Abstract
There is a growing discussion of risks when software development is outsourced. In order to assess the extent of those risks, one needs to know the value of that concerned software. Software is an intangible good, and the value of intangibles is based on the income they are expected to generate in the future. This paper presents a model for software valuation based on principles of IP valuation, sales expectations, net present value, and related parameters. An original contribution of this work is the diminution of the base value of the software as maintenance is performed over the lifecycle of the software. The valuation process is presented via a simple quantitative example. Having a quantitative model on a spreadsheet allows for the exploration of business alternatives. Conclusions are drawn that reflect on academic and business practices.
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