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

2. Author Background
 DoD contractor with 28+ 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 Washington, 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.
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3. Today’s Whirlwind Environment
Global Reduced
Competition IT Budgets
Work Life Obsolete
Imbalance Technology & Skills
Demanding 81 Month
 Overruns Customers Cycle Times  Inefficiency
Vague  Attrition  High O&M Overburdening
Requirements  Escalation  Lower DoQ Legacy Systems
 Runaways  Vulnerable
 Cancellation  N-M Breach
Organization Redundant
Downsizing Data Centers
Technology Poor
Change System Lack of IT Security
Complexity Interoperability
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. 3

4. Software in U.S. DoD Systems
 No. of software-intensive systems is growing
 80% of US DoD functions performed in software
 Major driver of cost, schedule, & tech. performance
Kennedy, M. P., & Umphress, D. A. (2011). An agile systems engineering process: The missing link. Crosstalk, 24(3), 16-20.
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5. Traditional Projects
 Big projects result in poor quality and scope changes
 Productivity declines with long queues/wait times
 Large projects are unsuccessful or canceled
Size vs. Quality Size vs. Requirements Growth
16.00 40%
Defect Density
12.80 32%
Percentage
9.60 24%
6.40 16%
3.20 8%
0.00 0%
0 2 6 25 100 400 0 2 6 25 100 400
Lines of Code (Thousands) Lines of Code (Thousands)
Size vs. Productivity Size vs. Success
5.00 60%
Code Production Rate
4.00 48%
Percentage
3.00 36%
2.00 24%
1.00 12%
0.00 0%
0 2 6 25 100 400 0 2 6 25 100 400
Lines of Code (Thousands) Lines of Code (Thousands)
Jones, C. (1991). Applied software measurement: Assuring productivity and quality. New York, NY: McGraw-Hill. 5

6. 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
$1.8
2010 33% 41% 26%
2008 32% 44% 24%
$1.4
Trillions (US Dollars)
2006 35% 46% 19%
2004 29% 53% 18% $1.1
Year
2002 34% 51% 15%
2000 28% 49% 23% $0.7
1998 26% 46% 28%
$0.4
1996 27% 33% 40%
1994 16% 53% 31%
$0.0
0% 20% 40% 60% 80% 100% 2002 2003 2004 2005 2006 2007 2008 2009 2010
Successful Challenged Failed Expenditures Failed Investments
Standish Group. (2010). Chaos summary 2010. Boston, MA: Author.
Sessions, R. (2009). The IT complexity crisis: Danger and opportunity. Houston, TX: Object Watch.
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7. 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
Requirements
45%
47%
Other 7% Always 7%
Implementation
Often 13%
18% Rarely
Design 19%
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.
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8. 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.
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9. 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 Contracts
  Frequent comm.
 Close proximity
 Regular meetings
 Multiple comm. channels
 Frequent feedback
 Relationship strength
valued
more than
 Contract compliance
 Contract deliverables
 Contract change orders
Individuals & Interactions Processes
 Leadership  Competence valued  Lifecycle compliance
 Boundaries  Structure more than  Process Maturity Level
  Empowerment  Manageability/Motivation
Working Software
 Regulatory compliance
Documentation
  Clear objectives  Timeboxed iterations
 Small/feasible scope  Valid operational results
 Acceptance criteria  Regular cadence/intervals
valued
more than
 Document deliveries
 Document comments
 Document compliance
Responding to Change Project Plans
 Org. flexibility  System flexibility valued  Cost Compliance
 Mgt. flexibility  Technology flexibility more than  Scope Compliance
  Process flexibility  Infrastructure flexibility  Schedule Compliance
Agile Manifesto. (2001). Manifesto for agile software development. Retrieved September 3, 2008, from http://www.agilemanifesto.org
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10. How Do Agile Methods Work?
 Agile methods DON’T mean deliver it now & fix it later
 Lightweight, yet disciplined approach to development
 Reduced cost, risk, & waste while improving quality
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
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
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11. 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 Project Management
Agile Systems Development
Agile Processes & Practices
Agile Tools
Agile Information Systems
Agile Tech. 11

12. 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
Leffingwell, D. (2011). Agile software requirements: Lean requirements practices for teams, programs, and the enterprise. Boston, MA: Pearson Education.
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13. Agile Methods
 VersionOne found 80% using agile methods today
 Most are using Scrum with several key XP practices
 Number of CSMs have doubled to 200,000 in 2 years

