Scrum Cost Saving 1.0download.microsoft.com/.../ScrumCostSaving.pdf · Scrum as a Cost Saving Measure, Microsoft Corporation, Lisbon Portugal 20 May ... – New features may be added

Scrum as a Cost Saving Measure, Microsoft Corporation, Lisbon Portugal 20 May 2009

Copyright 2009 Mitch Lacey. email [email protected] for re‐use permission. 1

Implementing Scrum as a Cost Saving Measure

Microsoft Corporation / Fullsix Portugal

Lisboa, Portugal May 2009

About Mitch Lacey

• Mitch Lacey

– 13+ years of program and project management experience

– Microsoft Program Manager 2001‐2006

• Released large backend core services for Windows Live & MSN

• Worked as Agile Coach, onboarding teams to Scrum and Agile principles and practices

– Project Management Professional (PMP)

– Certified Scrum Trainer (CST)

Copyright 2007‐2009 Mitch Lacey.




The Scrum Framework




The Pareto Principle

• 80% of product value comes from 20% of the features

• 60% of features delivered in successful projects are rarely used

• Continually ask what incremental value a new feature will deliver yover another

Confidential Material

5

Agile versus Traditional




Question on Contracts

• How are your contracts done today?


Contract & Project Types

FixedFixed‐‐Date ProjectsDate ProjectsFixedFixed‐‐Date ProjectsDate Projects FixedFixed‐‐Scope ProjectsScope ProjectsFixedFixed‐‐Scope ProjectsScope Projects

Fixed Everything Fixed Everything ProjectsProjects


FixedFixed‐‐Cost ProjectsCost ProjectsFixedFixed‐‐Cost ProjectsCost Projects



Cone of Uncertainty

1.6x

Project Schedule

• Initial Order of Magnitude

1.25x

1.15x

1.10x

x

0.9x

0.85x

0.8x

+75% to ‐25%

• Budgetary+25% to ‐10%

• Definitive+10% t 5%


0.6x

InitialProductDefinition

Approved Product

Definition

Requirements Specification

Product Design

Specification

Detailed Design

Specification

AcceptedSoftware

+10% to ‐5%

Release Plan Inputs: Velocity

• A useful long‐term measure of the average amount of work completed per sprint

• Not useful for predicting how much work will be completed in each sprint




Fixed Date Projects

How Much Can I Get by <DATE>?

• Determine how many sprints you have

• Estimate velocity as a range

• Multiply low velocity × number of sprints

– Count off that many points ‐ These are “Will Have” items

• Multiply high velocity × number of sprints

– Count off that many more points ‐ These are “Might Have items”Count off that many more points These are Might Have items


Fixed‐date Planning Example

Desired release date

30 JuneWill have

Today’s Date 1 January

Number of sprints 6 (monthly)

Low15

6×15

6×20

Might have


velocity15

Highvelocity

20Won’t have



Fixed Date Projects

Will have • You won’t likely win the contract

If you write a contractfor just the will haves:

6×15

Will have

Might have

y• But you’ll probably make money if you do

• You will likely win the contract• But probably not make money on it

If you write a contract thatincludes the might haves:


6×20

Won’t have

It’s a risk issue

Where do you want to be?

Fixed Scope Projects

When Will All of This Be Done?

• Sum all the backlog items the customer needs

• Estimate velocity as a range

• Divide total story points by high velocity

– This is the shortest number of sprints it could take

• Divide total story points by low velocity

– This is the “most” sprints it could takeThis is the most sprints it could take




Fixed Scope Planning Example

Total story points desired 120

Low velocity 15

Hi h l it 20High velocity 20

120÷20=


120÷15=

Fixed Scope Projects

• Y ’ll lik l i h

If you write a contractfor the short duration:

• You’ll likely win the contract•But may not make any money

• You probably won’t win the contract

If you write a contractfor the long duration:


contract•But will make money

It’s a risk issue

Where do you want to be?



Ranges

• Notice in both cases we had a range

• For a fixed date project, use a scope range:

– “By that date you’ll have all of these features and some of these.”

• For a fixed‐scope project, use a date range:

– “It will take us between 5 and 8 sprints to deliver all of those features.”


Fixed Everything Projects

You’re Screwed!You’re Screwed!

• Customer sends request for proposal (RFP) to vendors

All k i f l i A b d l i €1• All work is of equal importance. Assume budget total is €1m

• Vendors will submit bids close to €1m

– Vendor selected based on bid – contract signed

– First day of project: changes to original bid, which are expensive

• Project ends up over original budget due to € spent in changes

• After work is accepted, there is still more to do – bugs and f i li h


functionality changes

– Functionality that is not completed or not useful

• Project end cost €2m or more and project is late



Benefit of Fixed Everything Contracts


Capitalizing on Scrum – Change the Model

• We are incented to produce our projects late

– As described earlier, we make money through change orders

– Results in functionality users do not want or will use

• Culture drives this behavior by incenting the “Fixed Everything” model

– Assumes we can know everything up front

– Assumes we predict the behavior of a complex system

– Assumes software is not a creative process




Change the Model: Give Change At No Cost

Features

Build our plan (blue dots)

