Business Value of Agile Methods: Using ROI & Real Options
Business Value ofAgile MethodsUsing ROI & Real OptionsDr. David F. Rico, PMP, ACP, CSMTwitter: @dr_david_f_ricoWebsite: http://www.davidfrico.comLinkedIn: http://www.linkedin.com/in/davidfricoFacebook: http://www.facebook.com/profile.php?id=1540017424Dave’s Agile Articles: http://davidfrico.com/agile-message.doc
Author Background DoD 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, & Europe2 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 Environment3OverrunsAttritionEscalationRunawaysCancellationGlobalCompetitionDemandingCustomersOrganizationDownsizingSystemComplexityTechnologyChangeVagueRequirementsWork LifeImbalanceInefficiencyHigh O&MLower DoQVulnerableN-M BreachReducedIT Budgets81 MonthCycle TimesRedundantData CentersLack ofInteroperabilityPoorIT SecurityOverburdeningLegacy SystemsObsoleteTechnology & SkillsPine, 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 AnnualAFEI/NDIA Conference on Agile in DoD, Springfield, VA, USA.
Traditional Projects4 Big projects result in poor quality and scope changes Productivity declines with long queues/wait times Large projects are unsuccessful or canceledJones, C. (1991). Applied software measurement: Assuring productivity and quality. New York, NY: McGraw-Hill.Size vs. QualityDefectDensity0.003.206.409.6012.8016.000 2 6 25 100 400Lines of Code (Thousands)Size vs. ProductivityCodeProductionRate0.001.002.003.004.005.000 2 6 25 100 400Lines of Code (Thousands)Size vs. Requirements GrowthPercentage0%8%16%24%32%40%0 2 6 25 100 400Lines of Code (Thousands)Size vs. SuccessPercentage0%12%24%36%48%60%0 2 6 25 100 400Lines of Code (Thousands)
Global Project Failures5Standish 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 lost16% 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%199419961998200020022004200620082010YearSuccessful Challenged Failed$0.0$0.4$0.7$1.1$1.4$1.82002 2003 2004 2005 2006 2007 2008 2009 2010Trillions(USDollars)Expenditures Failed Investments
Requirements Defects & Waste6Sheldon, F. T. et al. (1992). Reliability measurement: From theory to practice. IEEE Software, 9(4), 13-20Johnson, J. (2002). ROI: Its 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 allOther 7%Requirements47%Design28%Implementation18%DefectsAlways 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 toprofit in a turbulent global business environment The ability to quickly reprioritize use of resources whenrequirements, technology, and knowledge shift A very fast response to sudden market changes andemerging threats by intensive customer interaction Use of evolutionary, incremental, and iterative deliveryto 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.7
What are Agile Methods?8 People-centric way to create innovative solutions Product-centric alternative to documents/process Market-centric model to maximize business valueAgile 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.pdfCustomer CollaborationWorking SoftwareIndividuals & InteractionsResponding to Changevaluedmore thanvaluedmore thanvaluedmore thanvaluedmore thanContractsDocumentationProcessesProject 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
NetworkComputerOperating SystemMiddlewareApplicationsAPIsGUIHow Agile Works Agile requirements implemented in slices vs. layers User needs with higher business value are done first Reduces cost & risk while increasing business success9Shore, J. (2011). Evolutionary design illustrated. Norwegian Developers Conference, Oslo, Norway.Agile Traditional1 2 3 Faster Early ROI Lower Costs Fewer Defects Manageable Risk Better Performance Smaller Attack SurfaceLate No Value Cost Overruns Very Poor Quality Uncontrollable Risk Slowest Performance More Security Incidents Seven Wastes1.Rework2.Motion3.Waiting4.Inventory5.Transportation6.Overprocessing7.OverproductionMINIMIZES 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
Thousands of TestsContinuously ExecutedNo More Late BigBang IntegrationAgile Development Model User needs designed & developed one-at-a-time Changes automatically detected, built, and tested System fully tested and deployed as changes occur10Humble, J., & Farley, D. (2011). Continuous delivery. Boston, MA: Pearson Education.Duvall, P., Matyas, S., & Glover, A. (2006). Continuous integration. Boston, MA: Addison-Wesley.BuildIntegrationServerVersionControlServerBuildScriptsUsesWatchesBuildStatusProvidesDeveloper ADeveloper BDeveloper CCommitsChangesCommitsChangesCommitsChangesBuildsDatabaseAnalysisTestingReportingDocumentationDeploymentEarly, Automated, Fast,Efficient, & RepeatableConstant ReadinessState & CM ControlLean, Waste Free, Low WIP,No Deadlocked Test QueuesRapidly & SuccessfullyDev. Complex Systems
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 often11Rico, 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 $3,930,63112Rico, 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 51i
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 CMMI13Rico, D. F. (2008). What is the return-on-investment of agile methods? Retrieved February 3, 2009, from http://davidfrico.com/rico08a.pdfRico, D. F. (2008). What is the ROI of agile vs. traditional methods? TickIT International, 10(4), 9-18.
