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

1. 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

2. 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

3. 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.
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4. 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

5. 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

6. 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.
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7. 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
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8. 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
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9. 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.
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10. 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.)
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11. 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.
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12. 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.
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13. 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.
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14. 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.
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15. 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

16. 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.
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17. 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.
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18. 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.
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19. 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.
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20. 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
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21. 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

22. 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)
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