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R.D.Fernandez et al - Software rates vs price of function points

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Implementing productivity models helps in the understanding of Software Development Economics, which up to now is not entirely clear. Most organizations believe that the only way to achieve improvements is lowering software rates. With a background of three years of statistical data from large multinational clients, LEDAmc presented at UKSMA 2012 Conference a study showing how the relationship between software rates and cost per function point differs from what could be expected, sometimes even far from expected. The experience gained by LEDAmc through the implementation of software productivity models over the last two years brings new and updated insights to this study, which will be presented during the conference.(IT Confidence 2014, Tokyo (Japan))

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R.D.Fernandez et al - Software rates vs price of function points

  1. 1. http://itconfidence2013.wordpress.com Software Rates vs Price of Function Points 2°°°°International Conference on IT Data collection, Analysis and Benchmarking Tokyo (Japan) - October 22, 2014 Rafael de la Fuente Founder and CEO of LEDAmc Raúl Fernández SW Productivity Consultant Insert here a picture An Updated Cost Analysis
  2. 2. 2IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com Software Rates vs Price of Function Points: A cost analysis Goals of the presentation Nowadays, in Software Development Contracts the key elements determining the price are: the Rate and the Effort. The possibility to measure the quantity of software produced (the size in Function Points) allows us to assess whether there is a logical connection between the price of the projects and the software actually produced. The main goal of this presentation is to show what happens with the FP price in several scenarios: G1. Implementing estimation models. G2. Implementing productivity models. G3. Introducing new competitors in a productivity model. G4. De-localizing providers.
  3. 3. 3IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com • Background • Objective • 2014 vs 2012 benchmarking • Case studies • Conclusions Agenda
  4. 4. 4IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com Background Over the last seven years, LEDAmc has managed the productivity of more than 12,000 development projects of 10 significant clients in Spain (mostly telecommunication and financial companies). They were mainly small enhancement projects. The main goal of the measures is to control large contracts of Adaptive Maintenances, which involves the highest percentage of our clients’ development budget. In 2012 LEDAmc developed a benchmarking study with some of these projects (we selected 3,405). The purpose of the study was to analyze the relationship between the rates of the different software providers and the price of the Function Point that they were offering their clients. This study was presented: •In the UKSMA conference in October 2012 •An updated study, in the IT Confidence Conference in Rio, in October 2013.
  5. 5. 5IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com Background The basic numbers of the 2012 sample were: •10 Clients •14 Providers •3,405 Projects •196,356 UFP •2,168,192 Hours •69,926,907 Million Euros And the main conclusions were: Pressure to lower rates ends up in lower productivity and higher FP price. There is not a logical relationship between Rates and FP Price. The performance of the providers changes dramatically among clients. Clients with only one development provider have the highest FP Price.
  6. 6. 6IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com Background CLIENT-PROVIDER 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 0 1 0 0 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9 2 0 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 3 0 3 1 Pressure to lower rates ends up in lower productivity and higher FP price.
  7. 7. 7IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com Background 0 1 0 2 0 3 0 4 0 5 0 6 0 7 0 8 0 9 0 1 0 0 1 2 3 4 5 6 7 8 9 1 0 1 1 1 2 1 3 1 4 1 5 1 6 1 7 1 8 1 9 2 0 2 1 2 2 2 3 2 4 2 5 2 6 2 7 2 8 2 9 3 0 3 1 The same provider for different clients, offers significant differences in FP price. CLIENT-PROVIDER
  8. 8. 8IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com Background 0 10 20 30 40 50 60 70 80 90 100 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 The price of the FP with only one provider is higher. CLIENT-PROVIDER MULTI-PROVIDER CLIENTS ONE-PROVIDER CLIENTS
  9. 9. 9IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com Objective LEDAmc has been continuously working for most of those clients, implementing Software Development Productivity Models over the last two years. Our productivity benchmarking data base has grown: It has more data for the same clients and new clients have been included. The main goal of this presentation is to show what has happened in these two years with clients who have worked hard to improve their software development productivity. We will first explain the general evolution of the Function Point Price for those clients, comparing 2012 and 2014 benchmarks. Afterwards, we will focus on three case studies that are especially significant. Finally, we will draw conclusions on the economics of software management, based on our results.
  10. 10. 10IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com 2014 vs 2012 benchmarking The 2014 sample were: •Clients that were in the 2012 study and have implemented some estimation or productivity control •4 Clients •12 Providers •883 Projects •44,897 UFP •415,768 Man Hours •15,428,772 Million Euros What has happened with the FP price?
  11. 11. 11IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 2014 vs 2012 benchmarking CLIENT-PROVIDER The rates have remained almost the same.
  12. 12. 12IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 2014 vs 2012 benchmarking The FP price is more homogeneous in 2014 than 2012. CLIENT-PROVIDER
  13. 13. 13IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com 2014 vs 2012 benchmarking Apparently there is no relation between FP price and rate… CLIENT-PROVIDER 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 Rates vs FP Price in 2014
  14. 14. 14IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 2014 vs 2012 benchmarking .. but if we group the data by client, the results look different. CLIENT A CLIENT B CLIENT C CLIENT D Rates vs FP Price in 2014