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%)Mah, M. (2008). Measuring agile in the enterprise: Proceedings of the Agile 2008 Conference, Toronto, Canada.Project Cost in Millions $0.751.502.253.002.81.1Before AgileAfter Agile61%LowerCostTotal Staffing1811Before AgileAfter Agile39%LessStaff5101520Delivery Time in Months51015201813.5Before AgileAfter Agile24%FasterCumulative Defects6251250187525002270381Before AgileAfter Agile93%LessDefects14
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 oftenStandish Group. (2012). Chaos manifesto. Boston, MA: Author.15Agile TraditionalSuccess42%Failed9%Challenged49%Success14%Failed29%Challenged57%
Hoque, F., et al. (2007). Business technology convergence. The role of business technology convergence in innovationand 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 Enterprise Delivery ModelBeck, 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 value17
Agile Adoption18House, 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 Lean-Kanban is a rising practice with a 24% adoption ContinuousIntegration●●●●●●●●●●●●
Agile ProliferationScrum 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. 19 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 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.20IndustryShrinkWrappedElectronicCommerceHealthCareLawEnforcementOrg 20 teams 140 people 5 countriesSize 15 teams 90 people Collocated 4 teams 20 people Collocated 10 teams 50 people Collocated 3 teams 12 people CollocatedU.S.DoDPrimaveraGoogleStratcomFBIFDAProjectPrimaveraAdwordsSKIwebSentinelm2000PurposeProjectManagementAdvertisingKnowledgeManagementCase FileWorkflowBloodAnalysis 1,838 User Stories 6,250 Function Points 500,000 Lines of CodeMetrics 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 CodeRico, D. F. (2010). Lean and agile project management: For large programs and projects. Proceedings of the First International Conference on LeanEnterprise Software and Systems, Helsinki, Finland, 37-43.
Structure, reward, decision, staffing, leadership, etc. Top-down, individualism, regulation, compliance, etc. Focus on reforming acquisition & procurement system21Type/Kind Common DoD Agile PerceptionsDisciplineReality with Respect to Agile MethodsScalabilityDomainManagementRequirementsArchitectureQualityInspectionsSecurityUndisciplined Cowboy CodingOnly Applies Small ProjectsOnly for Protoperational SystemsFlexible Scope/Cant Use EVMDoesnt Use RequirementsSpaghetti Code from IterationsNo Documents/UnmaintainableHigh CoQ from No InspectionsVulnerabilities from Hacking Rigorous process, plans, requirements, QA, CM, testing, documents etc. Used by 100, 500, 1,000, 10,000+ person person projects & organizations Used in DoD, medical devices, avionics, autos, electronics, etc. Lightweight EVM model is used with its release planning methodology Always begins with valuable, well-defined, & prioritized requirements Begins with lean architecture or create waste-free emergent design Electronic plans, requirements, designs, tests, manuals, documents, etc. One or two orders of magnitude more inspections & tests performed Security practices result in smaller attack surface & fewer vulnerabilitiesRico, 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.Perceptions of Agile Methods
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 LeadersAgile Organization ChangeAgile Acquisition & ContractingAgile Strategic PlanningAgile Capability AnalysisAgile Program ManagementAgile Tech.Agile Information SystemsAgile ToolsAgile Processes & PracticesAgile Systems DevelopmentAgile Project Management22
Agile Leadership Theories23 Numerous theories of agile leadership have emerged Many have to do with delegation and empowerment Leaders have major roles in visioning and enablingAugustine(2005)Pink(2009)Denning(2010)Poppendieck(2010)Appelo(2011)Organic TeamsGuiding VisionTransparencyLight TouchSimple RulesImprovementAutonomyAlignmentTransparencyPurposeMasteryImprovementSelf OrganizingCommunicationTransparencyIterative ValueDelight ClientsImprovementTalented TeamsAlignmentSystems ViewReliabilityExcellenceImprovementEmpowermentAlignmentMotivationScalingCompetencyImprovementAugustine, S. (2005). Managing agile projects. Upper Saddle River, NJ: Pearson Education.Pink, D. H. (2009). Drive: The surprising truth about what motivates us. New York, NY: Penguin Books.Poppendieck, M, & Poppendieck, T. (2010). Leading lean software development: Results are not the point. Boston, MA: Pearson Education.Anderson, D. J. (2010). Kanban: Successful evolutionary change for your technology business. Sequim, WA: Blue Hole Press.Appelo, J. (2011). Management 3.0: Leading agile developers and developing agile leaders. Boston, MA: Pearson Education.
Agile Recap Agile methods DON’T mean deliver it now & fix it later Lightweight, yet disciplined approach to development Reduced cost, risk, & waste while improving quality24Rico, D. F. (2012). What’s really happening in agile methods: Its principles revisited? Retrieved June 6, 2012, from http://davidfrico.com/agile-principles.pdfRico, D. F. (2012). The promises and pitfalls of agile methods. Retrieved February 6, 2013 from, http://davidfrico.com/agile-pros-cons.pdfRico, D. F. (2012). How do lean & agile intersect? Retrieved February 6, 2013, from http://davidfrico.com/agile-concept-model-3.pdfWhat How ResultFlexibility Use lightweight, yet disciplined processes and artifacts Low work-in-processCustomer Involve customers early and often throughout development Early feedbackPrioritize Identify highest-priority, value-adding business needs Focus resourcesDescope Descope complex programs by an order of magnitude Simplify problemDecompose Divide the remaining scope into smaller batches Manageable piecesIterate Implement pieces one at a time over long periods of time Diffuse riskLeanness Architect and design the system one iteration at a time JIT waste-free designSwarm Implement each component in small cross-functional teams Knowledge transferCollaborate Use frequent informal communications as often as possible Efficient data transferTest Early Incrementally test each component as it is developed Early verificationTest Often Perform system-level regression testing every few minutes Early validationAdapt Frequently identify optimal process and product solutions Improve performance
Conclusion25 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 customersWysocki, 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)26