business value of agile methods - ww.davidfrico.comww.davidfrico.com/rico09m.pdf · Æadjunct at...

Business Value of

Agile MethodsUsing Cost of Quality (CoQ)

Dr. David F. Rico, PMP, CSMWebsite: http://davidfrico.com

LinkedIn: http://www.linkedin.com/in/davidfricoFacebook: http://www.facebook.com/profile.php?id=1540017424

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AuthorDoD contractor with 25+ years of IT experienceB.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 articlesExpertise in metrics, models, & cost engineeringAdjunct at Argosy, UMUC, & George WashingtonSix Sigma, CMMI, ISO 9001, DoDAF & DoD 5000Agile Program Management & Lean Development

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AgendaOVERVIEW of BriefingIntro to Agile MethodsStudies of Agile MethodsCosts of Traditional MethodsCosts of Agile MethodsMetrics for Agile MethodsComparison of Agile MethodsSummary of Agile Methods

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Purpose of BriefingProvide an overview of the business value of Agile Methods using ROI and Real Options:

Provide a brief introduction to agile methodsIllustrate some of the major agile methods/practicesSummarize the results of major cost/benefit studiesTalk a little bit about the cost of quality (CoQ)Introduce cost and benefit models for agile methodsDescribe metrics to estimate the ROI of agile methodsCompare the costs and benefits of agile methodsSummarize what we’ve learned about agile methods

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What is Business Value?Val-ue (văl-'yōō): An amount, quantity, rate, magnitude, or desirability; Economic worth

An economic estimation of the tangible worth of the organizational assets such as buildings and equipmentAn appraisal of intangible assets such as knowledge, experience, skills, patents, processes, and methodsA technique for evaluating the costs and benefits of investments in a business, operations, or personnelThe economic impact of deploying a new product development approach such as agile methodologiesThe total life cycle costs of institutionalizing lean and agile project management techniques in an enterprise

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Some of Today’s ChallengesChal-lenge (chăl-'ənj): Contest, competition, fight, defy, confront, or dispute; To question

21st century systems are more software-intensiveand highly-complex with numerous invisible partsTechnology is evolving at an exponential rate of change which severely limits the planning horizonGlobal competitiveness has intensified and new military threats are rapidly emerging all of the timeCustomers have unpredictable needs and necessitate decision-making flexibility throughout the projectToday’s 21st-century post-industrial information age knowledge workers need agile methods and tools

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AgendaOverview of Briefing

INTRO to Agile MethodsStudies of Agile MethodsCosts of Traditional MethodsCosts of Agile MethodsMetrics for Agile MethodsComparison of Agile MethodsSummary of Agile Methods

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What is Agility?A-gil-i-ty (ə-'ji-lə-tē) 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 environmentThe ability to quickly reprioritize use of resources when requirements, technology, and knowledge shiftA very fast response to sudden market changes and emerging threats by intensive customer interactionUse of evolutionary, incremental, and iterativedelivery to converge on an optimal customer solutionMaximizing the business value with right-sized, just-enough, and just-in-time processes and documentation

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What are Agile Methods?‘Adaptable’ system development methodologies‘Human-centric’ method for creating business value‘Alternative’ to large document-based methodologies

Agile Manifesto. (2001). Manifesto for agile software development. Retrieved September 3, 2008, from http://www.agilemanifesto.org

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Essence of Agile MethodsHigh degree of customer & developer interactionHighly-skilled teams producing frequent iterationsRight-sized, just-enough, and just-in-time process

Highsmith, J. A. (2002). Agile software development ecosystems. Boston, MA: Addison-Wesley.

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When to use Agile MethodsOn exploratory or research/development projectsWhen fast customer responsiveness is paramountIn organizations that are highly-innovative & creative

Highsmith, J. (2003). Agile project management: Principles and tools. Arlington, MA: Cutter Consortium.

