Re: Profitability of Ada Educational Sales (was: Ada is not a failure.

Re: Profitability of Ada Educational Sales (was: Ada is not a failure.

[magnesium.club.cc.cmu.edu!news.sei.cmu.edu!firth]

In article <1993Aug9.165056.13371@fcom.cc.utah.edu> tcrook@u.cc.utah.edu (Tom C
rook) writes:

>The NPV method correctly handles projects that are profitable but have
>large up-front investments and long term payoffs.  Perhaps one of the
>reasons so many companies (and their stockholders and the market itself)
>are oriented towards short-term profits is the overuse of break-even
>analysis.

On the whole, I'd agree.  All costs incurred are "sunk costs" in the
sense that they have no bearing on what will sell today, or at what
price.  Hence, the marketing strategy for a product already developed
must be in terms only of future costs and revenues.  Unfortunately,
one such future cost is the cost of debt service - so sunk costs that
have been paid for by borrowing are not quite sunk without trace, and
I've seen marketing strategy distorted by the pressures of debt service
more than once.

However, I'm not sure I agree that NPV is always the correct way to
cost projects, because it tends to neglect the element of risk present
in any long-term project.  For example, suppose you plan to invest
$100 million is a really slick implementation of a new standard
programming language, an investment to be recovered by sales over
ten years.  Two years later, the owner of the standard announces a
wholesale revision of the language that it will cost you another
$50 million to cope with.  In effect, $50 million in "investment"
(or "sunk cost") has been wiped out by political fiat.  And the
company that gambled on soaking the customer and breaking even in
18 months flat is laughing all the way to the bank...

Re: Profitability of Ada Educational Sales (was: Ada is not a failure.

[cis.ohio-state.edu!math.ohio-state.edu!darwin.sura.net!seas.gwu.edu!mfeld]

In article <1993Aug9.145311.25290@sei.cmu.edu> firth@sei.cmu.edu (Robert Firth)
 writes:
>
[stuff deleted]

I guess you're getting specific here :-)

>For example, suppose you plan to invest
>$100 million is a really slick implementation of a new standard
>programming language, an investment to be recovered by sales over
>ten years.  Two years later, the owner of the standard announces a
                                  ^^^^^
Umm, I wasn't aware that DoD is the "owner" of the standard, though
I suppose you could argue it was in 87 or so. 

>wholesale revision of the language that it will cost you another
>$50 million to cope with.  In effect, $50 million in "investment"
>(or "sunk cost") has been wiped out by political fiat.  

I was under the impression that the push for most of what's in 9X came 
from its real users, not the owner of the standard but its contractors.
I thought the name of the game was "listening to the customer". That is
what Robert Dewar and others have been defending here.

Are these numbers just rhetorical? Or are you saying that a 9X compiler
will really cost a company half its original investment?

> And the
>company that gambled on soaking the customer and breaking even in
>18 months flat is laughing all the way to the bank...

Well, what I keep hearing is that _nobody_ is laughing all the way
to the bank. They all claim to be broke. And their original customer
base is - at best - stable, not growing. Without a new customer base,
nobody wins. 

Mike

Re: Profitability of Ada Educational Sales (was: Ada is not a failure.

[cis.ohio-state.edu!math.ohio-state.edu!magnus.acs.ohio-state.edu!usenet.i]

In article <1993Aug9.145311.25290@sei.cmu.edu> firth@sei.cmu.edu (Robert Firth)
 writes:
>
>However, I'm not sure I agree that NPV is always the correct way to
>cost projects, because it tends to neglect the element of risk present
>in any long-term project.

Not true.  It all depends on how sophisticated your model is.  You can
easily represent increased risk by increasing the cost of capital (i.e.
assuming higher future interest rates.)  You can also limit the number of
years you go out without falling back on break-even analysis.

Although this may have something to do with software project management,
we're getting away from the charter of comp.lang.ada.  If anyone has
further thoughts, let's take it to email.
-- 
Thomas Crook
tcrook@u.cc.utah.edu