Execute the work (green dots)

Identify new work (orange dot)Prioritized by Business Value

Identify new work (orange dot)

Remove a lower priority item (red item)


Time

Source: Jeff Sutherland, Money for Nothing and Change for Free, Presented at Agile 2008

Implementing Change for No Cost

• Build a contract based on Scrum

• Allow customers to add any new item they want

– They must remove an item of equal weight in order to add

• Product Owner prioritizes the Product Backlog every Sprint

• Customer fails to do this: Contract reverts back to time and materials with change order procedures (new boat)

• This results in

– Changes in priorities are free if total contract work is not changedg p g

– New features may be added for free at Sprint boundaries if low priority items of equal work are removed from contract




Customer Requirements

• Features are prioritized by business value

• Implemented in order of business value

• Customers (and users) are involved( )

• Customers work with the Product Owner to produce and maintain a quality Product Backlog


Change for Free Financial Incentives

Identify ROI cutoff

Continue Working

ROI Cutoff

Features Prioritized by Business Value

Re‐evaluate remaining work

Continue Working


Time

Scrap remaining work




Financial Incentives – What This Means

ROI Cutoff

Features Prioritized by Business Value

Customer keeps 80% of remaining funds

Vendor keeps 20% of remaining funds


Time


Project ships early

Excess “crap” not built

Financial Incentives – End at Any Time

• Build the contract using Scrum

• Customer and team agree on estimates for all work items

• Customer determines cost/benefit cutoff/

– Implementing the next feature costs more than its value

• Customer can terminate contract at any time for 20% of remaining contract value

• Vendor assumes risk of late delivery of mutually agreed work

• Contract reverts to time and materials if above conditions not met




Example of a €1m Project

• Feature Cost: able to ship at 50% feature implementation: €500,000

– 50% of €1m = €500,000

• Additional price to Vendor: €100,000

– 20% of €500,000 = €100,000

• Total Project Cost = €600,000

• Money back to customer = €400,000

• Assume 10% net profit margin on features built: €50,000

• Add 20% cost savings of €100,000 for early terminationAdd 20% cost savings of €100,000 for early termination

• Total project net €150,000 – 25% net profit margin


Setup

• Ask if they have been burned in the past

• Determine the amount of time they have for involvement

• Communicate that fixed everything…y g

– Makes you (the vendor/team/etc) own ALL the risk and this has a cost

– Does not build trust

– Often results in the wrong thing being built

• Be warned: if customers want promises and guarantees – aka fixed everything ‐ this will likely not work




Implementation

1. Build a product backlog

2. Estimate it based on velocity

3. Show what they will get and might not gety g g g

4. Offer the ability to have unlimited change

5. Offer the ability to end the project early


Rules

1. Customer involvement allows us to tune the system to the latest known business value;

2. Any requirement that hasn’t already been worked on can be swapped out for another of equal value;

3. Priority of requirements can be changed by customer;

4. Customer may request additional releases at any time at prevailing time and material fees;

5. Customer may terminate contract early if value has been satisfied for 20% of remaining unbilled contract value





Comparison of 20 Projects with 1000 Function Points

Agile CMM DifferenceSize in Function Points 1,000 1,000 0Size in Java Code Statements 50,000 50,000 0Monthly burdened cost $7,500 $7,500 0

Work hours per month 132 132 0Project staff 5 7 2Project effort (months) 66 115 49Project effort (hours) 8,712 15,180 6,486

Project schedule (months) 14 19 5Project cost $495,000 $862,500 $367,500 Function Points per Month 15.15 8.67 ‐6.46Work hours per function point 8.71 15.18 6.47

LOC per month 758 435 ‐323Function point assignment scope 200 143 ‐57LOC assignment scope 10,000 7,143 ‐2,857C t f ti i t $495 $863 $368


Source: http://www.stsc.hill.af.mil/crosstalk/2008/02/0802Jones.html

Cost per function point $495 $863 $368

Cost per LOC $9.90 $17.25 $7.35 Defect potential 4,250 4,500 250Defect potential per function point 4.25 4.5 0.25Defect removal efficiency 90% 95% 0.50%

Delivered defects 425 225 ‐200High‐severity defects 128 68 ‐60

Scrum Resources

• Local Resources

– http://www.scrumpt.com – local scrum user group

– [email protected]

– Scrumpt yahoo group (wwwyahoogroups com)– Scrumpt yahoo group (www.yahoogroups.com)

• ScrumDevelopment Yahoo Group

– http://www.yahoogroups.com

• My Website: http://www.mitchlacey.com

• Mountain Goat Software

– http://www.mountaingoatsoftware.com/scrum

• Scrum AllianceScrum Alliance

– http://www.scrumalliance.org

• Agile Project Management with Scrum, 2004

• The Enterprise and Scrum, 2007

– Ken Schwaber, Microsoft Press


Documents

Scrum Cost Saving 1.0download.microsoft.com/.../ScrumCostSaving.pdf · Scrum as a Cost Saving Measure, Microsoft Corporation, Lisbon Portugal 20 May ... – New features may be added