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Myths of Agile MethodsCommon myths still abound, although agile methods have been around for ~15 years:

Agile is only for software engineeringAgile doesn’t scale to large systemsAgile doesn't use project managementAgile doesn't have any requirementsAgile requires a traditional system architectureAgile doesn't have any documentationAgile isn't disciplined or measurableAgile has low quality, maintainability, and security

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AgendaOverview of BriefingIntro to Agile Methods

STUDIES of Agile MethodsCosts of Traditional MethodsCosts of Agile MethodsMetrics for Agile MethodsComparison of Agile MethodsSummary of Agile Methods

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Surveys of Agile MethodsNumerous surveys of Agile Methods since 2003AmbySoft and Version One collect annual dataGenerally include both hard and soft benefits

Rico, D. F. (2008). What is the return-on-investment of agile methods? Retrieved February 3, 2009, from http://davidfrico.com/rico08a.pdf

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Agile (138 pt.) and traditional methods (99 pt.)Agile methods fare better in all benefits categoriesAgile methods 359% better than traditional methods

Rico, D. F. (2008). What is the ROI of agile vs. traditional methods? TickIT International, 10(4), 9-18.

Studies of Agile Methods

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Analysis of 23 agile vs. 7,500 traditional projectsAgile projects are 41% better than traditional onesXP (56%) and Scrum (26%) better than trad. projects

Mah, M. (2008). Measuring agile in the enterprise: Proceedings of the Agile 2008 Conference, Toronto, Canada.

Projects Using Agile Methods

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Analysis of 29 agile vs. 7,500 traditional projectsAgile projects are 33% better than traditional onesRally projects are 28% better than traditional ones

Rally Software. (2009). The agile impact report. Boulder, CO: Author.

Projects Using Agile PM Tools

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AgendaOverview of BriefingIntro to Agile MethodsStudies of Agile Methods

COSTS of Traditional MethodsCosts of Agile MethodsMetrics for Agile MethodsComparison of Agile MethodsSummary of Agile Methods

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Cost of Quality (CoQ)1:10:100 ratio forms a basic model to estimate ROIDefects have negative multiplicative effect on costAgile methods leave fewer defects (higher ROI)

Boehm, B. W. (1981). Software engineering economics. Englewood Cliffs, NJ: Prentice-Hall.

Rel

a tiv

e C

o st

to F

ix E

rror

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Traditional Cost ModelsCost estimation models still in use todayUsed to estimate effort of Traditional MethodsAdjusted average of 5,088 used for ROI estimation

Benediktsson, O., & Dalcher, D. (2005). Estimating size in incremental software development projects. Journal of Engineering Manufacture, 152(6), 253-259.

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Total Lifecycle Costs0.51 hours/line of code for Traditional Methods10% defect inject rate (1,000 defects/10 KLOC)67% of defects in test (33% in maintenance)

Rico, D. F. (2004). ROI of software process improvement: Metrics for project managers and software engineers. Boca Raton, FL: J. Ross Publishing.In, H. P., et al. (2006). A quality-based cost estimation model for the product line life cycle. Communications of the ACM, 49(12), 85-88.McCann, B. (2007). The relative cost of interchanging, adding, or dropping quality practices. Crosstalk, 20(6), 25-28.

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AgendaOverview of BriefingIntro to Agile MethodsStudies of Agile MethodsCosts of Traditional Methods

COSTS of Agile MethodsMetrics for Agile MethodsComparison of Agile MethodsSummary of Agile Methods

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Agile Cost ModelsBased on 13 studies of Extreme Programming (XP)Also based on 7 studies of pair programming (PP)“Pair programming” had highest productivity


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Agile Quality ModelsBased on 10 studies of Extreme Programming (XP)Also based on 6 studies of pair programming (PP)“Extreme Programming” had the highest quality


1. XP 10

2. TDD 2

3. PP 6

4. Scrum 3

5. Agile 21

No. Method Pts.

