Financial Pricing of Software Development Risk Factors

The ability to price (monetize) software development risks can benefit various aspects of software development. Cost estimators predict project cost by adjusting a project´s nominal cost on the basis of risk factors´ (cost drivers´) expected values, but the predicted cost is often inaccurate because risk factors´ actual values normally deviate from expectations. Because variability is a widely used risk measure in finance, this risk-pricing method relates risk factor variability to project cost variability. The method estimates two parameters for each risk factor: extra cost incurred per unit exposure and project sensitivity. Several areas can benefit from the benchmark risk-pricing parameters obtained when applying this method with a cost estimator such as Cocomo.