Business Value of

Agile MethodsUsing ROI & Real OptionsDr. David F. Rico, PMP, CSEP, ACP, CSM, SAFe

Twitter: @dr_david_f_ricoWebsite: http://www.davidfrico.com

LinkedIn: http://www.linkedin.com/in/davidfricoAgile Capabilities: http://davidfrico.com/rico-capability-agile.pdf

Agile Resources: http://www.davidfrico.com/daves-agile-resources.htmAgile Cheat Sheet: http://davidfrico.com/key-agile-theories-ideas-and-principles.pdf

Author Background

� Gov’t contractor with 32+ 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

�Career systems & software engineering methodologistCareer systems & software engineering methodologistCareer systems & software engineering methodologistCareer systems & software engineering methodologist� Lean-Agile, Six Sigma, CMMI, ISO 9001, DoD 5000� NASA, USAF, Navy, Army, DISA, & DARPA projects� Published seven books & numerous journal articles� Intn’l keynote speaker, 130+ talks to 12,000 people� Specializes in metrics, models, & cost engineering� Cloud Computing, SOA, Web Services, FOSS, etc.� Adjunct at five Washington, DC-area universities

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Today’s Whirlwind Environment

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•Overruns•Attrition•Escalation•Runaways•Cancellation

GlobalCompetition

DemandingCustomers

OrganizationDownsizing

SystemComplexity

TechnologyChange

VagueRequirements

Work LifeImbalance

•Inefficiency•High O&M•Lower DoQ•Vulnerable•N-M Breach

ReducedIT Budgets

81 MonthCycle Times

RedundantData Centers

Lack ofInteroperability

PoorIT Security

OverburdeningLegacy Systems

ObsoleteTechnology & Skills

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.

Traditional Projects

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� 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

DEFECTS

0.00

3.20

6.40

9.60

12.80

16.00

0 2 6 25 100 400

SIZE

Size vs. Productivity

PRODUCTIVITY

0.00

1.00

2.00

3.00

4.00

5.00

0 2 6 25 100 400

SIZE

Size vs. Change

CHANGE

0%

8%

16%

24%

32%

40%

0 2 6 25 100 400

SIZE

Size vs. SuccessSUCCESS

0%

12%

24%

36%

48%

60%

0 2 6 25 100 400

SIZE

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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 (US Dollars)

Expenditures Failed Investments

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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

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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 changerespond to changerespond to changerespond to change in order to profit in a turbulent global business environment

� The ability to quickly reprioritizequickly reprioritizequickly reprioritizequickly reprioritize use of resources when requirements, technology, and knowledge shift

� A very fast responsefast responsefast responsefast response to sudden market changes and emerging threats by intensive customer interactioncustomer interactioncustomer interactioncustomer interaction

� Use of evolutionaryevolutionaryevolutionaryevolutionary, incrementalincrementalincrementalincremental, and iterativeiterativeiterativeiterative delivery to converge on an optimal customer solution

� Maximizing BUSINESS VALUEBUSINESS VALUEBUSINESS VALUEBUSINESS 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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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 Systems & Software

Individuals & Interactions

Responding to Change

valuedmore than

valuedmore than

valuedmore than

valuedmore 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

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Courage

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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 Traditional1 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. Rework2. Motion3. Waiting4. Inventory5. Transportation6. Overprocessing7. 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

