Wolfgang Richter, Agile CEO JIPP.IT, hat in seinem Vortrag beim letzten Scrum User Group Stammtisch (Mai 2016) zum Thema "Alternative Verrechnungsmethoden" mehrer Möglichkeiten zur Vertragsgestaltung in agilen Softwareprojekten beschrieben und analysiert.

1. Alternative
Billing Models
Dr. Wolfgang Richter - JIPP.IT GmbH
Competence Center for Agile Software Development
Neugasse 111, 8200 Gleisdorf
Austria
Tel: +43 (0)3112 90 300 | office@jipp.it
www.jipp.it

2. About the speaker
Dr. Wolfgang Richter
Agile CEO, Coach, and Trainer;
MSc., PMP, CSM, CSPO, CSP, ZIM, CC-I, NLP-P
• 20 years of work experience in USA, Australia, Europe, incl. Out-
sourcing to China, India, Eastern Europe
• Studies in Telecommunications, Informatics, Economics, Psychology
• Master in Telecommunications and Informatics (CRM, PM)
• PhD in Informatics (Org.Dev., PM, Agile Methods)
• Extended education/certificates in Project/Program Management,
Change Management, Requirements Analysis/Management, Customer
Relationship Management, Innovation Management, Organizational
Structures, Agile Methods, Business Support Systems, Business
Process Design;
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3. JIPP.IT References
3
See more at: http://www.jipp.it/references

4. Agenda
• Overview of Billing Models
• Main criteria - Triangle to Diamond
• Alternative Concepts
• Pros and Cons

5. Billing
We are talking about:
“How to find a common payment and billing structure for
hours worked and accomplishments in terms of e.g.
deliverables, considering contractual, legal, standard-
related, and other factors, to progress through a common
endeavour from an economic standpoint.”

6. Billing Models
• From
• Fixed Price
• Time&Material (T&M)
• to
• Provisions and Accomplishments (P&A)
• Money for nothing, Change for free (MC)
• All or Nothing
Quality
Scope
Time Budget
Scope
TimeCost
Quality
Expectations

7. Fixed Price and T&M
Fixed Price:
• Budget fixed
• Risk mainly on contractor side
Time&Material (T&M):
• Invoiced based on Time and Material
• Risk mainly on client side
Common:
• Often complex Change Request Processes
• Time and Scope often expected to be fixed, too
• Sometimes quality as control mechanism
• Penalties
Quality
Scope
Time Budget

8. Model „Provisions and Accomplishments“
Concept:
• Low(er) guaranteed T&M rate
(Provisions)
• Bonus on reaching success criteria
(Accomplishments)

9. Model „Money for nothing, Change for free“
Concept:
• Cost-Driven Fixed Profit Model
• Invoiced on T&M rates or other model
• Unstarted features can be ex-changed
against other features of same complexity
• Project can be stopped by the client anytime,
e.g. due to sufficient functionality delivered.
• Remaining budget will be distributed
amongst involved parties (client, contractor)

10. All or Nothing
Concept:
• Contractor payed on T&M rates per Sprint
• Client can deny payments for up to defined
maximum number of Sprints
• Contractor stops deliverables if maximum
number of Sprints without payments is
exceeded
• Unstarted features can be ex-changed
against other features of same complexity
• Project can be stopped by the client anytime,
e.g. due to sufficient enough functionality
delivered.
• Remaining budget will be distributed
amongst involved parties (client, contractor)

11. Model Comparison
Fixed
Price
T&M P&A MC All or
Nothing
Budget Fixed Time/material-
based rate
with flexible
Budget
Fixed Fixed Capped or
flexible
Time Potentially
fixed
Fixed or
flexible
Potentially
fixed (either)
Flexible Fixed or
flexible
Scope Potentially
fixed
Potentially
fixed
Potentially
fixed (or)
Flexible Flexible
Quality Result Result Fixed Fixed Fixed
Expectations Contractual Contractual Adjustable Adjustable Adjustable

12. Strategies
2. Agreement on Countable Items
3. Evaluation of Velocity
4. Definition of Check-Points
5. Definition of Exit-Criteria
6. General Agreements
Provisions and
Accomplishments:
1. Definition of
“Provisions”
Money for nothing,
Change for free:
1. Definition of Product
Backlog
All or Nothing:
1. Definition of “All” and
“Nothing”

