Activity Based Costing for Component-Based Software Development

Component-based software development is a promising set of technologies designed to move software creation from its current, labor-intensive, craft-like approach to a more modern, reuse-centered style. However, a lesson learned from previous radical software process innovations is that a strong technology alone is generally insufficient for successful adoption. In order for gains to be realized from such technologies the management practices surrounding the implementation of the new technology must also change. It is with this view that we propose the adoption of a complementary management approach called activity based costing (ABC) to allow organizations to properly account for and recognize the gains from a component-based approach. ABC enables a management environment where appropriate incentives are created for the development and reuse of software components. Data from a large software vendor who has experience with ABC in a traditional software development environment are presented, along with a chart of accounts for a modern, component-based model.