Business Value of Agile Methods Using ROI & Real Options Dr. David F. Rico, PMP, CSEP, ACP, CSM, SAFe Twitter: @dr_david_f_rico Website: http://www.davidfrico.com LinkedIn: http://www.linkedin.com/in/davidfrico Facebook: http://www.facebook.com/profile.php?id=1540017424 Dave’s Agile Resources: http://www.davidfrico.com/daves-agile-resources.htm
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Business Value of Agile Methods - davidfrico.comdavidfrico.com/rico14a.pdf · A-gil-i-ty (ə-'ji-lə-tē) Property consisting of quickness, lightness, and ease of movement; To be
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Author Background Gov’t contractor with 30+ 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 Wash, UMBC, 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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OverrunsAttritionEscalationRunawaysCancellation
GlobalCompetition
DemandingCustomers
OrganizationDownsizing
SystemComplexity
TechnologyChange
VagueRequirements
Work LifeImbalance
InefficiencyHigh O&MLower DoQVulnerableN-M Breach
ReducedIT Budgets
81 MonthCycle Times
RedundantData Centers
Lack ofInteroperability
PoorIT Security
OverburdeningLegacy Systems
ObsoleteTechnology & Skills
Pine, B. J. (1993). Mass customization: The new frontier in business competition. Boston, MA: Harvard Business School Press. Pontius, R. W. (2012). Acquisition of IT: Improving efficiency and effectiveness in IT acquisition in the DoD. Second Annual AFEI/NDIA Conference on Agile in DoD, Springfield, VA, USA.
Global Project Failures
4Standish 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
5Sheldon, 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.orgRico, D. F., Sayani, H. H., & Sone, S. (2009). The business value of agile software methods. Ft. Lauderdale, FL: J. Ross Publishing.Rico, D. F. (2012). Agile conceptual model. Retrieved February 6, 2012, from http://davidfrico.com/agile-concept-model-1.pdf
How Agile Works Agile requirements implemented in slices vs. layers User needs with higher business value are done first Reduces cost & risk while increasing business success
More Security Incidents Seven Wastes1.Rework2.Motion3.Waiting4.Inventory5 .Transportation6.Overprocessing7 .Overproduction
MINIMIZES MAXIMIZES
JIT, Just-enough architecture Early, in-process system V&V Fast continuous improvement Scalable to systems of systems Maximizes successful outcomes
Myth of perfect architecture Late big-bang integration tests Year long improvement cycles Breaks down on large projects Undermines business success
Agile Enterprise Delivery Model
Beck, K., & Fowler, M. (2001). Planning extreme programming. Upper Saddle River, NJ: Addison-Wesley.Highsmith, J. A. (2010). Agile project management: Creating innovative products. Boston, MA: Pearson Education.Larman, C., & Vodde, B. (2010). Practices for scaling lean and agile development. Boston, MA: Addison-Wesley.Leffingwell, D. (2011). Agile software requirements: Lean requirements practices for teams, programs, and the enterprise. Boston, MA: Pearson Education.
Begins with a high-level product vision/architecture Continues with needs development/release planning Includes agile delivery teams to realize business value
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Agile Performance MeasurementW
ork
(Sto
ry, P
oint
, Tas
k)or
Eff
ort
(Wee
k, D
ay, H
our)
Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.)
Burndown
Wor
k (S
tory
, Poi
nt, T
ask)
or E
ffor
t (W
eek,
Day
, Hou
r)
Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.)
Cumulative Flow
Wor
k (S
tory
, Poi
nt, T
ask)
or E
ffor
t (W
eek,
Day
, Hou
r)
Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.)
Earned Value Management - EVMCPI
SPI
PPC
APC
Wor
k (S
tory
, Poi
nt, T
ask)
or E
ffor
t (W
eek,
Day
, Hou
r)
Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.)
Earned Business Value - EBV
Agile Metrics Taxonomy Agile methods are based on traditional measures Story points, velocity, and burndown basic metrics Experts use Agile EVM, portfolio, contract, ent., etc.
