Business Value of Agile Methods Using ROI & Real Options

Dr. David F. Rico, PMP, CSEP, ACP, CSM, SAFe

Twitter : @dr_david_f_rico Website: http://www.davidfrico.com LinkedIn : http://www.linkedin.com/in/davidfrico Agile Capabilities : http://davidfrico.com/rico-capability-agile.pdf Agile Resources : http://www.davidfrico.com/daves-agile-resources.htm Agile 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

Career systems & 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 2 Today’s Whirlwind Environment

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

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 . 3 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. Change 16.00 40%

12.80 32%

9.60 24%

6.40 16% CHANGE

DEFECTS 3.20 8%

0.00 0% 0 2 6 25 100 400 0 2 6 25 100 400 SIZE SIZE Size vs. Productivity Size vs. Success 5.00 60%

4.00 48%

3.00 36%

2.00 24%

1.00 12% SUCCESS

0.00 0% PRODUCTIVITY 0 2 6 25 100 400 0 2 6 25 100 400 SIZE SIZE

Jones, C. (1991). Applied software measurement : Assuring productivity and quality . New York, NY: McGraw-Hill. 4 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 2010 33% 41% 26%

2008 32% 44% 24% $1.4

2006 35% 46% 19%

2004 29% 53% 18% $1.1

2002 34% 51% 15% Year 2000 28% 49% 23% $0.7

1998 26% 46% 28%

Trillions Dollars) (US Trillions $0.4 1996 27% 33% 40%

1994 16% 53% 31% $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. 5 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% 18% Rarely Design 19% 28% Sometimes 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. 2002 Conference, Alghero, Sardinia, Italy . 6 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 change in order to profit in a turbulent global business environment The ability to quickly reprioritize use of resources when requirements, technology, and knowledge shift A very fast response to 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 E

Highsmith, J. A. (2002). Agile ecosystems . Boston, MA: Addison-Wesley. 7 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 • Frequent comm. • Multiple comm. channels valued • Contract compliance • Close proximity • Frequent feedback more than • Contract deliverables • Regular meetings • Relationship strength • Contract change orders

Individuals & Interactions Processes • Leadership • Competence Courage valued • Lifecycle compliance • Boundaries • Structure more than • Process Maturity Level • Empowerment • Manageability/Motivation • Regulatory compliance Working Systems & • Clear objectives • Timeboxed iterations valued • Document deliveries • Small/feasible scope • Valid operational results more than • Document comments • Acceptance criteria • Regular cadence/intervals • Document compliance

Responding to Change Project Plans • Org. flexibility • System flexibility valued • Cost Compliance • Mgt. flexibility • Technology flexibility more than • Scope Compliance • Process flexibility • Infrastructure flexibility • Schedule Compliance

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 8 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 Agile Traditional • Faster 1 2 3 Late • GUI • Early ROI No Value • APIs • • Lower Costs Applications Cost Overruns • Fewer Defects Middleware Very Poor Quality • • Manageable Risk Operating System Uncontrollable Risk • Computer • Better Performance Slowest Performance • Network • • Smaller Attack Surface Seven Wastes More Security Incidents 1. Rework • JIT, Just-enough architecture 2. Motion • Myth of perfect architecture • Early, in-process system V&V 3. Waiting • Late big-bang integration tests • Fast continuous improvement MINIMIZES 4. Inventory MAXIMIZES • Year long improvement cycles • Scalable to systems of systems 5. Transportation • Breaks down on large projects • Maximizes successful outcomes 6. Overprocessing • Undermines business success 7. Overproduction

Shore, J. (2011). Evolutionary design illustrated. Norwegian Developers Conference, Oslo, Norway . 9 Agile Development In-the-Large “Incremental Business Value” Organize needs into capabilities, features, and stories Prioritize features, group releases, and initiate sprints Develop minimum set of features with highest value (for example, assume 25 user stories per feature, 175 user stories per capability/MMF, and 1,225 user stories total ) Capability/MMF #1 Capability/MMF #2 Capability/MMF #3 Capability/MMF #4 Capability/MMF #5 Capability/MMF #6 Capability/MMF #7

