Business Value of Agile Methods

1. Business Value ofAgile 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.

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

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.

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% 12.80 32% 9.60 24% Defect Density Percentage 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% 4.00 48% 3.00 36% Code Production Rate Percentage 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) 5 Jones, C. (1991). Applied software measurement: Assuring productivity and quality. New York, NY: McGraw-Hill.

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 33% 41% 26% 2010 32% 44% 24% 2008 $1.4 35% 46% 19% 2006 29% 53% 18% 2004 $1.1 Year Trillions (US Dollars) 34% 15% 51% 2002 $0.7 28% 49% 23% 2000 26% 46% 28% 1998 $0.4 27% 33% 40% 1996 16% 53% 31% 1994 $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. 6

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% Rarely 18% Design 19% Sometimes 28% 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. 7

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 changein order to profit in a turbulent global business environment • The ability to quickly reprioritizeuse of resources when requirements, technology, and knowledge shift • A very fast responseto 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 F E Highsmith, J. A. (2002). Agile software development ecosystems. Boston, MA: Addison-Wesley. 8

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 Multiple comm. channels valued · · Frequent comm. Contract compliance · F more than Close proximity Frequent feedback Contract deliverables · · · Regular meetings Relationship strength · Contract change orders · · Individuals & Interactions Processes valued Leadership Competence Lifecycle compliance · · · more than Boundaries Structure Process Maturity Level · · · Manageability/Motivation Regulatory compliance · · · Empowerment F Working Software Documentation valued Clear objectives Document deliveries · · · Timeboxed iterations F more than Small/feasible scope Valid operational results Document comments · · · Acceptance criteria Regular cadence/intervals Document compliance · · · Responding to Change Project Plans valued · Org. flexibility System flexibility Cost Compliance · · more than · Scope Compliance · · Mgt. flexibility Technology flexibility · Infrastructure flexibility Schedule Compliance · · Process flexibility F Agile Manifesto. (2001). Manifesto for agile software development. Retrieved September 3, 2008, from http://www.agilemanifesto.org 9

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 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 10

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 managementagility Agile Leaders Agile Organization Change Agile Acquisition & Contracting Agile Strategic Planning F E Agile Capability Analysis Agile Program Management Agile Project Management Agile Systems Development Agile Processes & Practices Agile Tools Agile Information Systems Agile Tech.

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.

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 E House, D. (2012). Sixth annual state of agile survey: State of agile development. Atlanta, GA: VersionOne.

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

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.pdfRico, D. F. (2008). What is the ROI of agile vs. traditional methods? TickIT International, 10(4), 9-18. 15

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. 16

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 d1 = [ln(Benefits  Costs) + (Rate + 0.5  Risk2)  Years]  Risk  Years,d2 = d1  Risk  Years 17 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.

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 11 2 . 25 15 1 . 1 1 . 50 10 61% 39% 0 . 75 5 Lower Less F E Cost Staff Project Cost in Millions $ Total Staffing 18 2270 Before Agile Before Agile 20 2500 After Agile After Agile 13 . 5 15 1875 10 1250 381 93% 24% 5 625 Less F E Faster Defects Delivery Time in Months Cumulative Defects Mah, M. (2008). Measuring agile in the enterprise: Proceedings of the Agile 2008 Conference, Toronto, Canada. 18

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 Challenged 29% Failed 49% 9% Standish Group. (2012). Chaos manifesto. Boston, MA: Author. 19

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 Late  1 GUI 2 3  Early ROI No Value  APIs  Lower Costs Cost Overruns  Applications  Fewer Defects Very Poor Quality  Middleware Operating System  Manageable Risk Uncontrollable Risk  Computer  Better Performance Slowest Performance  Network  Smaller Attack Surface More Security Incidents  Seven Wastes Rework Motion Waiting Inventory Transportation Overprocessing Overproduction • 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 MINIMIZES MAXIMIZES 20 Shore, J. (2011). Evolutionary design illustrated. Norwegian Developers Conference, Oslo, Norway.

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. 21

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 Project Shrink Primavera Primavera · · F E 90 people 91,146 Function Points Management Wrapped · · Collocated 7,291,666 Lines of Code · · 4 teams 1,659 User Stories Blood Health · · FDA m 2000 20 people 5,640 Function Points F E Analysis Care · · Collocated 451,235 Lines of Code · · 10 teams 3,947 User Stories Case File Law · FBI Sentinel · F E 50 people 13,419 Function Points Workflow Enforcement · · Collocated 1,073,529 Lines of Code · · 3 teams 390 User Stories Knowledge U.S. · · Stratcom SKIweb 12 people 1,324 Function Points Management DoD · · 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. 22

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 F Undisciplined Cowboy Coding · Rigorous process, plans, requirements, QA, CM, testing, documents etc. F Scalability Only Applies Small Projects · Used by 100, 500, 1,000, 10,000+ person person projects & organizations E Domain Only for Protoperational Systems · Used in DoD, medical devices, avionics, autos, electronics, etc. Management Flexible Scope/Can't Use EVM · Lightweight EVM model is used with its release planning methodology F Requirements Doesn't Use Requirements · Always begins with valuable, well-defined, & prioritized requirements Architecture F Spaghetti Code from Iterations · Begins with lean architecture or create waste-free emergent design F Quality No Documents/Unmaintainable · Electronic plans, requirements, designs, tests, manuals, documents, etc. E Inspections High CoQ from No Inspections · One or two orders of magnitude more inspections & tests performed Security F 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 … þ Systems development approaches þ New product development approaches þ Expertly designed to be fast and efficient þ Intentionally lean and free of waste (muda) þ F E Systematic highly-disciplined approaches þ Capable of producing high quality systems þ Right-sized, just-enough, and just-in-time tools þ Scalable to large, complex mission-critical systems þ 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” 24 Wysocki, R.F. (2010). Adaptive project framework: Managing complexity in the face of uncertainty. Boston, MA: Pearson Education.

25. Books on ROI of SW Methods • Guides to software methods for business leaders • Communicates business value of software methods • Rosetta stones to unlocking ROIofsoftware methods • http://davidfrico.com/agile-book.htm (Description) • http://davidfrico.com/roi-book.htm (Description)