13. Step 1 – Provisions and Accomplishments
Definition of „Provisions“
a. Definition of low(er) guaranteed T&M rate
(per Sprint)
b. Definition of bonus based on Velocity
c. Definition of obligations of client and
contractor regarding Provisions and bonus

14. Step 1 – Money for nothing, Change for free
Definition of Product Backlog
a. Definition of Epics
b. Definition of User Stories, as far as
meaningful
c. High-level estimation of Epics and User
Stories (e.g. T-Shirt sizes, Story Points, …)
d. Definition of dates for deliverables
e. Definition of Budget
f. Agreement on collaboration between client
and contractor
g. Compensation of analysis-phase based on
T&M

15. Step 1 - All or nothing
Definition of „All“ and „Nothing“
a. Definition of T&M rate per Sprint
b. Definition of maximum number of Sprints
without payments

16. Step 2 – All Models
a. Functionality
b. (Cost of) Delays
c. Bugs
d. Absences
e. …
Agreement on Countable Items

17. Step 3 – All Models
P&A:
a. Duration 3 to 5
Sprints
b. Execution of Sprints
based on full T&M
rate
c. Definition of
Velocity at the end
of theses Sprints
d. Definition of
success criterias for
bonus payments
(Accomplishments)
Evaluation of Velocity
All or Nothing:
a. Duration 3 to 5
Sprints
b. Definition of
Velocity at the end
of these Sprints
MC:
a. Duration 3 to 5
Sprints
b. Definition of
Velocity at the end
of these Sprints

18. Step 4 – All Models
a. Retrospectives about collaboration
b. Reviews of deliverables
c. Validation of idle-time, delays, and waiting
periods
d. Validation of reporting schemes
e. Validation of defects
Definition of Check-Points

19. Step 5 – All Models
a. Identification of potential risk for the client
b. Definition of exit-criteria for the client
c. Identification of potential risks for the
contractor
d. Definition of exit-criteria for the contractor
Definition of Exit Criteria 1/2

20. Step 5 – All Models
P&A:
-
Definition of Exit Criteria 2/2
All or Nothing:
a. Definition of instalment
for the contractor on exit
of the client
b. Definition of exit-criteria
„no further payment
expected“
c. Definition of exit-criteria
„quality sucks“
d. Definition of budget
distribution in case of exit
based on „sufficient
functionality“
MC:
a. Definition of instalment
for the contractor on exit
of the client
b. Definition of exit-criteria
„sufficient/enough
functionality“
c. Definition of budget
distribution in case of exit
based on „sufficient
functionality“

21. Step 6 – All Models
a. Duration of project/collaboration
b. Knowledge-transfer
c. Warranty
d. …
Definition of General Agreements

22. Model „Provisions and Accomplishments“
Pros Cons
Motivation to keep pace Based on Velocity
Transparency Complex with multiple teams
Collaboration required Scope-creep possible
Simple with single teams Contractor stuck in just provisions
payments
Can start without comprehensive
requirements definition
Volume-based

23. Model „Money for nothing, Change for free“
Pros Cons
Motivation to keep pace Disagreements about complexity
possible
Transparency More comprehensive requirements
elicitation required
Collaboration required Requires estimation
Value based Analysis-phase required
Runs well with multiple teams
Should avoid exhausting
discussions about change requests

24. Model „All or Nothing“
Pros Cons
Motivation to keep pace Disagreements about quality
possible
Transparency Idle time for contractor teams
possible
Collaboration required Subjective values can influence
progress/project
Value and quality based
Runs well with multiple teams
Can prevent exhausting discussions
about change requests
Simple

25. Summary
• Well known models are established and commonly understood
• Alternative models require a paradigm shift in certain areas
• Well known models require sometimes ideal environments
• Alternative models require trust
• Well known models can work in agile environments
• Alternative models need a different definition of „value“ and
understanding of profit
• Well known models usually formalize expectations in form of contracts
• Alternative models allow expectations to be adjusted
• Both approaches do have a raison d'être and are situative

26. JIPP.IT GmbH
Competence Center for Agile Software Development
Tel: +43 (0)3112 90 300 | office@jipp.it
Dr. Wolfgang Richter
Tel.: +43 (0) 664 4423884
Email: wolfgang.richter@jipp.it
Web: http://www.jipp.it
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