Business Value of

Agile MethodsUsing ROI & Real Options

Dr. David F. Rico, PMP, ACP, CSM

Twitter: @dr_david_f_ricoWebsite: http://www.davidfrico.com

LinkedIn: http://www.linkedin.com/in/davidfricoFacebook: http://www.facebook.com/profile.php?id=1540017424

Author Background DoD contractor with 28+ years of IT experience B.S. Comp. Sci., M.S. Soft. Eng., & D.M. Info. Sys. Large gov’t projects in U.S., Far/Mid-East, & Europe

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Published six books & numerous journal articlesAdjunct at George Washington, UMUC, & ArgosyAgile Program Management & Lean DevelopmentSpecializes in metrics, models, & cost engineeringSix Sigma, CMMI, ISO 9001, DoDAF, & DoD 5000Cloud Computing, SOA, Web Services, FOSS, etc.

Today’s Whirlwind Environment

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Overruns Attrition Escalation Runaways Cancellation

GlobalCompetition

DemandingCustomers

OrganizationDownsizing

SystemComplexity

TechnologyChange

VagueRequirements

Work LifeImbalance

Pine, B. J. (1993). Mass customization: The new frontier in business competition. Boston, MA: Harvard Business School Press.

Software in U.S. DoD Systems

Kennedy, M. P., & Umphress, D. A. (2011). An agile systems engineering process: The missing link. Crosstalk, 24(3), 16-20.

No. of software-intensive systems is growing 80% of US DoD functions performed in software Major driver of cost, schedule, & tech. performance

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Traditional Projects

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Big projects result in poor quality and scope changes Productivity declines with long queues/wait times Large projects are unsuccessful or canceled

Jones, C. (1991). Applied software measurement: Assuring productivity and quality. New York, NY: McGraw-Hill.

Size vs. Quality

Def

ect

Den

sity

0.00

3.20

6.40

9.60

12.80

16.00

0 2 6 25 100 400

Lines of Code (Thousands)

Size vs. Productivity

Cod

e P

rodu

ctio

n R

ate

0.00

1.00

2.00

3.00

4.00

5.00

0 2 6 25 100 400

Lines of Code (Thousands)

Size vs. Requirements Growth

Per

cent

age

0%

8%

16%

24%

32%

40%

0 2 6 25 100 400

Lines of Code (Thousands)

Size vs. SuccessP

erce

ntag

e

0%

12%

24%

36%

48%

60%

0 2 6 25 100 400

Lines of Code (Thousands)

Global Project Failures

6Standish Group. (2010). Chaos summary 2010. Boston, MA: Author.Sessions, R. (2009). The IT complexity crisis: Danger and opportunity. Houston, TX: Object Watch.

Challenged and failed projects hover at 67% Big projects fail more often, which is 5% to 10% Of $1.7T spent on IT projects, over $858B were lost

16% 53% 31%

27% 33% 40%

26% 46% 28%

28% 49% 23%

34% 51% 15%

29% 53% 18%

35% 46% 19%

32% 44% 24%

33% 41% 26%

0% 20% 40% 60% 80% 100%

1994

1996

1998

2000

2002

2004

2006

2008

2010

Year

Successful Challenged Failed

$0.0

$0.4

$0.7

$1.1

$1.4

$1.8

2002 2003 2004 2005 2006 2007 2008 2009 2010

Trill

ions

(US

Dolla

rs)

Expenditures Failed Investments

Requirements Defects & Waste

7Sheldon, F. T. et al. (1992). Reliability measurement: From theory to practice. IEEE Software, 9(4), 13-20Johnson, J. (2002). ROI: It's your job. Extreme Programming 2002 Conference, Alghero, Sardinia, Italy.

Requirements defects are #1 reason projects fail Traditional projects specify too many requirements More than 65% of requirements are never used at all

Other 7%

Requirements47%

Design28%

Implementation18%

Defects

Always 7%

Often 13%

Sometimes16%

Rarely19%

Never45%

Waste

What is Agility? A-gil-i-ty (ə-'ji-lə-tē) Property consisting of quickness,

lightness, and ease of movement; To be very nimble The ability to create and respond to change in order to

profit in a turbulent global business environment The ability to quickly reprioritize use of resources when

requirements, technology, and knowledge shift A very fast response to sudden market changes and

emerging threats by intensive customer interaction Use of evolutionary, incremental, and iterative delivery

to converge on an optimal customer solution Maximizing BUSINESS VALUE with right sized, just-

enough, and just-in-time processes and documentationHighsmith, J. A. (2002). Agile software development ecosystems. Boston, MA: Addison-Wesley.

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What are Agile Methods?