0.0032

0.6100

0.3250

0.4350

0.0032

Low

0.7466

2.1550

2.3550

3.9450

1.7972

Median

2.1450

3.7000

5.8500

8.5000

8.5000

High

0.7466 KLOC 100

2.1550 KLOC 100

2.3550 KLOC 100

3.9450 KLOC 100

1.7972 KLOC 100

Quality

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Agile Lifecycle Cost ModelsCosts based on productivity and quality modelsDevelopment costs based on LOC ÷ productivity rateMaintenance costs based on defects × KLOC × MH


1. XP

2. TDD

3. PP

4. Scrum

5. Agile

No. Method Agile Lifecycle Cost Models

16.1575 0.7466

29.2800 2.1550

33.4044 2.3550

05.4436 3.9450

21.2374 1.7972

$249,653

$265,437

$578,202

$226,805

Costs

$136,548

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Agile Lifecycle Benefit ModelsBenefits based on total traditional less agile costsTraditional costs based LOC × dev. + maint. effortTraditional costs credited testing effort applied


1. XP

2. TDD

3. PP

4. Scrum

5. Agile

No. Method Agile Lifecycle Benefit Models

(10,000 10.51 – 6,666.67 9) 100 – $136,548

(10,000 10.51 – 6,666.67 9) 100 – $249,653

(10,000 10.51 – 6,666.67 9) 100 – $265,437

(10,000 10.51 – 6,666.67 9) 100 – $578,202

(10,000 10.51 – 6,666.67 9) 100 – $226,805

$4,260,344

$4,244,560

$3,931,795

$4,283,192

Benefits

$4,373,449

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AgendaOverview of BriefingIntro to Agile MethodsStudies of Agile MethodsCosts of Traditional MethodsCosts of Agile Methods

METRICS for Agile MethodsComparison of Agile MethodsSummary of Agile Methods

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Measures of Business ValueA major principle of Agile Methods is creating valueROI is the measure of value within Agile MethodsThere are seven closely related ROI measures

Metric Definition Formula Costs

Sum of Costs Total amount of money spent ∑

=

n

iiCost

1

Benefits Sum of Benefits

Total amount of money gained ∑=

n

iiBenefit

1

B/CR Benefit to Cost Ratio

Ratio of benefits to costs Costs

Benefits

ROI Return on Investment

Ratio of adjusted benefits to costs %100×−

CostsCostsBenefits

NPV Net Present Value

Discounted cash flows ∑=

−+

Years

iYears

i CostsRateDiscount

Benefits1

0)1(

BEP Breakeven Point

Point when benefits exceed costs 1−CostsNewCostsOldCostsNew

ROA Real Options Analysis

Value gained from strategic delay ( ) ( ) YearsRateeCostsdNBenefitsdN ×−××−× 21

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. Ft. Lauderdale, FL: J. Ross Publishing.

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Extreme ProgrammingCosts based on avg. productivity and qualityProductivity ranged from 3.5 to 43 LOC an hourCosts were $136,548, benefits were $4,373,449

∑ =

5

1i


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Test Driven DevelopmentCosts based on avg. productivity and qualityProductivity ranged from 12 to 36 LOC an hourCosts were $249,653, benefits were $4,260,344

∑ =

5

1i


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Pair ProgrammingCosts based on avg. productivity and qualityProductivity ranged from 16 to 87 LOC an hourCosts were $265,437, benefits were $4,244,560

∑ =

5

1i


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ScrumCosts based on avg. productivity and qualityProductivity ranged from 4.7 to 5.9 LOC an hourCosts were $578,202, benefits were $3,931,795


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Agile MethodsCosts based on avg. productivity and qualityProductivity ranged from 3.6 to 87 LOC an hourCosts were $226,805, benefits were $4,283,192

∑ =

5

1i


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AgendaOverview of BriefingIntro to Agile MethodsStudies of Agile MethodsCosts of Traditional MethodsCosts of Agile MethodsMetrics for Agile Methods

COMPARISON of Agile MethodsSummary of Agile Methods

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Productivity of Agile MethodsPP productivity 32X more than trad. methodsScrum productivity 5X more than trad. methodsAgile methods productivity 20X more than traditional


33.4044

29.28

21.2374

16.1575

5.4436

1.06190

8

16

24

32

40

PP TDD Agile XP Scrum CMMI®

Software Method

Pro

duct

ivit

y (L

OC

/Hou

r)

