IT Estimation is bigger than IT Valuation

The term of “valuation” usually used interchangeably with the word “estimation” where usually the later is more general term. Estimation is a method estimation is a method of finding estimate or approximation of an asset even if the input might be incomplete, uncertain or unstable. Estimation usually done by sampling (Industry Benchmark).

Valuation is an estimating method of determining the present value (PV) of an asset. Valuation is a method of determining the economic value (monetary value in term of money) of an owner’s interest in something. An organic vegetable cost Rp 10,000 in Bogor can be valued Rp 100,000 in Ranchmarket. Valuation is a subjective measurement based on owner’s interest.

Valuation can be done on tangible assets such as building, or intangible assets such as patents and trademarks or liabilities (bonds).

In IT Valuation the most common that used is cost approach. Cost approach is performed by estimating the effort required to build a software. The detailed cost approach that can be used is TCO (Total Cost of Ownership). TCO basically combine all the cost required to build a software for example, a software will require not only programmer, but also requires a software, a license and other hardware.