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People-centric way to create innovative solutions Product-centric alternative to documents/process Market-centric model to maximize business value

Agile Manifesto. (2001). Manifesto for agile software development. Retrieved September 3, 2008, from http://www.agilemanifesto.org

Customer Collaboration

Working Software

Individuals & Interactions

Responding to Change

valuedmore than

valuedmore than

valuedmore than

valuedmore than

Contracts

Documentation

Processes

Project Plans

Frequent comm. Close proximity Regular meetings

Multiple comm. channels Frequent feedback Relationship strength

Leadership Boundaries Empowerment

Competence Structure Manageability/Motivation

Clear objectives Small/feasible scope Acceptance criteria

Timeboxed iterations Valid operational results Regular cadence/intervals

Org. flexibility Mgt. flexibility Process flexibility

System flexibility Technology flexibility Infrastructure flexibility

Contract compliance Contract deliverables Contract change orders

Lifecycle compliance Process Maturity Level Regulatory compliance

Document deliveries Document comments Document compliance

Cost Compliance Scope Compliance Schedule Compliance

Pine, B. J. (1993). Mass customization: The new frontier in business competition. Boston, MA: Harvard Business School Press.

Agile Project Management

High levels of uncertainty and unpredictability

High technology projects

Fast paced, highly competitive industries

Rapid pace of technological change

Research oriented, discovery projects

Large fluctuations in project performance

Shorter term, performance based RDT&E contracts

Achieving high impact product/service effectiveness

Highly creative new product development contracts

Customer intensive, one off product/service solutions

Highly volatile and unstable market conditions

High margin, intellectually intensive industries

Delivering value at the point of sale

Traditional Project Management

Predictable situations

Low technology projects

Stable, slow moving industries

Low levels of technological change

Repeatable operations

Low rates of changing project performance

Long term, fixed price production contracts

Achieving concise economic efficiency goals

Highly administrative contracts

Mass production and high volume manufacturing

Highly predictable and stable market conditions

Low margin industries such as commodities

Delivering value at the point of plan

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Exploratory or research/development projects When fast customer responsiveness is paramount In organizations that are highly innovative/creative

When to use Agile Methods

Agile Methods

House, D. (2012). Sixth annual state of agile survey: State of agile development. Atlanta, GA: VersionOne.

VersionOne found 80% using agile methods today Most are using Scrum with several key XP practices Release planning/continuous integration are vital tools

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Agile Practices

House, D. (2012). Sixth annual state of agile survey: State of agile development. Atlanta, GA: VersionOne.

VersionOne found 65% using Scrum practices 55% are using some of top XP technical practices Lean-Kanban is a rising practice with a 24% adoption

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Surveys of Agile Methods Many surveys of agile methods since 2003 AmbySoft and VersionOne collect annual data Agile benefits are above 50% in most categories

13Rico, D. F. (2008). What is the return-on-investment of agile methods? Retrieved February 3, 2009, from http://davidfrico.com/rico08a.pdf

Studies of Agile Methods Agile (138 pt.) and traditional methods (99 pt.) Agile methods fare better in all benefits categories Agile methods 359% better than traditional methods

14Rico, D. F. (2008). What is the ROI of agile vs. traditional methods? TickIT International, 10(4), 9-18.

Agile TraditionalCategory

Return on Investment 2,811%

Customer Satisfaction Imp.

Quality Improvement

Productivity Improvement

Schedule Reduction

Cost Reduction

470%

Difference

2,341%

56%

24%

55%

33%

9%

Agile Cost of Quality (CoQ) Agile testing is 10x better than code inspections Agile testing is 100x better than traditional testing Agile testing is done earlier and 1,000x more often

15Rico, D. F. (2012). The Cost of Quality (CoQ) for Agile vs. Traditional Project Management. Fairfax, VA: Gantthead.Com.

Agile Cost & Benefit Analysis Costs based on avg. productivity and quality Productivity ranged from 3.5 to 86 LOC an hour Costs were $226,807 & benefits were $4,283,190

16Rico, D. F., Sayani, H. H., & Sone, S. (2009). The business value of agile software methods: Maximizing ROI with just-in-time processes and documentation. Ft. Lauderdale, FL: J. Ross Publishing.

Formula

(10,000 21.2374 + 1.7972 10 100) 100

$4,283,190 $226,807

($4,283,190 – $226,807) $226,807 100%

($4,283,190 5) 1.055) – $226,807

$226,807 ($4,509,997 $226,807 – 1)

NORMSDIST(2.99) $4,283,190 –NORMSDIST(1.59) $226,807 EXP(–5% 5)

(10,000 10.51 – 6,666.67 9) 100 – $226,807

Value

$226,807

19:1

1,788%

$3,481,988

$12,010

$4,110,305

$4,283,190

Metric

Costs

B/CR

ROI

NPV

BEP

ROA

Benefits

5

1i(

Benefits of Agile Methods Analysis of 23 agile vs. 7,500 traditional projects Agile projects are 54% better than traditional ones Agile has lower costs (61%) and fewer defects (93%)

Mah, M. (2008). Measuring agile in the enterprise: Proceedings of the Agile 2008 Conference, Toronto, Canada.