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Quality of Agile MethodsXP quality 13X better than trad. methodsScrum quality 3X better than trad. methodsAgile methods quality 5X better than traditional

0.7466

1.7972 2.155 2.355

3.945

9.667

0

2.2

4.4

6.6

8.8

11

XP Agile TDD PP Scrum CMMI®

Software Method

Qua

lity

(Def

ects

/KLO

C)


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Costs of Agile MethodsXP costs 8X less than traditional methodsScrum costs 2X less than traditional methodsAgile methods cost 5X less than traditional methods

$136,551$226,807 $249,653 $265,436

$578,202

$1,108,233

$0

$325,000

$650,000

$975,000

$1,300,000


Software Method

Cos

ts


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Benefits of Agile MethodsXP benefits 1.5X more than traditional methodsScrum benefits 1.3X more than traditional methodsAgile methods benefits 1.4X more than trad. methods

$4,372,282$4,282,026 $4,259,180 $4,243,397

$3,930,631

$3,023,064

$2,750,000

$3,237,500

$3,725,000

$4,212,500

$4,700,000


Software Method

Ben

efit

s


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ROI of Agile MethodsXP ROI 18X more than traditional methodsScrum ROI 3.4X more than traditional methodsAgile methods ROI 10X more than trad. methods

3,102%

1,788%1,606% 1,499%

580%

173%

0%

925%

1,850%

2,775%

3,700%


Software Method

Ret

urn

on In

vest

men

t


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NPV of Agile MethodsXP NPV 2.4X more than traditional methodsScrum NPV 1.9X more than traditional methodsAgile methods NPV 2.3X more than trad. methods

$3,649,388$3,480,979 $3,438,351 $3,408,902

$2,825,313

$1,509,424

$1,000,000

$1,787,500

$2,575,000

$3,362,500

$4,150,000


Software Method

Net

Pre

sent

Val

ue


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Real Options of Agile MethodsXP ROA 1.6X more than traditional methodsScrum ROA 1.4X more than traditional methodsAgile methods ROA 1.6X more than trad. methods

$4,265,936$4,105,884 $4,066,678 $4,040,377

$3,608,772

$2,633,052

$2,200,000

$2,825,000

$3,450,000

$4,075,000

$4,700,000


Software Method

Rea

l Opt

ions


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Agile vs. Traditional MethodsAll of the methods were ordered by ROIAgile Methods had a high ROI value of 3,102%Traditional Methods had a high ROI value of 4,133%

Rico, D. F. (2008). What is the ROI of agile vs. traditional methods? Retrieved September 3, 2008, from http://davidfrico.com/agile-benefits.xls

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AgendaOverview of BriefingIntro to Agile MethodsStudies of Agile MethodsCosts of Traditional MethodsCosts of Agile MethodsMetrics for Agile MethodsComparison of Agile Methods

SUMMARY of Agile Methods

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SummaryAgility is the evolution of management thoughtConfluence of traditional and non-traditional ideasImprove performance by over an order-of-magnitude

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.

Systems engineering 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

Intended to maximize business value for customers

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New Book on Agile MethodsGuide to Agile Methods for business leadersCommunicates business value of Agile MethodsRosetta stone to Agile Methods for traditional folks

http://davidfrico.com/agile-book.htm (Description)http://www.amazon.com/dp/1604270314 (Amazon)

Table of Contents 1. Introduction to Agile Methods 2. Values of Agile Methods 3. History of Agile Methods 4. Antecedents of Agile Methods 5. Types of Agile Methods 6. Practices of Agile Methods 7. Agile Project Management 8. Agile Software Engineering 9. Agile Support Processes10. Agile Tools and Technologies11. Comparison of Agile Methods12. Agile Metrics and Models13. Surveys of Agile Methods14. Costs-Benefits of Agile Methods15. ROI Metrics of Agile Methods16. Measures of Agile Methods17. Costs of Agile Methods18. Benefits of Agile Methods19. ROI of Agile Methods20. NPV of Agile Methods21. Real Options of Agile Methods22. Business Value of Agile Methods23. Agile vs. Traditional Methods24. Future of Agile Methods

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