The net present value (NPV) of a software process improvement (SPI) method is what the cash value and economic value of the benefits of a SPI method are worth in the future. In other words, NPV is the economic value less inflation of the benefits. NPV is a realistic measure of how much additional money is gained, saved, or received from use of a SPI method. NPV is a cold, hard, and objective measure of value. It indicates whether the SPI method was worth all of the time, trouble, expense, and investment. There are three inputs, variables, or terms to the simple NPV equation: benefits, inflation rate or rather devaluation rate, and the number of years in which to amortize the benefits. We have already identified the benefits of our chosen SPI methods up to this point. The NPV equation consists of dividing the benefits by the inflation or devaluation rate over time.

However, the NPV model requires that we determine the inflation or devaluation rate of money over time. We must determine the number of years in which to devaluate our benefits. What exactly does NPV do, and why do we need NPV? NPV basically means that money loses its value over time. If we place $10,000 in a safety deposit box and retrieve it some time in the future, it isn't worth $10,000 anymore. Due to inflation, the cost of products and services increases over time. What costs $10,000 today may cost $20,000 a few years from now.