  15. 15. 15IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 2014 vs 2012 benchmarking There are big differences in the FP price for the same provider with different clients. CLIENT A CLIENT B CLIENT C CLIENT D Rates vs FP Price in 2014 P1 P1P2 P2P3 P3 P3
  16. 16. 16IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com 2014 vs 2012 benchmarking Conclusions The results are homogeneous on a client basis because they have implemented estimation or productivity control models that allow them control the FP price. Because there is no transparency in software development and the public FP price does not exist in the market, the FP price stills remains very different among the clients. The natural differences of the systems architectures and processes should not imply such FP price differences. … now we will present some case studies highlighting the change that has been produced for these clients who have introduced control systems.
  17. 17. 17IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com Case studies High FP price Only one provider No estimation control Case Study 1 Competition among providers + Estimation Model INITIAL SITUATION OF THE CLIENT (2012)
  18. 18. 18IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com Case studies During 2013, the implementation of a centralized mechanism of estimation control has allowed to objectively contrast the costs offered by providers with corporate cost strategies. It includes functional sizing, as well as other sizing methods (for parametrization, technical changes, test support,..) Benchmarking studies helped establish a cost strategy and a target price for FP . Introducing a new development provider fosters competitiveness among providers and helps establish a FP price within market values. Case Study 1 Competition among providers + Estimation Model INPUTS (2013)
  19. 19. 19IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com TOTAL 1 2PROV 1 PROV 2 INPUTS (2013) Case studies 1. The rate was only reduced by 5% 2. New development provider worked with a similar rate 21 Case Study 1 Competition among providers + Estimation Model
  20. 20. 20IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com TOTAL 1 2PROV 1 PROV 2 INPUTS (2013) Case studies TOTAL 1 2 The FP price was reduced by 44 % Similar FP Price among providers 1. The rate was only reduced by 5% 2. New development provider worked with a similar rate Case Study 1 Competition among providers + Estimation Model 21 PROV 1 PROV 2
  21. 21. 21IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com Case studies A good estimating process was used for all projects 44% reduction in FP price More than 10 Million euros saved FP Price within market values Two competing providers in 2013 – Four in 2014 FINAL SITUATION (2014) Case Study 1 Competition among providers + Estimation Model
  22. 22. 22IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Case studies Specialized providers On-site development High rates and very low FP price Estimation and productivity control implemented INITIAL SITUATION OF THE CLIENT (2012) Case Study 2 De-localization of providers
  23. 23. 23IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com Case studies The client strategy was to proceed to the de-localization of the providers to a typical outsourced model introducing new development providers with lower rates. The client also decided to create an in-house development team in order to preserve and extend the know-how. Case Study 2 De-localization of providers INPUTS (2013)
  24. 24. 24IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com Case studies TOTAL 1 2 3 4 1. New provider with lower rate 2. In-house development rate 1 2 INPUTS (2013) Case Study 2 De-localization of providers PROV 1 PROV 2 PROV 3 PROV 4
  25. 25. 25IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com TOTAL 1 2 3 4 Case studies TOTAL 1 2 3 4 1. New provider with lower rate 2. In-house development rate 1 2 Logical behavior of FP price In-house developments at lower FP cost than in outsourced scenario INPUTS (2013) Case Study 2 De-localization of providers PROV 1 PROV 2 PROV 3 PROV 4 PROV 1 PROV 2 PROV 3 PROV 4
  26. 26. 26IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Case studies Case Study 2 De-localization of providers FP price controlled Outsourcing process controlled 2014 situation FINAL SITUATION (2014)
  27. 27. 27IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 Case studies Ratio of the rates: 1.1 Ratio of the FP Price: 2.3 INITIAL SITUATION OF THE CLIENT (2012) Case Study 3 Controlling large maintenance contracts
  28. 28. 28IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com Case studies During 2012 the client implemented a productivity control for maintenance development. An annual productivity SLA for all the providers was established. The client also implemented a productivity and quality providers ranking. Every two months the client presented to the providers their position in the ranking. Case Study 3 Controlling large maintenance contracts INPUTS (2013)
  29. 29. 29IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com TOTAL 1 2 3 4 5 6 Case studies Renegotiation of rates Ratio 2012: 1.1 Ratio 2014: 1.0 INPUTS (2013) Case Study 3 Controlling large maintenance contracts
  30. 30. 30IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com TOTAL 1 2 3 4 5 6 TOTAL 1 2 3 4 5 6 Case studies Renegotiation of rates Ratio 2012: 1.1 Ratio 2014: 1.0 FP cost control Ratio 2012: 2.3 Ratio 2014: 1.7 INPUTS (2013) Case Study 3 Controlling large maintenance contracts
  31. 31. 31IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 Case studies Case Study 3 Controlling large maintenance contracts Uniformity of FP price 9.5 million euros saved 2014 situation FINAL SITUATION (2014)
  32. 32. 32IT Confidence 2014 – October 22, 2014 http://itconfidence2014.wordpress.com Conclusions 1. It is relatively easy to influence FP price. The main levers are: >>> A centralized estimation control >>> A development productivity control >>> Several providers in competition 2. Working on those key elements the results are much better than working only on the rates: >>> The behavior of the unit cost of production (FP price) is more homogeneous. >>> The cost of the development process can be controlled. 3. Diversification of providers with joint management results in a better uniformity of the FP price.

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