Business Value of Agile Methods: Using ROI and REal Options
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This document discusses the benefits of agile methods for business value using return on investment and real options analysis. It provides background on the author who has extensive experience in government IT projects. It then outlines some of the challenges facing projects today such as reduced budgets, demanding customers, and obsolete skills. It also notes that software is a major cost driver for DoD systems. The document discusses how traditional projects often result in poor quality, scope changes, and low productivity. Finally, it indicates that requirements defects are a primary reason projects fail and that more than 65% of requirements are never used.
![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
5
i 1
d1 = [ln(Benefits Costs) + (Rate + 0.5 Risk2) Years] Risk Years, d2 = d1 Risk Years
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. 17](https://image.slidesharecdn.com/rico12s-121007105612-phpapp01/85/Business-Value-of-Agile-Methods-Using-ROI-and-REal-Options-17-320.jpg)
Business Value of Agile Methods: Using ROI and REal Options
- 1. Business Value of Agile Methods Using ROI & Real Options Dr. David F. Rico, PMP, ACP, CSM 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
- 2. 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 Published six books & numerous journal articles Adjunct at George Washington, 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. 2
- 3. Today’s Whirlwind Environment Global Reduced Competition IT Budgets Work Life Obsolete Imbalance Technology & Skills Demanding 81 Month Overruns Customers Cycle Times Inefficiency Vague Attrition High O&M Overburdening Requirements Escalation Lower DoQ Legacy Systems Runaways Vulnerable Cancellation N-M Breach Organization Redundant Downsizing Data Centers Technology Poor Change System Lack of IT Security Complexity Interoperability 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. 3
- 4. Software in U.S. DoD Systems No. of software-intensive systems is growing 80% of US DoD functions performed in software Major driver of cost, schedule, & tech. performance Kennedy, M. P., & Umphress, D. A. (2011). An agile systems engineering process: The missing link. Crosstalk, 24(3), 16-20. 4
- 5. Traditional Projects Big projects result in poor quality and scope changes Productivity declines with long queues/wait times Large projects are unsuccessful or canceled Size vs. Quality Size vs. Requirements Growth 16.00 40% Defect Density 12.80 32% Percentage 9.60 24% 6.40 16% 3.20 8% 0.00 0% 0 2 6 25 100 400 0 2 6 25 100 400 Lines of Code (Thousands) Lines of Code (Thousands) Size vs. Productivity Size vs. Success 5.00 60% Code Production Rate 4.00 48% Percentage 3.00 36% 2.00 24% 1.00 12% 0.00 0% 0 2 6 25 100 400 0 2 6 25 100 400 Lines of Code (Thousands) Lines of Code (Thousands) Jones, C. (1991). Applied software measurement: Assuring productivity and quality. New York, NY: McGraw-Hill. 5
- 6. Global Project Failures 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 $1.8 2010 33% 41% 26% 2008 32% 44% 24% $1.4 Trillions (US Dollars) 2006 35% 46% 19% 2004 29% 53% 18% $1.1 Year 2002 34% 51% 15% 2000 28% 49% 23% $0.7 1998 26% 46% 28% $0.4 1996 27% 33% 40% 1994 16% 53% 31% $0.0 0% 20% 40% 60% 80% 100% 2002 2003 2004 2005 2006 2007 2008 2009 2010 Successful Challenged Failed Expenditures Failed Investments Standish Group. (2010). Chaos summary 2010. Boston, MA: Author. Sessions, R. (2009). The IT complexity crisis: Danger and opportunity. Houston, TX: Object Watch. 6
- 7. Requirements Defects & Waste Requirements defects are #1 reason projects fail Traditional projects specify too many requirements More than 65% of requirements are never used at all Defects Waste Never Requirements 45% 47% Other 7% Always 7% Implementation Often 13% 18% Rarely Design 19% 28% Sometimes 16% 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. 7
- 8. 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. 8
