David Rico Business Value Agile Methods19 Feb 14
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David Rico Business Value Agile Methods19 Feb 14

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Dr. David Rico presentation at PM Reston luncheon on Business Value of Agile Methods February 19, 2014

Dr. David Rico presentation at PM Reston luncheon on Business Value of Agile Methods February 19, 2014

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    David Rico Business Value Agile Methods19 Feb 14 David Rico Business Value Agile Methods19 Feb 14 Presentation Transcript

    • 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  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. 2
    • Today’s Whirlwind Environment Work Life Imbalance Vague Requirements Reduced IT Budgets Global Competition • Overruns • Attrition • Escalation • Runaways • Cancellation Technology Change Demanding Customers Organization Downsizing System Complexity 81 Month Cycle Times Redundant Data Centers Obsolete Technology & Skills • Inefficiency • High O&M • Lower DoQ • Vulnerable • N-M Breach Lack of Interoperability Overburdening Legacy Systems Poor IT Security 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
    • 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    33% 41% 26% 2008 32% 44% 24% Year 2006 2004 2002 2000 35% 46% 29% 53% 34% 27% 1994 0% 16% 46% 33% Successful 40% 23% 28% 40% 53% 20% 15% 49% 26% 1996 18% 51% 28% 1998 19% 31% 60% Challenged 80% 100% Failed Trillions (US Dollars) 2010 $1.8 $1.4 $1.1 $0.7 $0.4 $0.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 Expenditures Standish Group. (2010). Chaos summary 2010. Boston, MA: Author. Sessions, R. (2009). The IT complexity crisis: Danger and opportunity. Houston, TX: Object Watch. Failed Investments 4
    • 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 45% Requirements 47% Other 7% Implementation 18% Always 7% Often 13% Design 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. Rarely 19% 5
    • 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, justenough, and just-in-time processes and documentation  Highsmith, J. A. (2002). Agile software development ecosystems. Boston, MA: Addison-Wesley. 6
    • 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 • Multiple comm. channels • Frequent comm. • Frequent feedback • Close proximity • Relationship strength • Regular meetings Individuals • Leadership • Boundaries • Empowerment & Interactions • Competence • Structure • Manageability/Motivation Working Systems & Software • Clear objectives • Timeboxed iterations • Small/feasible scope • Valid operational results • Regular cadence/intervals • Acceptance criteria Responding to Change • System flexibility • Org. flexibility • Technology flexibility • Mgt. flexibility • Process flexibility • Infrastructure flexibility valued more than Contracts • Contract compliance • Contract deliverables • Contract change orders valued more than Processes • Lifecycle compliance • Process Maturity Level • Regulatory compliance valued more than Documentation • Document deliveries • Document comments • Document compliance valued more than Project Plans • Cost Compliance • Scope Compliance • Schedule Compliance 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 7
    • 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 Agile Traditional • Faster 2 3 1 GUI • Early ROI Late • No Value • APIs • Lower Costs Applications Cost Overruns • • Fewer Defects Middleware Very Poor Quality • Operating System • Manageable Risk Computer • Better Performance JIT, Just-enough architecture Early, in-process system V&V Fast continuous improvement Scalable to systems of systems Maximizes successful outcomes Slowest Performance • Network • Smaller Attack Surface • • • • • Uncontrollable Risk • More Security Incidents • Seven Wastes MINIMIZES 1. 2. 3. 4. 5. 6. 7. Rework Motion Waiting Inventory Transportation Overprocessing Overproduction MAXIMIZES • • • • • Shore, J. (2011). Evolutionary design illustrated. Norwegian Developers Conference, Oslo, Norway. Myth of perfect architecture Late big-bang integration tests Year long improvement cycles Breaks down on large projects Undermines business success 8
    • 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    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. 9
    • Burndown Work (Story, Point, Task) or Effort (Week, Day, Hour) Work (Story, Point, Task) or Effort (Week, Day, Hour) Agile Performance Measurement Earned Value Management - EVM CPI SPI PPC APC Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.) Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.) Work (Story, Point, Task) or Effort (Week, Day, Hour) Work (Story, Point, Task) or Effort (Week, Day, Hour) Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.) Cumulative Flow Earned Business Value - EBV Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.) 10
