Business Value of Agile Methods: Using ROI & Real Options
1. Business Value of
Agile Methods
Using ROI & Real Options
Dr. David F. Rico, PMP, ACP, CSM
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 Articles: http://davidfrico.com/agile-message.doc
2. Author Background
DoD 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
2
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.
4. Traditional Projects
4
Big projects result in poor quality and scope changes
Productivity declines with long queues/wait times
Large projects are unsuccessful or canceled
Jones, C. (1991). Applied software measurement: Assuring productivity and quality. New York, NY: McGraw-Hill.
Size vs. Quality
DefectDensity
0.00
3.20
6.40
9.60
12.80
16.00
0 2 6 25 100 400
Lines of Code (Thousands)
Size vs. Productivity
CodeProductionRate
0.00
1.00
2.00
3.00
4.00
5.00
0 2 6 25 100 400
Lines of Code (Thousands)
Size vs. Requirements Growth
Percentage
0%
8%
16%
24%
32%
40%
0 2 6 25 100 400
Lines of Code (Thousands)
Size vs. Success
Percentage
0%
12%
24%
36%
48%
60%
0 2 6 25 100 400
Lines of Code (Thousands)
5. Global Project Failures
5
Standish Group. (2010). Chaos summary 2010. Boston, MA: Author.
Sessions, R. (2009). The IT complexity crisis: Danger and opportunity. Houston, TX: Object Watch.
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
16% 53% 31%
27% 33% 40%
26% 46% 28%
28% 49% 23%
34% 51% 15%
29% 53% 18%
35% 46% 19%
32% 44% 24%
33% 41% 26%
0% 20% 40% 60% 80% 100%
1994
1996
1998
2000
2002
2004
2006
2008
2010
Year
Successful Challenged Failed
$0.0
$0.4
$0.7
$1.1
$1.4
$1.8
2002 2003 2004 2005 2006 2007 2008 2009 2010
Trillions(USDollars)
Expenditures Failed Investments
6. Requirements Defects & Waste
6
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.
Requirements defects are #1 reason projects fail
Traditional projects specify too many requirements
More than 65% of requirements are never used at all
Other 7%
Requirements
47%
Design
28%
Implementation
18%
Defects
Always 7%
Often 13%
Sometimes
16%
Rarely
19%
Never
45%
Waste
7. 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, just-
enough, and just-in-time processes and documentation
Highsmith, J. A. (2002). Agile software development ecosystems. Boston, MA: Addison-Wesley.
7
8. What are Agile Methods?
8
People-centric way to create innovative solutions
Product-centric alternative to documents/process
Market-centric model to maximize business value
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
Customer Collaboration
Working Software
Individuals & Interactions
Responding to Change
valued
more than
valued
more than
valued
more than
valued
more than
Contracts
Documentation
Processes
Project Plans
Frequent comm.
Close proximity
Regular meetings
Multiple comm. channels
Frequent feedback
Relationship strength
Leadership
Boundaries
Empowerment
Competence
Structure
Manageability/Motivation
Clear objectives
Small/feasible scope
Acceptance criteria
Timeboxed iterations
Valid operational results
Regular cadence/intervals
Org. flexibility
Mgt. flexibility
Process flexibility
System flexibility
Technology flexibility
Infrastructure flexibility
Contract compliance
Contract deliverables
Contract change orders
Lifecycle compliance
Process Maturity Level
Regulatory compliance
Document deliveries
Document comments
Document compliance
Cost Compliance
Scope Compliance
Schedule Compliance
9. Network
Computer
Operating System
Middleware
Applications
APIs
GUI
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
9Shore, J. (2011). Evolutionary design illustrated. Norwegian Developers Conference, Oslo, Norway.
Agile Traditional
1 2 3 Faster
Early ROI
Lower Costs
Fewer Defects
Manageable Risk
Better Performance
Smaller Attack Surface
Late
No Value
Cost Overruns
Very Poor Quality
Uncontrollable Risk
Slowest Performance
More Security Incidents Seven Wastes
1.Rework
2.Motion
3.Waiting
4.Inventory
5.Transportation
6.Overprocessing
7.Overproduction
MINIMIZES MAXIMIZES
JIT, Just-enough architecture
Early, in-process system V&V
Fast continuous improvement
Scalable to systems of systems
Maximizes successful outcomes
Myth of perfect architecture
Late big-bang integration tests
Year long improvement cycles
Breaks down on large projects
Undermines business success
10. Thousands of Tests
Continuously Executed
No More Late Big
Bang Integration
Agile Development Model
User needs designed & developed one-at-a-time
Changes automatically detected, built, and tested
System fully tested and deployed as changes occur
10Humble, J., & Farley, D. (2011). Continuous delivery. Boston, MA: Pearson Education.
