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

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 articles Adjunct at George Wash, UMBC, UMUC, Argosy Agile Program Management & Lean Development Specializes in metrics, models, & cost engineering Six Sigma, CMMI, ISO 9001, DoDAF, & DoD 5000 Cloud Computing, SOA, Web Services, FOSS, etc.

Today’s Whirlwind Environment

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• Overruns • Attrition • Escalation • Runaways • Cancellation

Global Competition

Demanding Customers

Organization Downsizing

System Complexity

Technology Change

Vague Requirements

Work Life Imbalance

• Inefficiency • High O&M • Lower DoQ • Vulnerable • N-M Breach

Reduced IT Budgets

81 Month Cycle Times

Redundant Data Centers

Lack of Interoperability

Poor IT Security

Overburdening Legacy Systems

Obsolete Technology & 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

4 Standish 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 D

olla

rs)

Expenditures Failed Investments

Requirements Defects & Waste

5 Sheldon, F. T. et al. (1992). Reliability measurement: From theory to practice. IEEE Software, 9(4), 13-20 Johnson, 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%

Requirements 47%

Design 28%

Implementation 18%

Defects

Always 7%

Often 13%

Sometimes 16%

Rarely 19%

Never 45%

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 documentation Highsmith, 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 Rico, 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

Customer Collaboration

Working Systems & Software

Individuals & Interactions

Responding to Change

valued more than

valued more than

valued more than

valued more 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

Network Computer

Operating System Middleware Applications

APIs GUI

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

8 Shore, J. (2011). Evolutionary design illustrated. Norwegian Developers Conference, Oslo, Norway.

Agile Traditional 1 2 3 • Faster

• Early ROI

• Lower Costs

• Fewer Defects

• Manageable Risk

• Better Performance

• Smaller Attack Surface

Late •

No Value •

Cost Overruns •

Very Poor Quality •

Uncontrollable Risk •

Slowest Performance •

More Security Incidents • Seven Wastes 1. Rework 2. Motion 3. Waiting 4. Inventory 5. Transportation 6. Overprocessing 7. 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 Measurement W

ork

(Sto

ry, P

oint

, Tas

k) o

r E

ffor

t (W

eek,

Day

, Hou

r)

Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.)

Burndown

Wor

k (S

tory

, Poi

nt, T

ask)

or

Eff

ort

(Wee

k, D

ay, H

our)

Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.)

Cumulative Flow

Wor

k (S

tory

, Poi

nt, T

ask)

or

Eff

ort

(Wee

k, D

ay, H

our)

Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.)

Earned Value Management - EVM CPI

SPI

PPC

APC

Wor

k (S

tory

, Poi

nt, T

ask)

or

Eff

ort

(Wee

k, D

ay, H

our)

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.

11 Rico, 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

• Relationships • Communications • Collaboration • Motivation • Creativity • Satisfaction

0. “No Metrics” 1. Traditional Metrics 2. Basic Agile Metrics 3. Agile EVM Metrics 4. Agile Portfolio Metrics 5. Agile Contract Metrics 6. Agile Enterprise Metrics

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

12 Rico, 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

13 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.

d1 = [ln(Benefits ÷ Costs) + (Rate + 0.5 × Risk2) × Years] ÷ Risk × √ Years, d2 = d1 − Risk × √ Years

Formula

($3,930,631 ÷ 5) ÷ 1.055) – $588,202∑ =

5

1i(

MetricCosts

B/CR

ROI

NPV

BEP

ROA

Benefits

(10,000 ÷ 5.4436 + 3.945 × 10 × 100) × 100

$3,930,631 ÷ $588,202

($3,930,631 – $588,202) ÷ $588,202 × 100%

$588,202 ÷ ($4,509,997 ÷ $588,202 – 1)

NORMSDIST(2.24) × $3,930,631 –NORMSDIST(0.85) × $588,202 × EXP(–5% × 5)

(10,000 × 10.51 – 6,666.67 × 9) × 100 – $588,202

Trad. Testing$588,202

7:1567%

$2,806,654

$88,220

$3,504,292

$3,930,631

Agile Testing$233,152

18:11,734%

$3,469,140

$12,710

$4,098,159

$4,275,681

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% Lower Cost

Total Staffing

18

11

Before Agile

After Agile

39% Less Staff

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

Standish Group. (2012). Chaos manifesto. Boston, MA: Author.

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Agile Traditional

Success 42%

Failed 9%

Challenged 49%

Success 14%

Failed 29%

Challenged 57%

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

17 House, 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

Continuous Integration

● ● ●

●

●

●

●

●

●

●

● ●

●

●

54%

11% 9%

Agile Proliferation

Scrum Alliance. (2012). Scrum certification statistics. Retrieved February 6, 2013, from http://www.scrumalliance.org/resource_download/2505 Taft, 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

Shrink Wrapped

Electronic Commerce

Health Care

Law Enforcement

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

m 2000

Purpose

Project Management

Advertising

Knowledge Management

Case File Workflow

Blood Analysis

• 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.pdf Rico, D. F. (2013). Agile project management for virtual distributed teams. Retrieved July 29, 2013 from http://www.davidfrico.com/rico13m.pdf Rico, 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 approaches New product development approaches Expertly designed to be fast and efficient Intentionally lean and free of waste (muda) Systematic highly-disciplined approaches Capable of producing high quality systems Right-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

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

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