This document discusses value-driven contracting in IT services. It proposes measuring the value of work delivered in three categories: technical, functional, and emotional. Value is defined as work that adds benefits to the business like new functionality, reduced risk, or lower costs. Automated tools are recommended to objectively measure software quality, size, and productivity without burdening delivery teams. This would allow comparing suppliers' performance in a transparent, repeatable way.

1. Value
driven
contrac/ng

2. Some
context
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17
§ André Nadorp
§ Director Benchmarking METRI
§ Andre.nadorp@metrigroup.com
§ Benchmarking
§ Research
§ IT Advisory
§ IT Governance
§ Source code analyDcs
§ Quality metrics
§ Risk assessments
§ Automated FuncDon Points

3. Alignment
of
supplier
performance
in
AD
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Customers
want:
§ Added
value
§ Insight
in
delivered
services
§ Value
for
money
To
deliver
on
this
promise
we
need
to
think
about:
§ What
is
the
unit
to
measure
work
delivered?
§ When
is
delivered
work
valuable?
§ When
is
this
work
of
added
value?
For
decades,
people
all
over
the
world
are
working
on
different
standardized
methods
to
measure
func/onality.
At
this
moment
we
have
several
standardized
and
accepted
methods.
New
techniques
and
methods
make
it
harder
to
use
them.
Clients
want
more
prove
of
services
delivered.
Transparency
is
needed.

4. Most
tradi/onal
contracts
are
build
around
PDC’s,
SLA
and
KPI’s
like:
§ Up/me
§ Response
/me
§ Performance
§ Number
of
/ckets
In
many
contracts
you
find:
§ Penal/es
when
not
delivered,
oVen
converted
to
extra
services
to
be
delivered
In
few
contracts
there
is
also
a:
§ Bonus
when
overperforming
Most
suppliers
want
to
raise
their
revenue
or
at
least
keep
it
stable.
This
could
be
a
wrong
incen/ve.
How
to
define
value?
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17

5. Value
for
the
suppliers
is
mostly
different
from
value
for
customers
Both
sides
want
to
make
profit
or
add
results
in
some
way
Profit
for
suppliers
are
costs
for
the
clients.
Financial
contradic6ons
that
are
hard
to
merge
Apprecia/ons
of
value
by
customers
and
suppliers
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6. The
measurements
within
current
development
methods
are
less
standardized
and
more
based
on
subjec/ve
and
non
repeatable
ways.
The
biggest
challenge
has
to
do
with
con/nuously
measuring
delivered
func/onality
(func/onal
and
technical),
quality
and
produc/vity.
The
Agile
way
of
working
eliminates
all
types
of
control/waste.
Luckily,
in
current
environments,
its
possible
to
measure
these
things
without
a
burden
on
the
teams
by
deploying
automated
tools.
So
on
the
technical
part
solu/ons
are
available.
But
When
all
lights
are
green,
there
can
s/ll
be
an
unhappy
end-­‐user.
How
to
measure?
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7. Many
factors
are
important.
But
in
the
end
many
things
can
be
measured
We
think
there
are
three
main
categories:
§ Technical
§ Func/onal
§ Emo/onal
When
is
work
valuable?
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8. In
an
open
discussion
with
the
client
it
should
be
possible
to
define
what
adds
value
to
the
business.
§ New
func/onality
tomorrow
§ Less
risk
§ Higher
performance
§ Less
complexity
§ Higher
produc/vity
/
lower
quality
/
higher
technical
debt
§ Happy
users
/
customers
When
does
work
add
value?
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9. Value
is
added
when
it
serves
business
needs.
This
could
be:
§ Time
to
market
§ Less
risk
§ High
performance
§ New
func/onality
§ Less
costs
When
does
work
add
value?
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17

10. In
the
ever
changing
world,
and
apparently
hard
to
measure
ac/vi/es,
clients
try
to
find
ways
to
compare
services.
In
some
cases
the
business
relates
IT
to
costs
(budget),
revenue,
services.
Enabling
companies
in
measuring
soVware
services
enables
them
to
measure
suppliers.
Measures
based
on
independent
and
repeatable
facts
removes
(most)
discussions.
In
the
modern
world
of
IT
it’s
necessary
to
measure
things
without
impact
on
the
teams
delivering
the
service.
Make
IT
comparable
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AutomaDon is Key

11. § Market
leader
in
source
code
analy/cs
§ Based
on
the
interna/onal
OMG/CISQ
standard
§ Analyses
source
code
and
architecture
§ Output:
technical
code
analysis
in
health
factors
§ Total
Quality
Index
§ Security,
Robustness,
Efficiency,
Transferability,
Changeability
§ Technical
Debt,
Cri/cal
Viola/ons,
etc.
§ CAST
is
the
only
specialist
capable
of
automated
measuring
size
in
source
code:
§ Automated
Func/on
Points
(AFP):
§ Automated
Enhancement
Func/on
Points
(AEFP)
§ Automated
Enhancement
Technical
points
(AETP)
CAST
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17
Based
on
CAST
analysis
METRI
can
do
objec6ve,
repeatable,
verifiable
and
therefore
defensible
way
of
measuring
and
comparing
the
performance
of
the
soPware
supplier
with
the
market/contract.