Duvall, P., Matyas, S., & Glover, A. (2006). Continuous integration. Boston, MA: Addison-Wesley.
Build
Integration
Server
Version
Control
Server
Build
Scripts
UsesWatches
Build
Status
ProvidesDeveloper A
Developer B
Developer C
Commits
Changes
Commits
Changes
Commits
Changes
Builds
Database
Analysis
Testing
Reporting
Documentation
Deployment
Early, Automated, Fast,
Efficient, & Repeatable
Constant Readiness
State & CM Control
Lean, Waste Free, Low WIP,
No Deadlocked Test Queues
Rapidly & Successfully
Dev. Complex Systems
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
11
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
12
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.
d1 = [ln(Benefits Costs) + (Rate + 0.5 Risk2) Years] Risk Years, d2 = d1 Risk Years
5
1i
13. Studies of Agile Methods
Dozens of surveys of agile methods since 2003
100s of Agile and CMMI case studies documented
Agile productivity, quality, and cost better than CMMI
13
Rico, D. F. (2008). What is the return-on-investment of agile methods? Retrieved February 3, 2009, from http://davidfrico.com/rico08a.pdf
Rico, D. F. (2008). What is the ROI of agile vs. traditional methods? TickIT International, 10(4), 9-18.
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%)
Mah, M. (2008). Measuring agile in the enterprise: Proceedings of the Agile 2008 Conference, Toronto, Canada.
Project Cost in Millions $
0.75
1.50
2.25
3.00
2.8
1.1
Before Agile
After Agile
61%
Lower
Cost
Total Staffing
18
11
Before Agile
After Agile
39%
Less
Staff
5
10
15
20
Delivery Time in Months
5
10
15
20
18
13.5
Before Agile
After Agile
24%
Faster
Cumulative Defects
625
1250
1875
2500
2270
381
Before Agile
After Agile
93%
Less
Defects
14
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
Standish Group. (2012). Chaos manifesto. Boston, MA: Author.
15
Agile Traditional
Success
42%
Failed
9%
Challenged
49%
Success
14%
Failed
29%
Challenged
57%
16. 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
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%
Benefits of Organizational Agility
17. Agile Enterprise Delivery Model
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.
Begins with a high-level product vision/architecture
Continues with needs development/release planning
Includes agile delivery teams to realize business value
17
18. Agile Adoption
18House, D. (2012). Sixth annual state of agile survey: State of agile development. Atlanta, GA: VersionOne.
VersionOne found 80% using agile methods today
Most are using Scrum with several key XP practices
Lean-Kanban is a rising practice with a 24% adoption
Continuous
Integration
●
●
●
●
●
●
●
●
●
●
●
●
19. Agile Proliferation
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. 19
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)
20. Agile Industry Case Studies
80% of worldwide IT projects use agile methods
Includes regulated industries, i.e., DoD, FDA, etc.
Agile now used for safety critical systems, FBI, etc.
20
Industry
Shrink
Wrapped
Electronic
Commerce
Health
Care
Law
Enforcement
Org
20 teams
140 people
5 countries
Size
15 teams
90 people
Collocated
4 teams
20 people
Collocated
10 teams
50 people
Collocated
3 teams
12 people
Collocated
U.S.
DoD
Primavera
Google
Stratcom
FBI
FDA
Project
Primavera
Adwords
SKIweb
Sentinel
m2000
Purpose
Project
Management
Advertising
Knowledge
Management
Case File
Workflow
Blood
Analysis
1,838 User Stories
6,250 Function Points
500,000 Lines of Code
Metrics
26,809 User Stories
91,146 Function Points
7,291,666 Lines of Code
1,659 User Stories
5,640 Function Points
451,235 Lines of Code
3,947 User Stories
13,419 Function Points
1,073,529 Lines of Code
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.
21. Structure, reward, decision, staffing, leadership, etc.
Top-down, individualism, regulation, compliance, etc.
Focus on reforming acquisition & procurement system
21
Type/Kind Common DoD Agile Perceptions
Discipline
Reality with Respect to Agile Methods
Scalability
Domain
Management
Requirements
Architecture
Quality
Inspections
Security
Undisciplined Cowboy Coding
Only Applies Small Projects
Only for Protoperational Systems
Flexible Scope/Can't Use EVM
Doesn't Use Requirements
Spaghetti Code from Iterations
No Documents/Unmaintainable
High CoQ from No Inspections
Vulnerabilities from Hacking
Rigorous process, plans, requirements, QA, CM, testing, documents etc.