- 9. What are Agile Methods? People-centric way to create innovative solutions Product-centric alternative to documents/process Market-centric model to maximize business value Customer Collaboration Contracts Frequent comm. Close proximity Regular meetings Multiple comm. channels Frequent feedback Relationship strength valued more than Contract compliance Contract deliverables Contract change orders Individuals & Interactions Processes Leadership Competence valued Lifecycle compliance Boundaries Structure more than Process Maturity Level Empowerment Manageability/Motivation Working Software Regulatory compliance Documentation Clear objectives Timeboxed iterations Small/feasible scope Valid operational results Acceptance criteria Regular cadence/intervals valued more than Document deliveries Document comments Document compliance Responding to Change Project Plans Org. flexibility System flexibility valued Cost Compliance Mgt. flexibility Technology flexibility more than Scope Compliance Process flexibility Infrastructure flexibility Schedule Compliance Agile Manifesto. (2001). Manifesto for agile software development. Retrieved September 3, 2008, from http://www.agilemanifesto.org 9
- 10. How Do Agile Methods Work? Agile methods DON’T mean deliver it now & fix it later Lightweight, yet disciplined approach to development Reduced cost, risk, & waste while improving quality What How Result Flexibility Use lightweight, yet disciplined processes and artifacts Low work-in-process Customer Involve customers early and often throughout development Early feedback Prioritize Identify highest-priority, value-adding business needs Focus resources Descope Descope complex programs by an order of magnitude Simplify problem Decompose Divide the remaining scope into smaller batches Manageable pieces Iterate Implement pieces one at a time over long periods of time Diffuse risk Leanness Architect and design the system one iteration at a time JIT waste-free design Swarm Implement each component in small cross-functional teams Knowledge transfer Collaborate Use frequent informal communications as often as possible Efficient data transfer Test Early Incrementally test each component as it is developed Early verification Test Often Perform system-level regression testing every few minutes Early validation Adapt Frequently identify optimal process and product solutions Improve performance Rico, D. F. (2012). What’s really happening in agile methods: Its principles revisited? Retrieved June 6, 2012, from http://davidfrico.com/agile-principles.pdf 10
- 11. Agile World View “Agility” has many dimensions other than IT It ranges from leadership to technological agility The focus of this brief is program management agility Agile Leaders Agile Organization Change Agile Acquisition & Contracting Agile Strategic Planning Agile Capability Analysis Agile Program Management Agile Project Management Agile Systems Development Agile Processes & Practices Agile Tools Agile Information Systems Agile Tech. 11
- 12. Agile Enterprise Delivery Model Begins with a high-level product vision/architecture Continues with needs development/release planning Includes agile delivery teams to realize business value Leffingwell, D. (2011). Agile software requirements: Lean requirements practices for teams, programs, and the enterprise. Boston, MA: Pearson Education. 12
- 13. Agile Methods VersionOne found 80% using agile methods today Most are using Scrum with several key XP practices Number of CSMs have doubled to 200,000 in 2 years House, D. (2012). Sixth annual state of agile survey: State of agile development. Atlanta, GA: VersionOne. 13
- 14. Agile Practices 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 Continuous Integration House, D. (2012). Sixth annual state of agile survey: State of agile development. Atlanta, GA: VersionOne. 14
- 15. Studies of Agile Methods Dozens of surveys of agile methods since 2003 100s of Agile and CMMI case studies documented Agile productivity, quality, and cost better than CMMI Rico, D. F. (2008). What is the return-on-investment of agile methods? Retrieved February 3, 2009, from http://davidfrico.com/rico08a.pdf Rico, D. F. (2008). What is the ROI of agile vs. traditional methods? TickIT International, 10(4), 9-18. 15
- 16. 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 Rico, D. F. (2012). The Cost of Quality (CoQ) for Agile vs. Traditional Project Management. Fairfax, VA: Gantthead.Com. 16
- 17. 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 5 i 1 d1 = [ln(Benefits Costs) + (Rate + 0.5 Risk2) Years] Risk Years, d2 = d1 Risk Years 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. 17