    • 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. 1. Traditional Metrics • Size • Effort • Productivity • Quality • Complexity • Cycle Time 2. Basic Agile Metrics • Story Points • Ideal Days • Velocity • Burndown • Cumulative Flow • Running Tested Features 3. Agile EVM Metrics • Planned Story Points • Planned Sprints • Planned Release Budget • Completed Story Points • Completed Sprints • Completed Releases Agile Metrics 0. 1. 2. 3. 4. 5. 6. “No Metrics” Traditional Metrics Basic Agile Metrics Agile EVM Metrics Agile Portfolio Metrics Agile Contract Metrics Agile Enterprise Metrics 4. Agile Portfolio Metrics • Benefit-Cost Ratio • Return on Investment • Net Present Value • Breakeven Point • Real Options • Earned Business Value 5. Agile Contract Metrics • Level of Effort • Dynamic Value • Performance Based • Target Cost • Optional Scope • Collaborative 6. Agile Enterprise Metrics • Relationships • Communications • Collaboration • Motivation • Creativity • Satisfaction Rico, D. F., Sayani, H. H., & Sone, S. (2009). The business value of agile software methods. Ft. Lauderdale, FL: J. Ross Publishing. 11
    • 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. 12
    • 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 Metric Formula Costs (10,000 ÷ 5.4436 + 3.945 × 10 × 100) × 100 Benefits Trad. Testing Agile Testing $588,202 $233,152 (10,000 × 10.51 – 6,666.67 × 9) × 100 – $588,202 $3,930,631 $4,275,681 B/CR $3,930,631 ÷ $588,202 7:1 18:1 ROI ($3,930,631 – $588,202) ÷ $588,202 × 100% 567% 1,734% NPV (∑ ($3,930,631 ÷ 5) ÷ 1.055) – $588,202 $2,806,654 $3,469,140 BEP $588,202 ÷ ($4,509,997 ÷ $588,202 – 1) $88,220 $12,710 ROA NORMSDIST(2.24) × $3,930,631 – NORMSDIST(0.85) × $588,202 × EXP(–5% × 5) $3,504,292 $4,098,159 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. 13
    • 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 Before Agile 3.00 After Agile 2.25  0.75 Project Cost in Millions $ 18 20 61% Lower Cost After Agile 39% Less Staff 5 Total Staffing 2270 1250 After Agile 1875 10  Before Agile 2500 15  After Agile 10 Before Agile 13.5 Before Agile 11 15 1.1 1.50 18 20 24% Faster 5 Delivery Time in Months 381 625 Cumulative Defects 93% Less Defects  Mah, M. (2008). Measuring agile in the enterprise: Proceedings of the Agile 2008 Conference, Toronto, Canada. 14
    • 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 14% Success 42% Failed 9% Challenged 49% Failed 29% Challenged 57% Standish Group. (2012). Chaos manifesto. Boston, MA: Author. 15
    • 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. 16
    • Agile Adoption    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  54% 9%  ● ● ● ● 11% ● ● ● Continuous Integration ●  ● ● ● ● ● ● House, D. (2013). Seventh annual state of agile survey: State of agile development. Atlanta, GA: VersionOne. 17
    • Agile Proliferation    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)   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
    • 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. Industry Electronic Commerce    Shrink Wrapped Health Care Law Enforcement U.S. DoD Org Google Project Adwords Purpose Advertising Size • 20 teams • 140 people • 5 countries • 15 teams Project • 90 people Primavera Primavera Management • Collocated FDA FBI Stratcom Metrics • 1,838 User Stories • 6,250 Function Points • 500,000 Lines of Code • 26,809 User Stories • 91,146 Function Points • 7,291,666 Lines of Code m2000 Blood Analysis • 4 teams • 20 people • Collocated • 1,659 User Stories • 5,640 Function Points • 451,235 Lines of Code Sentinel Case File Workflow • 10 teams • 50 people • Collocated • 3,947 User Stories • 13,419 Function Points • 1,073,529 Lines of Code SKIweb Knowledge • 3 teams • 12 people Management • Collocated    • 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. 19
    • Agile Leadership    Power & authority delegated to the lowest level Tap into the creative nuclear power of team’s talent Coaching, communication, and relationships key skills Personal Project Enterprise • Don't Be a Know-it-All • Be Open & Willing to Learn • Customer Communication • Business Value vs. Scope • Product Visioning • Interactions vs. Contracts • Treat People Respectfully • Distribution Strategy • Relationship vs. Regulation • • • • • Team Development • Conversation vs. Negotiation • Consensus vs. Dictatorship Be Gracious, Humble, & Kind Listen & Be Slow-to-Speak Be Patient & Longsuffering Be Objective & Dispassionate • Standards & Practices • Telecom Infrastructure • Development Tools • Collaboration vs. Control • Openness vs. Adversarialism • Exploration vs. Planning • Don't Micromanage & Direct • High-Context Meetings • Exhibit Maturity & Composure • Don't Escalate or Exacerbate • Don't Gossip or be Negative • Coordination & Governance • F2F Communications • Delegate, Empower, & Trust • Performance Management • Entrepreneurial vs. Managerial • Creativity vs. Constraints • Satisfaction vs. Compliance • Personal Development • Quality vs. Quantity • Gently Coach, Guide, & Lead • Consensus Based Decisions • Incremental vs. All Inclusive 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
    • Conclusion    Agility is the evolution of management thought Confluence of traditional and non-traditional ideas Improves 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. 21
    • 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) 22