Alternative

Billing Models

Dr. Wolfgang Richter - JIPP.IT GmbH

Competence Center for Agile Software Development

Neugasse 111, 8200 Gleisdorf

Austria

Tel: +43 (0)3112 90 300 | office@jipp.it

www.jipp.it

About the speaker

Dr. Wolfgang Richter

Agile CEO, Coach, and Trainer; MSc., PMP, CSM, CSPO, CSP, ZIM, CC-I, NLP-P

• 20 years of work experience in USA, Australia, Europe, incl. Out-sourcing to China, India, Eastern Europe

• Studies in Telecommunications, Informatics, Economics, Psychology

• Master in Telecommunications and Informatics (CRM, PM)

• PhD in Informatics (Org.Dev., PM, Agile Methods)

• Extended education/certificates in Project/Program Management, Change Management, Requirements Analysis/Management, Customer Relationship Management, Innovation Management, Organizational Structures, Agile Methods, Business Support Systems, Business Process Design;

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JIPP.IT References

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See more at: http://www.jipp.it/references

Agenda

• Overview of Billing Models

• Main criteria - Triangle to Diamond

• Alternative Concepts

• Pros and Cons

Billing

We are talking about:

“How to find a common payment and billing structure for

hours worked and accomplishments in terms of e.g.

deliverables, considering contractual, legal, standard-

related, and other factors, to progress through a common

endeavour from an economic standpoint.”

Billing Models

• From

• Fixed Price

• Time&Material (T&M)

• to

• Provisions and Accomplishments (P&A)

• Money for nothing, Change for free (MC)

• All or Nothing

Quality

Scope

Time Budget

Scope

TimeCost

Quality

Expectations

Fixed Price and T&M

Fixed Price:

• Budget fixed

• Risk mainly on contractor side

Time&Material (T&M):

• Invoiced based on Time and Material

• Risk mainly on client side

Common:

• Often complex Change Request Processes

• Time and Scope often expected to be fixed, too

• Sometimes quality as control mechanism

• Penalties

Quality

Scope

Time Budget

Model „Provisions and Accomplishments“

Concept:

• Low(er) guaranteed T&M rate

(Provisions)

• Bonus on reaching success criteria

(Accomplishments)

Model „Money for nothing, Change for free“

Concept:

• Cost-Driven Fixed Profit Model

• Invoiced on T&M rates or other model

• Unstarted features can be ex-changed

against other features of same complexity

• Project can be stopped by the client anytime,

e.g. due to sufficient functionality delivered.

• Remaining budget will be distributed

amongst involved parties (client, contractor)

All or Nothing

Concept:

• Contractor payed on T&M rates per Sprint

• Client can deny payments for up to defined

maximum number of Sprints

• Contractor stops deliverables if maximum

number of Sprints without payments is

exceeded

• Unstarted features can be ex-changed

against other features of same complexity

• Project can be stopped by the client anytime,

e.g. due to sufficient enough functionality

delivered.

• Remaining budget will be distributed

amongst involved parties (client, contractor)

Model Comparison

Fixed

Price

T&M P&A MC All or

Nothing

Budget Fixed Time/material-

based rate

with flexible

Budget

Fixed Fixed Capped or

flexible

Time Potentially

fixed

Fixed or

flexible

Potentially

fixed (either)

Flexible Fixed or

flexible

Scope Potentially

fixed

Potentially

fixed

Potentially

fixed (or)

Flexible Flexible

Quality Result Result Fixed Fixed Fixed

Expectations Contractual Contractual Adjustable Adjustable Adjustable

Strategies

2. Agreement on Countable Items

3. Evaluation of Velocity

4. Definition of Check-Points

5. Definition of Exit-Criteria

6. General Agreements

Provisions and

Accomplishments:

1. Definition of

“Provisions”

Money for nothing,

Change for free:

1. Definition of Product

Backlog

All or Nothing:

1. Definition of “All” and

“Nothing”

