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Hardware/Software cost ratio folklore
What percentage of data processing budgets is spent on software, compared to hardware?
The information in the plot below quickly became, and remains, the accepted wisdom, after it was published in May 1973 (page 49).
Is this another tale from software folklore? What does the evidence have to say?
What data did Barry Boehm use as the basis for this 1973 article?
Volume IV of the report Information processing/data automation implications of Air-Force command and control requirements in the 1980s (CCIP-85)(U), Technology trends: Software, contains this exact same plot, and Boehm is a co-author of volume XI of this CCIP-85 report (May 1972).
Neither the article or report explicitly calls out specific instances of hardware/software costs. However, Boehm’s RAND report Software and Its Impact A Quantitative Assessment (Dec 1972) gives three examples: the US Air Force estimated they will spend three times as much on software compared to hardware (in early 1970s), a military C&C system ($50-100 million hardware, $722 million software), and recent NASA expenditure ($100 million hardware, $200 million software; page 41).
The 10% hardware/90% software division by 1985 is a prediction made by Boehm (probably with others involved in the CCIP-85 work).
What is the source for the 1955 percentage breakdown? The 1968 article Software for Terminal-oriented systems (page 30) by Werner L. Frank may provide the answer (it also makes a prediction about future hardware/software cost ratios). The plot below shows both the Frank and Boehm data based on values extracted using WebPlotDigitizer (code+data):
What about the shape of Boehm’s curve? A logistic equation is a possible choice, given just the start/end points, and fitting a regression model finds that 
is an almost perfect fit (code+data).
How well does the 1972 prediction agree with 1985 reality?
At the start of the 1980s, two people wrote articles addressing this question: The myth of the hardware/software cost ratio by Harvey Cragon in 1982, and The history of Myth No.1 (page 252) by Werner L. Frank in 1983.
Cragon’s article cites several major ecosystems where recent hardware/software percentage ratios are comparable to Boehm’s ratios from the early 1970s, i.e., no change. Cragon suggests that Boehm’s data applies to a particular kind of project, where a non-recurring cost was invested to develop a new software system either for a single deployment or with more hardware to be purchased at a later date.
When the cost of software is spread over multiple installations, the percentage cost of software can dramatically shrink. It’s the one-of-a-kind developments where software can consume most of the budget.
Boehm’s published a response to Cragon’s article, which answered some misinterpretations of the points raised by Cragdon, and finished by claiming that the two of them agreed on the major points.
The development of software systems was still very new in the 1960s, and ambitious projects were started without knowing much about the realities of software development. It’s no surprise that software costs were so great a percentage of the total budget. Most of Boehm’s articles/reports are taken up with proposed cost reduction ideas, with the hardware/software ratio used to illustrate how ‘unbalanced’ the costs have become, an example of the still widely held belief that hardware costs should consume most of a budget.
Frank’s article references Cragon’s article, and then goes on to spend most of its words citing other articles that are quoting Boehm’s prediction as if it were reality; the second page is devoted 15 plots taken from these articles. Frank feels that he and Boehm share the responsibility for creating what he calls “Myth No. 1” (in a 1978 article, he lists The Ten Great Software Myths).
What happened at the start of 1980, when it was obvious that the software/hardware ratio predicted was not going to happen by 1985? Yes, obviously, move the date of the apocalypse forward; in this case to 1990.
Cragon’s article plots software/hardware budget data from an uncited Air Force report from 1980(?). I managed to find a 1984 report listing more data. Fitting a regression model finds that both hardware and software growth is deemed to be quadratic, with software predicted to consume 84% of DoD budget by 1990 (code+data).
Did software consume 84% of the DoD computer/hardware budget in 1990? Pointers to any subsequent predictions welcome.
Estimating the yearly spend on developing software
How much does a software company spend on developing its software?
The plot below shows revenue vs software development costs for 100 US companies, in industry categories Computer programming services and Packaged software, with revenues greater than $100 million during 2014-2015. The data is from company accounts filed with the government (code+data, plus the Georgia Tech financial analysis lab where I found the data).
A straight line fits very well (a quadratic is slightly better, but let’s keep things simple) and shows companies spending 13% of their revenue on software development. A log-log graph suggests a power law, but in this case the fitted exponent is one, i.e., no power law as such.
If 13% is the figure for companies that would be expected to be spending heavily to develop software, how much do companies in other industry sectors pay? Google and Facebook are media companies (their income is from advertising), do they really spend that much on software?
There are an estimated 3.3 million software developers in the US. What is the average cost of a software developer? If we take an average salary of $80K, and do the usual doubling to factor in overheads, we get $160K. This gives a total software development cost (most of the cost is for people) in the US of around $0.5 trillion per year.
The above plot shows 1.6%0.6%6% of the estimated $0.5 trillion yearly software development costs in the US. Who is spending the other 98.4%99.4%94%? One place to look is the Form 10-K that public companies are required to submit to the Securities and Exchange Commission.
Facebook’s 10-K, for 2015, shows $4,816 million spent on R&D (is this all software?) and $3,633 million on “Computer software, office equipment and other” (I’m guessing almost none of this is capitalized software). Dividing R&D expenditure by number of employees (12,691 at the end of 2015) gives $380K. I know average Silicon valley salaries are high, but not that high. I have enough trouble following my own company’s accounts, so trying to understand Facebook’s is a lost cause before it starts.
Scraping the Form 10-K’s on the SEC site will not provide sensible numbers, they will have to be read and analyzed. There is enough material for several MBA projects…
US DoD software development data now available
I found a huge resource of software development data last weekend at the Defense Cost and Resource Center (DCARC). The Software Resource Data Report part of this resource contains information on around 2,000 major software development projects (any US DOD project over $20 million+) giving details of schedule, developer experience, money spent per year, lines of code, amount of code change, hours spent on at various stages of development and a whole lot more.
The catch? The raw data is only available to DoD analysts 🙁 I was a bit surprised that laws got passed mandating the collection of this kind of information and a lot less surprised that the DoD don’t want to make detailed development information for missile systems, radar installations, etc available to some interested parties; those of us who are not going to go out and build such systems are collateral damage.
What is the US government’s reason for requiring the collection and dissemination of this information? They want to reduce the huge amount of money currently being spent on the software development component of military systems (often a very large slice of the total project costs). Will having this data available reduce costs? It will certainly get project managers a lot more worried about project cost/time overruns if they know that lots of people outside the project are going to see their ‘failure’.
Hopefully there are Open data activists in the US who will push for a redacted form of the software data being made available to all interested parties, rather like that provided by the USA Spending site. In the meantime there are a few lucky DoD analysts who have gone from famine to feast and are probably having trouble figuring out where to start.
Update
The military like to rename things, and move stuff around. We now have: Cost Assessment Data Enterprise, with its software data.
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