- 18. 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%) 2.8 18 Before Agile Before Agile 3.00 20 After Agile After Agile 2.25 15 11 1.1 1.50 10 0.75 61% 5 39% Lower Less Cost Staff Project Cost in Millions $ Total Staffing 18 2270 Before Agile Before Agile 20 2500 13.5 After Agile After Agile 15 1875 10 1250 381 5 24% 625 93% Less Faster Defects Delivery Time in Months Cumulative Defects Mah, M. (2008). Measuring agile in the enterprise: Proceedings of the Agile 2008 Conference, Toronto, Canada. 18
- 19. 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 Agile Traditional Success Success 14% 42% Challenged 57% Failed Failed Challenged 29% 9% 49% Standish Group. (2012). Chaos manifesto. Boston, MA: Author. 19
- 20. Agile vs. Traditional Outcomes Agile requirements implemented in slices vs. layers User needs with higher business value are done first Reduces cost & risk while increasing business success Agile Traditional Faster 1 2 3 Late GUI Early ROI No Value APIs Lower Costs Applications Cost Overruns Fewer Defects Middleware Very Poor Quality Operating System Manageable Risk Uncontrollable Risk Computer Better Performance Network Slowest Performance Smaller Attack Surface Seven Wastes More Security Incidents 1.Rework JIT, Just-enough architecture 2.Motion Myth of perfect architecture Early, in-process system V&V 3.Waiting Late big-bang integration tests Fast continuous improvement MINIMIZES 4.Inventory MAXIMIZES Year long improvement cycles Scalable to systems of systems 5.Transportation Breaks down on large projects Maximizes successful outcomes 6.Overprocessing Undermines business success 7.Overproduction Shore, J. (2011). Evolutionary design illustrated. Norwegian Developers Conference, Oslo, Norway. 20
- 21. Benefits of Organizational Agility 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% 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. 21
- 22. Agile Industry 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. Industry Org Project Purpose Size Metrics 20 teams 1,838 User Stories Electronic Google Adwords Advertising 140 people 6,250 Function Points Commerce 5 countries 500,000 Lines of Code 15 teams 26,809 User Stories Shrink Project Wrapped Primavera Primavera 90 people Management Collocated 91,146 Function Points 7,291,666 Lines of Code 4 teams 1,659 User Stories Health Blood Care FDA m2000 Analysis 20 people Collocated 5,640 Function Points 451,235 Lines of Code 10 teams 3,947 User Stories Law Case File Enforcement FBI Sentinel Workflow 50 people Collocated 13,419 Function Points 1,073,529 Lines of Code U.S. Knowledge 3 teams 390 User Stories Stratcom SKIweb 12 people 1,324 Function Points DoD Management Collocated 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. 22
- 23. Perceptions of Agile Methods Structure, reward, decision, staffing, leadership, etc. Top-down, individualism, regulation, compliance, etc. Focus on reforming acquisition & procurement system Type/Kind Common DoD Agile Perceptions Reality with Respect to Agile Methods Discipline Undisciplined Cowboy Coding Rigorous process, plans, requirements, QA, CM, testing, documents etc. Scalability Only Applies Small Projects Used by 100, 500, 1,000, 10,000+ person person projects & organizations Domain Management Only for Protoperational Systems Used in DoD, medical devices, avionics, autos, electronics, etc. Flexible Scope/Can't Use EVM Lightweight EVM model is used with its release planning methodology Requirements Doesn't Use Requirements Always begins with valuable, well-defined, & prioritized requirements Architecture Spaghetti Code from Iterations Begins with lean architecture or create waste-free emergent design Quality No Documents/Unmaintainable Electronic plans, requirements, designs, tests, manuals, documents, etc. Inspections High CoQ from No Inspections One or two orders of magnitude more inspections & tests performed Security Vulnerabilities from Hacking Security practices result in smaller attack surface & fewer vulnerabilities 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. 23
- 24. Conclusion Agility is the evolution of management thought Confluence of traditional and non-traditional ideas Improve performance by over an order of magnitude 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 “The world of traditional methods belongs to yesterday” “Don’t waste your time using traditional methods on 21st century projects” Wysocki, R.F. (2010). Adaptive project framework: Managing complexity in the face of uncertainty. Boston, MA: Pearson Education. 24
- 25. 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) 25