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Capability/MMF #1

●Feature 1

●Feature 2

●Feature 3

●Feature 4

●Feature 5

●Feature 6

●Feature 7

Capability/MMF #2

●Feature 8

●Feature 9

●Feature 10

●Feature 11

●Feature 12

●Feature 13

●Feature 14

Capability/MMF #3

●Feature 15

●Feature 16

●Feature 17

●Feature 18

●Feature 19

●Feature 20

●Feature 21

Capability/MMF #4

●Feature 22

●Feature 23

●Feature 24

●Feature 25

●Feature 26

●Feature 27

●Feature 28

Capability/MMF #5

●Feature 29

●Feature 30

●Feature 31

●Feature 32

●Feature 33

●Feature 34

●Feature 35

Capability/MMF #6

●Feature 36

●Feature 37

●Feature 38

●Feature 39

●Feature 40

●Feature 41

●Feature 42

Capability/MMF #7

●Feature 43

●Feature 44

●Feature 45

●Feature 46

●Feature 47

●Feature 48

●Feature 49

1

2 3

4

5 6

7

8 9

10

11 12

13

14 15

16

17 18

19

20 21

Evolving “Unified/Integrated” Enterprise Data Model

“Disparate” LEGACY SYSTEM DATABASES (AND DATA MODELS)

ETL

A A

B C

D E F

G H I J K

A

B C

D E F

A

B C

D E

A

B C

D

A

B C

A

B

“Legacy” MS SQL Server Stovepipes “Inter-Departmental” Linux Blade/Oracle/Java/WebSphere Server

“Leased” DWA/HPC/Cloud Services

Sprint 1 Sprint 2 Sprint 3 Sprint 4 Sprint 5 Sprint 6 Sprint 7

Release

Release

Release

Release

ETL ETL ETL ETL ETL ETL

Bente, S., Bombosch, U., & Langade, S. (2012). Collaborative enterprise architecture: Enriching EA with lean, agile, and enterprise 2.0 practices. Waltham, MA: Elsevier.

Agile Development In-the-Large“Incremental Business Value”

(for example, assume 25 user stories per feature, 175 user stories per capability/MMF, and 1,225 user stories total)

� Organize needs into capabilities, features, and stories� Prioritize features, group releases, and initiate sprints� Develop minimum set of features with highest value����

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Agile Performance MeasurementWork (

Sto

ry,

Poin

t, T

ask)or Effort (

Week, D

ay,

Hour)

Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.)

Burndown

Work (

Sto

ry,

Poin

t, T

ask)or Effort (

Week, D

ay,

Hour)

Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.)

Cumulative Flow

Work (

Sto

ry,

Poin

t, T

ask)or Effort (

Week, D

ay,

Hour)

Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.)

Earned Value Management - EVMCPI

SPI

PPC

APC

Work (

Sto

ry,

Poin

t, T

ask)or Effort (

Week, D

ay,

Hour)

Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.)

Earned Business Value - EBV

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

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Rico, D. F. (2012). The Cost of Quality (CoQ) for Agile vs. Traditional Project Management. Fairfax, VA: Gantthead.Com.

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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

13Rico, 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

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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%LowerCost

Total Staffing

18

11

Before Agile

After Agile

39%LessStaff

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%LessDefects

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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%

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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

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Agile Adoption

17Holler, R. (2015). Ninth annual state of agile survey: State of agile development. Atlanta, GA: VersionOne.

� VersionOne found 94% using agile methods today� Most are using Scrum with several key XP practices� Lean-Kanban is a rising practice with a 31% adoption

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Continuous

Integration

●

●

●

●

●

●

●

●

●

●

●

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●

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Agile Proliferation

Scrum Alliance. (2013). Scrum certification statistics. Retrieved April 28, 2015, from http://www.scrumalliance.org

Taft, D. K. (2012). Agile developers needed: Demand outpaces supply. Foster City, CA: eWeek. 18

� Number of CSMs have doubled to 400,000 in 4 years� 558,918 agile jobs for only 121,876 qualified people� 4.59 jobs available for every agile candidate (5:1)����

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Projected

Projected

* PMI-PMPs grew from 552,977 to 625,346 in 2014 (i.e., added 72,369)

Agile in Government

Suhy, S. (2014). Has the U.S. government moved to agile without telling anyone? Retrieved April 24, 2015, from http://agileingov.com

Porter, M. E., & Schwab, K. (2008). The global competitiveness report: 2008 to 2009. Geneva, Switzerland: World Economic Forum. 19

� U.S. gov’t agile jobs grew by 13,000% from 2006-2013� Adoption is higher in U.S. DoD than Civilian Agencies� GDP of countries with high adoption rates is greater����

High

Low

Low HighAGILITY

COMPETITIVENESS

GOVERNMENT AGILE JOB GROWTH

PERCENTAGE

13,000%

0

2006 2013YEARS

GOVERNMENT COMPETITIVENESS

Agile Industry Case Studies

� 84% of worldwide IT projects use agile methods� Includes regulated industries, i.e., DoD, FDA, etc.� Agile now used for safety critical systems, FBI, etc.