House, D. (2012). Sixth annual state of agile survey: State of agile development. Atlanta, GA: VersionOne. 13

14. Agile Practices
 VersionOne found 65% using Scrum practices
 55% are using some of top XP technical practices
 Lean-Kanban is a rising practice with a 24% adoption
 

Continuous
Integration
 
 



House, D. (2012). Sixth annual state of agile survey: State of agile development. Atlanta, GA: VersionOne.
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15. 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
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.
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16. 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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17. 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

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. 17

18. 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 18
Before Agile Before Agile
3.00 20
After Agile After Agile
2.25 15 11
1.1
1.50 10
 
0.75 61% 5 39%
Lower Less
Cost Staff
Project Cost in Millions $ Total Staffing
18 2270
Before Agile Before Agile
20 2500
13.5 After Agile After Agile
15 1875
10 1250
381
 
5 24% 625 93%
Less
Faster Defects
Delivery Time in Months Cumulative Defects
Mah, M. (2008). Measuring agile in the enterprise: Proceedings of the Agile 2008 Conference, Toronto, Canada.
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19. 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
Success
14%
42%
Challenged
57%
Failed
Failed Challenged 29%
9% 49%
Standish Group. (2012). Chaos manifesto. Boston, MA: Author.
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20. Agile vs. Traditional Outcomes
 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 1 2 3 Late 
GUI
 Early ROI No Value 
APIs
 Lower Costs Applications Cost Overruns 
 Fewer Defects Middleware Very Poor Quality 
Operating System
 Manageable Risk Uncontrollable Risk 
Computer
 Better Performance Network
Slowest Performance 
 Smaller Attack Surface Seven Wastes
More Security Incidents 
1.Rework
 JIT, Just-enough architecture 2.Motion  Myth of perfect architecture
 Early, in-process system V&V 3.Waiting  Late big-bang integration tests
 Fast continuous improvement MINIMIZES 4.Inventory MAXIMIZES  Year long improvement cycles
 Scalable to systems of systems 5.Transportation  Breaks down on large projects
 Maximizes successful outcomes 6.Overprocessing  Undermines business success
7.Overproduction
Shore, J. (2011). Evolutionary design illustrated. Norwegian Developers Conference, Oslo, Norway. 20

21. 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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22. 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.
Industry Org Project Purpose Size Metrics
 20 teams  1,838 User Stories
Electronic
Google Adwords Advertising  140 people  6,250 Function Points
Commerce  5 countries  500,000 Lines of Code
 15 teams  26,809 User Stories
Shrink Project
 Wrapped
Primavera Primavera  90 people
Management  Collocated
 91,146 Function Points
 7,291,666 Lines of Code 
 4 teams  1,659 User Stories
Health Blood
 Care
FDA m2000
Analysis
 20 people
 Collocated
 5,640 Function Points
 451,235 Lines of Code 
 10 teams  3,947 User Stories
Law Case File
 Enforcement
FBI Sentinel
Workflow
 50 people
 Collocated
 13,419 Function Points
 1,073,529 Lines of Code 
U.S. Knowledge  3 teams  390 User Stories
Stratcom SKIweb  12 people  1,324 Function Points
DoD Management  Collocated  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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23. Perceptions of Agile Methods
 Structure, reward, decision, staffing, leadership, etc.
 Top-down, individualism, regulation, compliance, etc.
 Focus on reforming acquisition & procurement system
Type/Kind Common DoD Agile Perceptions Reality with Respect to Agile Methods
 Discipline Undisciplined Cowboy Coding  Rigorous process, plans, requirements, QA, CM, testing, documents etc.
 Scalability Only Applies Small Projects  Used by 100, 500, 1,000, 10,000+ person person projects & organizations
Domain
Management
Only for Protoperational Systems  Used in DoD, medical devices, avionics, autos, electronics, etc.
Flexible Scope/Can't Use EVM  Lightweight EVM model is used with its release planning methodology

 Requirements Doesn't Use Requirements  Always begins with valuable, well-defined, & prioritized requirements
 Architecture Spaghetti Code from Iterations  Begins with lean architecture or create waste-free emergent design
 Quality No Documents/Unmaintainable  Electronic plans, requirements, designs, tests, manuals, documents, etc.
Inspections High CoQ from No Inspections  One or two orders of magnitude more inspections & tests performed

 Security Vulnerabilities from Hacking  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.
23

24. Conclusion
 Agility is the evolution of management thought
 Confluence of traditional and non-traditional ideas
 Improve 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. 24

25. 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)
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