Project Cost in Millions $

0.75

1.50

2.25

3.00

2.8

1.1

Before Agile

After Agile

61%LowerCost

Total Staffing

18

11

Before Agile

After Agile

39%LessStaff

5

10

15

20

Delivery Time in Months

5

10

15

20

18

13.5

Before Agile

After Agile

24%Faster

Cumulative Defects

625

1250

1875

2500

2270

381

Before Agile

After Agile

93%Less

Defects

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Agile World View “Agility” has many dimensions other than IT It ranges from leadership to technological agility Agile methods are also used for program planning

Agile Leaders

Agile Organization Change

Agile Acquisition & Contracting

Agile Strategic Planning

Agile Capability Analysis

Agile Program Management

Agile Tech.

Agile Information Systems

Agile Tools

Agile Processes & Practices

Agile Systems Development

Agile Project Management

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Agile Enterprise Management

Leffingwell, D. (2011). Agile software requirements: Lean requirements practices for teams, programs, and the enterprise. Boston, MA: Pearson Education.

Created by Dean Leffingwell of Rational in 2009 Begins with a high-level product vision/architecture Includes multi-level teams and product requirements

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Hoque, F., et al. (2007). Business technology convergence. The role of business technology convergence in innovation and adaptability and its effect on financial performance. Stamford, CT: BTM Institute. 20

Study of 15 agile vs. non-agile Fortune 500 firms Based on models to measure organizational agility Agile firms out perform non-agile firms by up to 36%

Benefits of Organizational Agility

Agile Case Studies 80% of worldwide IT projects use agile methods Includes regulated industries, i.e., DoD, FDA, etc. Agile now used for safety-critical systems, FBI, etc.

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Industry

ShrinkWrapped

ElectronicCommerce

HealthCare

LawEnforcement

Org 20 teams 140 people 5 countries

Size

15 teams 90 people Collocated 4 teams 20 people Collocated 10 teams 50 people Collocated 3 teams 12 people Collocated

U.S.DoD

Primavera

Google

Stratcom

FBI

FDA

Project

Primavera

Adwords

SKIweb

Sentinel

m2000

Purpose

ProjectManagement

Advertising

KnowledgeManagement

Case FileWorkflow

BloodAnalysis

1,838 User Stories 6,250 Function Points 500,000 Lines of Code

Metrics

26,809 User Stories 91,146 Function Points 7,291,666 Lines of Code 1,659 User Stories 5,640 Function Points 451,235 Lines of Code 3,947 User Stories 13,419 Function Points 1,073,529 Lines of Code 390 User Stories 1,324 Function Points 105,958 Lines of Code

Rico, D. F. (2010). Lean and agile project management: For large programs and projects. Proceedings of the First International Conference on Lean Enterprise Software and Systems, Helsinki, Finland, 37-43.

Metrics for Agile Methods

Rico, D. F., Sayani, H. H., & Sone, S. (2009). The business value of agile software methods: Maximizing ROI with just-in-time processes and documentation. Ft. Lauderdale, FL: J. Ross Publishing.

Agile methods are based on traditional measures Size, effort, velocity, structure, and quality common Top-notch shops use satisfaction and business value

Type

Size

Effort

Velocity

Structure

Quality

Satisfaction

Business Value

Example

Story Points, Ideal Days, Function Points, Lines of Code, etc.

Ideal or Actual Hours, Days, Weeks, Months, Years, etc.

Release/Iteration Burndown/Burnup, Cumulative Flow, EVM, etc.

Object-Oriented, Relational Database, McCabe, Halstead, etc.

Running Tested Features, Defect Density, FURPS, MTBF, etc.

CUPRIMDA, Communications, Trust, Loyalty, Retention, etc.

Costs, Benefits, BEP, B/CR, ROI, NPV, IRR, ROA, EBV, etc.

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Contract Type Description

Contracts for Agile Projects

Rico, D. F. (2011). The necessity of new contract models for agile project management. Fairfax, VA: Gantthead.Com.

New contract models emerged for agile contracts Goals, objectives, and visions are established early Buyers and suppliers collaborate throughout contract

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Dynamic Value

Performance Based

Target Cost

Optional Scope

Collaborative

Lean

Specify initial scope and needs (with iterative enhancements)

Establish performance objectives (but not technical solutions)

Broad boundaries for time, cost, and quality (but not scope)

Set minimum and maximum costs (based on initial scope)

Outline initial scope (with fixed no. of releases and iterations)

Lean tools such as small batches, Kanban, WIP constraints, etc.

Conclusion

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Agility is the evolution of management thought Confluence of traditional and non-traditional ideas Improve performance by over an order of magnitude

“The world of traditional methods belongs to yesterday”“Don’t waste your time using traditional methods on 21st century projects”

Agile methods are …

Systems development approachesNew product development approachesExpertly designed to be fast and efficientIntentionally lean and free of waste (muda) Systematic highly-disciplined approachesCapable of producing high quality systemsRight-sized, just-enough, and just-in-time tools

Scalable to large, complex mission-critical systems Designed to maximize business value for customers

Wysocki, R.F. (2010). Adaptive project framework: Managing complexity in the face of uncertainty. Boston, MA: Pearson Education.

Books on ROI of SW Methods Guides to software methods for business leaders Communicates business value of software methods Rosetta stones to unlocking ROI of software methods

http://davidfrico.com/agile-book.htm (Description) http://davidfrico.com/roi-book.htm (Description)

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