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Industry

ShrinkWrapped

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.

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� Assembla went from 2 to 45 releases every month� 15K Google developers run 120 million tests per day� 30K+ Amazon developers deliver 8,600 releases a day

21Singleton, A. (2014). Unblock: A guide to the new continuous agile. Needham, MA: Assembla, Inc.

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62x Faster

U.S. DoD

IT Project

3,645x Faster

U.S. DoD

IT Project

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Continuous Delivery (with DEVOPS)

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� Hewlett-Packard is a major user of CI, CD, & DevOps� 400 engineers developed 10 million LOC in 4 years� Major gains in testing, deployment, & innovation

Gruver, G., Young, M. & Fulghum, P. (2013). A practical approach to large-scale agile development. Upper Saddle River, NJ: Pearson Education.

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TYPE METRIC MANUAL DEVOPS MAJOR GAINS

CYCLE TIME

IMPROVEMENTS

Build Time 40 Hours 3 Hours 13 x

No. Builds 1-2 per Day 10-15 per Day 8 x

Feedback 1 per Day 100 per Day 100 x

Regression Testing 240 Hours 24 Hours 10 x

DEVELOPMENT

COST EFFORT

DISTRIBUTION

Integration 10% 2% 5 x

Planning 20% 5% 4 x

Porting 25% 15% 2 x

Support 25% 5% 5 x

Testing 15% 5% 3 x

Innovation 5% 40% 8 x

Cont. Delivery (Hewlett-Packard)

Conclusion

� Agile methods DON’T mean deliver it now & fix it later� Lightweight, yet disciplined approach to development� Reduced cost, risk, & waste while improving quality

23

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

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Books on ROI of SW Methods

� Guides to software methods for business leaders� Communicates the business value of IT approaches� 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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Dave’s Professional Capabilities

25

Software

Quality

Mgt.

Technical

Project

Mgt.

Software

Development

Methods

Organization

Change

Systems

Engineering

Cost

Estimating

Government

Contracting

Government

Acquisitions

Lean

Kanban

Big Data,

Cloud, NoSQL

Workflow

Automation

Metrics,

Models, & SPC

Six

Sigma

BPR, IDEF0,

& DoDAF

DoD 5000,TRA, & SRA

PSP, TSP, &Code Reviews

CMMI &ISO 9001

Innovation

Management

Statistics, CFA,EFA, & SEM

ResearchMethods

EvolutionaryDesign

Valuation— Cost-Benefit Analysis, B/CR, ROI, NPV, BEP, Real Options, etc.

Lean-Agile— Scrum, SAFe, Continuous Integration & Delivery, DevOps, etc.

STRENGTHS – Data Mining •••• Gathering & Reporting Performance Data •••• Strategic Planning •••• Executive & Manage-

ment Briefs •••• Brownbags & Webinars •••• White Papers •••• Tiger-Teams •••• Short-Fuse Tasking •••• Audits & Reviews •••• Etc.

● Action-oriented. Do first (talk about it later).

● Data-mining/analysis. Collect facts (then report findings).

● Simplification. Communicating complex ideas (in simple terms).

● Git-r-done. Prefer short, high-priority tasks (vs. long bureaucratic projects).

● Team player. Consensus-oriented collaboration (vs. top-down autocratic control).

PMP, CSEP,ACP, CSM,& SAFE

32 YEARSIN IT

INDUSTRY