Step 1 – Provisions and Accomplishments

Definition of „Provisions“

a. Definition of low(er) guaranteed T&M rate

(per Sprint)

b. Definition of bonus based on Velocity

c. Definition of obligations of client and

contractor regarding Provisions and bonus

Step 1 – Money for nothing, Change for free

Definition of Product Backlog

a. Definition of Epics

b. Definition of User Stories, as far as

meaningful

c. High-level estimation of Epics and User

Stories (e.g. T-Shirt sizes, Story Points, …)

d. Definition of dates for deliverables

e. Definition of Budget

f. Agreement on collaboration between client

and contractor

g. Compensation of analysis-phase based on

T&M

Step 1 - All or nothing

Definition of „All“ and „Nothing“

a. Definition of T&M rate per Sprint

b. Definition of maximum number of Sprints

without payments

Step 2 – All Models

a. Functionality

b. (Cost of) Delays

c. Bugs

d. Absences

e. …

Agreement on Countable Items

Step 3 – All Models

P&A:

a. Duration 3 to 5

Sprints

b. Execution of Sprints

based on full T&M

rate

c. Definition of

Velocity at the end

of theses Sprints

d. Definition of

success criterias for

bonus payments

(Accomplishments)

Evaluation of Velocity

All or Nothing:

a. Duration 3 to 5

Sprints

b. Definition of

Velocity at the end

of these Sprints

MC:

a. Duration 3 to 5

Sprints

b. Definition of

Velocity at the end

of these Sprints

Step 4 – All Models

a. Retrospectives about collaboration

b. Reviews of deliverables

c. Validation of idle-time, delays, and waiting

periods

d. Validation of reporting schemes

e. Validation of defects

Definition of Check-Points

Step 5 – All Models

a. Identification of potential risk for the client

b. Definition of exit-criteria for the client

c. Identification of potential risks for the

contractor

d. Definition of exit-criteria for the contractor

Definition of Exit Criteria 1/2

Step 5 – All Models

P&A:

-

Definition of Exit Criteria 2/2

All or Nothing:

a. Definition of instalment

for the contractor on exit

of the client

b. Definition of exit-criteria

„no further payment

expected“

c. Definition of exit-criteria

„quality sucks“

d. Definition of budget

distribution in case of exit

based on „sufficient

functionality“

MC:

a. Definition of instalment

for the contractor on exit

of the client

b. Definition of exit-criteria

„sufficient/enough

functionality“

c. Definition of budget

distribution in case of exit

based on „sufficient

functionality“

Step 6 – All Models

a. Duration of project/collaboration

b. Knowledge-transfer

c. Warranty

d. …

Definition of General Agreements

Model „Provisions and Accomplishments“

Pros Cons

Motivation to keep pace Based on Velocity

Transparency Complex with multiple teams

Collaboration required Scope-creep possible

Simple with single teams Contractor stuck in just provisions

payments

Can start without comprehensive

requirements definition

Volume-based

Model „Money for nothing, Change for free“

Pros Cons

Motivation to keep pace Disagreements about complexity

possible

Transparency More comprehensive requirements

elicitation required

Collaboration required Requires estimation

Value based Analysis-phase required

Runs well with multiple teams

Should avoid exhausting

discussions about change requests

Model „All or Nothing“

Pros Cons

Motivation to keep pace Disagreements about quality

possible

Transparency Idle time for contractor teams

possible

Collaboration required Subjective values can influence

progress/project

Value and quality based

Runs well with multiple teams

Can prevent exhausting discussions

about change requests

Simple

Summary

• Well known models are established and commonly understood

• Alternative models require a paradigm shift in certain areas

• Well known models require sometimes ideal environments

• Alternative models require trust

• Well known models can work in agile environments

• Alternative models need a different definition of „value“ and

understanding of profit

• Well known models usually formalize expectations in form of contracts

• Alternative models allow expectations to be adjusted

• Both approaches do have a raison d'être and are situative

JIPP.IT GmbHCompetence Center for Agile Software Development

Tel: +43 (0)3112 90 300 | office@jipp.it

Dr. Wolfgang Richter

Tel.: +43 (0) 664 4423884

Email: wolfgang.richter@jipp.it

Web: http://www.jipp.it

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