11Rico, D. F., Sayani, H. H., & Sone, S. (2009). The business value of agile software methods. Ft. Lauderdale, FL: J. Ross Publishing.
Agile Metrics
1. Traditional Metrics
2. Basic Agile Metrics
3. Agile EVM Metrics
Size Effort Productivity Quality Complexity Cycle Time
Story Points Ideal Days Velocity Burndown Cumulative Flow Running Tested Features
Planned Story Points Planned Sprints Planned Release Budget Completed Story Points Completed Sprints Completed Releases
4. Agile Portfolio Metrics
5. Agile Contract Metrics
6. Agile Enterprise Metrics
Benefit-Cost Ratio Return on Investment Net Present Value Breakeven Point Real Options Earned Business Value
Level of Effort Dynamic Value Performance Based Target Cost Optional Scope Collaborative
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
12Rico, 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 4.7 to 5.9 LOC an hour Costs were $588,202 and benefits were $3,930,631
13Rico, 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.
d1 = [ln(Benefits Costs) + (Rate + 0.5 Risk2) Years] Risk Years, d2 = d1 Risk Years
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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 vs. Traditional Success Traditional projects succeed at 50% industry avg. Traditional projects are challenged 20% more often Agile projects succeed 3x more and fail 3x less often
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. 16
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 Adoption
17House, D. (2013). Seventh annual state of agile survey: State of agile development. Atlanta, GA: VersionOne.
VersionOne found 84% using agile methods today Most are using Scrum with several key XP practices Lean-Kanban is a rising practice with a 32% adoption
ContinuousIntegration
●●●
●
●
●
●
●
●
●
●●
●
●
54%
11%
9%
Agile Proliferation
Scrum Alliance. (2012). Scrum certification statistics. Retrieved February 6, 2013, from http://www.scrumalliance.org/resource_download/2505Taft, D. K. (2012). Agile developers needed: Demand outpaces supply. Foster City, CA: eWeek. 18
Number of CSMs have doubled to 200,000 in 2 years 558,918 agile jobs for only 121,876 qualified people 4.59 jobs available for every agile candidate (5:1)
Agile Industry Case Studies 84% 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.
Agile Leadership
Rico, D. F. (2013). Agile coaching in high-conflict environments. Retrieved April 11, 2013 from http://davidfrico.com/agile-conflict-mgt.pdfRico, D. F. (2013). Agile project management for virtual distributed teams. Retrieved July 29, 2013 from http://www.davidfrico.com/rico13m.pdfRico, D. F. (2013). Agile vs. traditional contract manifesto. Retrieved March 28, 2013 from http://www.davidfrico.com/agile-vs-trad-contract-manifesto.pdf 20
Personal Project Enterprise
• Don't Be a Know-it-All• Be Open & Willing to Learn• Treat People Respectfully• Be Gracious, Humble, & Kind• Listen & Be Slow-to-Speak• Be Patient & Longsuffering• Be Objective & Dispassionate• Don't Micromanage & Direct• Exhibit Maturity & Composure• Don't Escalate or Exacerbate• Don't Gossip or be Negative• Delegate, Empower, & Trust• Gently Coach, Guide, & Lead
• Customer Communication• Product Visioning• Distribution Strategy• Team Development• Standards & Practices• Telecom Infrastructure• Development Tools• High-Context Meetings• Coordination & Governance• F2F Communications• Consensus Based Decisions• Performance Management• Personal Development
• Business Value vs. Scope• Interactions vs. Contracts• Relationship vs. Regulation• Conversation vs. Negotiation• Consensus vs. Dictatorship• Collaboration vs. Control• Openness vs. Adversarialism• Exploration vs. Planning• Incremental vs. All Inclusive• Entrepreneurial vs. Managerial• Creativity vs. Constraints• Satisfaction vs. Compliance• Quality vs. Quantity
Power & authority delegated to the lowest level Tap into the creative nuclear power of team’s talent Coaching, communication, and relationships key skills
Conclusion
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Agility is the evolution of management thought Confluence of traditional and non-traditional ideas Improves 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 the business value of IT approaches Rosetta stones to unlocking ROI of software methods