12. Performance
Measurement
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Applica6on
metrics:
§ CAST
§ TQI
§ Robustness
§ Security
§ Efficiency
§ Transferability
§ Changeability
§ Technical
Debt
§ AEP
§ Cri/cal
viola/ons
§ Availability
Applica6on
Development
metrics:
§ Produc/vity,
§ Cost
Efficiency
§ Project
Quality
§ Velocity
Applica6on
Management
metrics:
§ Response
/mes
§ Resolu/on
/mes
§ Average
/me
to
solve
issues

13. Performance
Measurement
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‘Emo6onal’
Metrics
§ Customer
and
client
sa/sfac/on
DevOps
metrics:
§ %Effort
Dev/Ops
§ #
boelenecks
removed
§ %
Test
automa/on
§ Deployment
frequency
§ %
Failed
deployments
§ Mean
Time
to
Recover
(MTTR)
§ Change
Lead
/me

14. Value
Driven
Contrac6ng
(VDC)
14
§ Objec/ve
measurement
à
Relate
the
price
on
delivered
performance
§ Objec/ve:
§ Transparent
services
à
Open
discussion
§ Higher
service
à
higher
invoice,
longer
contract
§ Combine
different
metrics
(Applica/on,
AD,
AM,
Emo/onal,
DevOps)
to
one
Index
§ Related
to
contract
§ Related
to
market
/
compe/tors
§ Define
weight
of
all
metrics
(within
and
over
groups)
for
Index
§ Make
them
flexible
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17

15. Metric
Score
Weight
Applica/on
performance
29,3%
25,00%
AM
performance
53,8%
25,00%
AD
performance
-­‐10,4%
25,00%
Emo/onal
performance
0,0%
0,00%
DevOps
performance
12,3%
25,00%
Total
score
21,23%
VDC
-­‐
model
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17
§ Weights
can
be
adjusted
each
measurement
period
§ What
is
important
for
the
customer?
§ Basis
remains
the
same:
objec/ve,
repeatable,
verifiable
metrics.
§ Agreed
targets
based
on
baselines
or
benchmarks.
§ VDC
results
in
Value
Price
Index
(VPI)
score.
Example:
Value
Price
Index
calcula/on.
VPI
From
Till
Price
correc6on
1,0
-­‐500%
-­‐50%
-­‐10,0%
1,5
-­‐50%
-­‐30%
-­‐8,0%
2,0
-­‐30%
-­‐10%
-­‐5,0%
2,5
-­‐10%
0%
-­‐2,0%
3,0
0%
15%
0,0%
3,5
15%
30%
5,0%
4,0
30%
50%
8,0%
4,5
50%
70%
12,0%
5,0
70%
500%
15,0%
Score
21,23%
3,5
5,00%

16. Customers
§ Improved
transparency
§ Incen/ve
for
supplier
to
deliver
value,
not
burn
hours
§ Influence
to
adjust
the
measurement
model
every
period
§ Pay
more
for
excellent
value,
pay
less
for
underperformance
§ Gives
end
users
a
voice
Suppliers
§ Win
business
by
being
transparent
§ Focus
on
improvement
and
delivering
value
§ Higher
profits
by
overperformance
§ Show
the
world
how
good
you
are
§ Enables
long
term
rela/ons
on
mutual
value
Why
is
VDC
interes6ng
for
Customer
and
Suppliers?
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17

17. Benefits:
§ Based
on
accepted
standards
§ Independent
measurements
§ Flexible
§ Improves
partnerships
§ Enables
long
term
rela/ons
§ Gives
the
business
(end
user)
a
voice
Create
common
ground
with
Value
Driven
Contrac6ng
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17

18. About
METRI
§ Started
out
in
Benchmarking
§ More
than
14
years
of
history/track
record
§ Market
leader
in
Benelux
§ Interna/onal
focus
§ USP:
Component
Based
Measurement
§ Expanded
services
building
upon
proprietary
benchmarking
database
§ Service
-­‐,
Cost-­‐,
Performance-­‐
and
Value
management
§ IT
sourcing:
strategy,
selec/on,
contrac/ng,
transi/on
&
provider
rela/onship
management
§ Fact
Based
Research
§ Market
research
and
knowledge
projected
to
your
daily
challenges
§ Using
METRI’s
Eco
System
for
reflec/on
and
verifica/on
Benchmarking
IT
Advisory
Research
§ Quick
scan
of
IT
func/on
§ Target
opera/ng
model
§ Governance
digital
transforma/on
§ Benchmark
IT
workforce
IT
Governance

19. ©
2017
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