IFCLA Conference 2010Brian Hanly

A Vicious Circle

project failure

increased control

increased documentation

increased stress

lowerproductivity

lowermorale

…it’s all in the system…

“your organization's productivity is influenced by

the production process itself”- Edward Deming

“Simple, clear purpose and principles give

rise to complex, intelligent behavior.”

Complex rules and regulations give rise to simple, stupid behavior.” Dee Hock, VISA

Systemic Issues with Waterfall

DesignAnalysis Build Test

Values, Principles & Practices

BEING

DOING

The Agile Manifesto

We are uncovering better ways of developing software by doing it and helping others do it.

Through this work we have come to value

Individuals and interactions over processes and tools Working product over comprehensive documentation

Customer collaboration over contract negotiation Responding to change over following a plan

That is, while there is value in the items on the right, we value the items on the left more.

Values

Communication

Feedback

Simplicity

Courage

Respect

Trust

Transparency

The Principles

Eliminate Waste

Build Quality In

Create Knowledge

Defer Commitments

Deliver Fast

Customer First

Respect People

Optimize the Whole / Collaboration

Working Solutions as Progress

Continuous Improvement

Economics

Flow

Forms of Waste being examined

Overproduction of features, or of specific elements before they are needed

Waiting and Delay

Handoff

Extra Processing (relearning, reinvention)

Partially done work – reduce work-in-process

Task Switching and interruptions

Rework and Defects

Under using your people’s talents

Knowledge scatter or loss

Wishful Thinking

Untimely management of risk

Agile Sourcing Agreements

“Based on a fundamental understanding

and acceptance of the unpredictable

nature of software development.”

Fear of Opportunism

Taking advantage of opportunities without regard for the consequences to others.

Seeking immediate advantage with little regard for ultimate consequences.

Self-Interest

Self-Seeking

Transaction Costs

Selection

Negotiation and Renegotiation

Monitoring and Enforcement

Billing and Payment

Inventory and Transportation

Cost of Diminished Communication

Cost of Loss of Skill Base

Cost of Poor Results

“Transaction Costs do Not Add Value”

The Purpose of Contracts

Conventional Wisdom

- Companies inevitably look out for their own interests

- Contracts are needed to limit opportunistic behaviour

The Lean Approach

- Assume other party will act in good faith

- Let the relationship limit opportunism

“The Lean Approach Lowers Transaction Costs”

Contract Models

Fixed Price

Time-and-Materials

Multi-Stage

Leading to Fixed Price

Progressive or Delivered Feature

Target (Cost)

Selecting a Contract Model

All contract models create a bi-lateral monopoly.

- Switching Costs are prohibitively high

Risk should be born by the party best able to manage it.

- Uncertainty in the domain

- Customer

- Uncertainty in the technology

- Supplier

Fixed Price

Generally do not give the lowest cost

Competent suppliers will include cost of risk in bid

Selection favours the most optimistic [desperate] supplier

- Least likely to understand project’s complexity- Most likely to require

- Rescue by Customer

- Loss sustained by Supplier

- High Cost Change Orders

Fixed Price Contracts Lead to:

- Early Scope Definition (to protect the vendor)

- Excess Scope (to protect the customer)

Lean Fixed Price

Fundamental Rule:

- Scope Must Be Negotiable

Vendor must have confidence that when the money is gone, the customer will either agree that the work is done or negotiate in good faith for more funding.

Customer must have confidence that when the money is gone, their basic business objectives will be met.

Most Fixed Price Contracting Language does not support Negotiable Scope.

Time and Material Contracts

Customer is at Greatest Risk

- Supplier has little incentive to control costs

Need to Control Supplier Opportunism

- Enter – The Waterfall Lifecycle

Transaction Costs of Control are High

Time & Material & Agile

Fundamental Rule:

- Control with Feedback

Customer must develop confidence as the money is being spent, that their business objectives will be met in a reasonable timeframe for a reasonable cost.

Vendor must have confidence that they will have regular access to the customer and obtain regular, reliable feedback.

Most Time-and-Material Contracting Language stipulates traditional control rather than control with feedback.

Progressive Contracts

Start With An Umbrella Contract

Release Work In Stages

Each Stage is an Iteration

Often Early Stages are Time-and-Materials

Later Stages May Be Fixed Price

Scope Beyond the Existing Stage

Remains Negotiable

Summary

Trust-Based Partnerships

Require risk sharing

Adapt to change and uncertainty

Depend on the relationship to limit opportunism

Are nurtured through excellent communications

Almost always yield faster, better, cheaper results

Thank you!!