Used by 100, 500, 1,000, 10,000+ person person projects & organizations
Used in DoD, medical devices, avionics, autos, electronics, etc.
Lightweight EVM model is used with its release planning methodology
Always begins with valuable, well-defined, & prioritized requirements
Begins with lean architecture or create waste-free emergent design
Electronic plans, requirements, designs, tests, manuals, documents, etc.
One or two orders of magnitude more inspections & tests performed
Security practices result in smaller attack surface & fewer vulnerabilities
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.
Perceptions of Agile Methods
22. Agile World View
“Agility” has many dimensions other than IT
It ranges from leadership to technological agility
The focus of this brief is program management agility
Agile Leaders
Agile Organization Change
Agile Acquisition & Contracting
Agile Strategic Planning
Agile Capability Analysis
Agile Program Management
Agile Tech.
Agile Information Systems
Agile Tools
Agile Processes & Practices
Agile Systems Development
Agile Project Management
22
23. Agile Leadership Theories
23
Numerous theories of agile leadership have emerged
Many have to do with delegation and empowerment
Leaders have major roles in visioning and enabling
Augustine
(2005)
Pink
(2009)
Denning
(2010)
Poppendieck
(2010)
Appelo
(2011)
Organic Teams
Guiding Vision
Transparency
Light Touch
Simple Rules
Improvement
Autonomy
Alignment
Transparency
Purpose
Mastery
Improvement
Self Organizing
Communication
Transparency
Iterative Value
Delight Clients
Improvement
Talented Teams
Alignment
Systems View
Reliability
Excellence
Improvement
Empowerment
Alignment
Motivation
Scaling
Competency
Improvement
Augustine, S. (2005). Managing agile projects. Upper Saddle River, NJ: Pearson Education.
Pink, D. H. (2009). Drive: The surprising truth about what motivates us. New York, NY: Penguin Books.
Poppendieck, M, & Poppendieck, T. (2010). Leading lean software development: Results are not the point. Boston, MA: Pearson Education.
Anderson, D. J. (2010). Kanban: Successful evolutionary change for your technology business. Sequim, WA: Blue Hole Press.
Appelo, J. (2011). Management 3.0: Leading agile developers and developing agile leaders. Boston, MA: Pearson Education.
24. Agile Recap
Agile methods DON’T mean deliver it now & fix it later
Lightweight, yet disciplined approach to development
Reduced cost, risk, & waste while improving quality
24
Rico, D. F. (2012). What’s really happening in agile methods: Its principles revisited? Retrieved June 6, 2012, from http://davidfrico.com/agile-principles.pdf
Rico, D. F. (2012). The promises and pitfalls of agile methods. Retrieved February 6, 2013 from, http://davidfrico.com/agile-pros-cons.pdf
Rico, D. F. (2012). How do lean & agile intersect? Retrieved February 6, 2013, from http://davidfrico.com/agile-concept-model-3.pdf
What How Result
Flexibility Use lightweight, yet disciplined processes and artifacts Low work-in-process
Customer Involve customers early and often throughout development Early feedback
Prioritize Identify highest-priority, value-adding business needs Focus resources
Descope Descope complex programs by an order of magnitude Simplify problem
Decompose Divide the remaining scope into smaller batches Manageable pieces
Iterate Implement pieces one at a time over long periods of time Diffuse risk
Leanness Architect and design the system one iteration at a time JIT waste-free design
Swarm Implement each component in small cross-functional teams Knowledge transfer
Collaborate Use frequent informal communications as often as possible Efficient data transfer
Test Early Incrementally test each component as it is developed Early verification
Test Often Perform system-level regression testing every few minutes Early validation
Adapt Frequently identify optimal process and product solutions Improve performance
25. Conclusion
25
Agility is the evolution of management thought
Confluence of traditional and non-traditional ideas
Improve performance by over an order of magnitude
“The world of traditional methods belongs to yesterday”
“Don’t waste your time using traditional methods on 21st century projects”
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
Wysocki, R.F. (2010). Adaptive project framework: Managing complexity in the face of uncertainty. Boston, MA: Pearson Education.
26. Books on ROI of SW Methods
Guides to software methods for business leaders
Communicates business value of software methods
Rosetta stones to unlocking ROI of software methods
http://davidfrico.com/agile-book.htm (Description)
http://davidfrico.com/roi-book.htm (Description)
26