatic transmission is more complex (and expensive) to design, build, and maintain too. As software development matures we see much of the complexity being hidden from users. As an example, look at the complexity of booking a hotel reservation or airline reservation. Most of the complexity of has been nicely tucked away.  It cost a ton of money to hide all that complexity and functionality.   Once upon a time it took a trained travel agent to book an airline flight. Nowadays just about anyone can accomplish this task.

My teenage daughter drove to school today chugging and grinding the gears.  In due time she will learn to drive a stick shift.  The same is true with software development.  We are chugging along and grinding the gears trying to transition from internal applications (exposed complexity) to customer self service (hidden complexity)

US Economic News for IT – not so good!

Last week the Bureau of Labor Statistics reported that unemployment remained flat at 9.7 percent.   It seems that government, manufacturing and even construction industries added jobs, but IT jobs lost ground.

Within the very broad information segment of the economy, which includes movies, music, publishing, broadcasting, telecoms, and data processing, the telecommunications industry lost 5,000 jobs, to 943,300, while data processing, hosting, and related services companies cut 600 jobs, to 247,500.

The professional and business services segment, which has a total of 16.35 million people working within it, has some IT-related parts. Companies providing computer systems design and related services cut 9,600 jobs in the quarter, a small portion of the 1.43 million people in this field but significantly nonetheless.

http://www.bls.gov/news.release/empsit.nr0.htm

IT Economic News – Mixed Results.

Harry Truman (former President of the USA) once quipped something like, “I want a one handed economist because economist always say things like on the one hand things looked good, but on the other hand things don’t look so good.”

This is especially true with the latest economic figures from the Bureau of Labor Statistics for the IT sector.

The information sector includes publishing, movies, broadcasting, telecommunications, and data processing and hosting, the Telco’s shed 2,600 jobs, down to 951,100, while data processing and hosting companies added 2,900 jobs, to 248,900. In the professional and business services sector, the IT-related segment is for companies that are involved in computer systems design and related services, and in this area there are nearly 1.44 million people employed, and in February the number of people employed in this area rose by 8,700.

Finally, management consulting and technical services – which often has an IT component, given the importance of computing to the running of any business – as a group shed 2,100 jobs last month. So… it is not all good new or all bad news.

http://www.bls.gov/news.release/pdf/empsit.pdf

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.

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