● Feature 1 Release ● Feature 8 ● Feature 15 ● Feature 22 ● Feature 29 ● Feature 36 ● Feature 43 ● Feature 2 ● Feature 9 ● Feature 16 ● Feature 23 ● Feature 30 ● Feature 37 ● Feature 44 ● Feature 3 ● Feature 10 Release ● Feature 17 ● Feature 24 ● Feature 31 ● Feature 38 ● Feature 45 ● Feature 4 ● Feature 11 ● Feature 18 ● Feature 25 ● Feature 32 ● Feature 39 ● Feature 46 ● Feature 5 ● Feature 12 ● Feature 19 ● Feature 26 ● Feature 33 Release ● Feature 40 ● Feature 47 ● Feature 6 ● Feature 13 ● Feature 20 ● Feature 27 ● Feature 34 ● Feature 41 ● Feature 48 Release ● Feature 7 ● Feature 14 ● Feature 21 ● Feature 28 ● Feature 35 ● Feature 42 ● Feature 49

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

Evolving “Unified/Integrated” Enterprise “Leased ” DWA/HPC/Cloud Services A A A A A A A B B C B C B C B C B C D D E D E F D E F “Legacy ” MS SQL Server Stovepipes “Inter-Departmental ” Linux Blade/Oracle/Java/WebSphere Server G H I J K

ETL ETL ETL ETL ETL ETL ETL

1 4 7 10 13 16 19

2 3 5 6 8 9 11 12 14 15 17 18 20 21

“Disparate ” L EGACY SYSTEM DATABASES (AND DATA MODELS ) 10 Bente, S., Bombosch, U., & Langade, S. (2012). Collaborative : Enriching EA with lean, agile, and enterprise 2.0 practices . Waltham, MA: Elsevier. Agile Performance Measurement

Burndown Cumulative Flow (Week, Day, Hour) Day, (Week, Hour) Day, (Week, or Effort or Effort or (Story, (Story, Point, Task) (Story, Point, Task) Work Work Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.) Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.)

Earned Value Management - EVM Earned Business Value - EBV CPI

SPI (Week, Day, Hour) Day, (Week, Hour) Day, (Week,

PPC or Effort or Effort or

APC (Story, (Story, Point, Task) (Story, Point, Task) Work Work Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.) Time Unit (Roadmap, Release, Iteration, Month, Week, Day, Hour, etc.) 11 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 . Fairfax, VA: Gantthead.Com. 12 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

5 ∑ i =1

d1= [ln(Benefits ÷ Costs) + (Rate + 0.5 × Risk 2) × Years] ÷ Risk × √ Years, d2= d1 − Risk × √ Years

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. 13 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 Before Agile 18 Before Agile 3.00 20 After Agile After Agile 11 2.25 15 1.1 1.50 10

0.75 61% 5 39% Lower Less Cost Staff Project Cost in Millions $ Total Staffing E 18 2270 Before Agile Before Agile 20 2500 13.5 After Agile After Agile 15 1875

10 1250 381 93% 5 24% 625 Less Faster Defects Delivery Time in Months Cumulative Defects E

Mah, M. (2008). Measuring agile in the enterprise: Proceedings of the Agile 2008 Conference, Toronto, Canada . 14 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 Failed Challenged 29% 9% 49%

Standish Group. (2012). Chaos manifesto . Boston, MA: Author. 15 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. 16 Agile Adoption

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

● ● Continuous ● Integration ● ● ● ● ● ●

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

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 )

E E

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

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 Agile in Government

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 GOVERNMENT AGILE JOB GROWTH GOVERNMENT COMPETITIVENESS 13,000% High ERCENTAGE P OMPETITIVENESS C

0 Low 2006 YEARS 2013 Low AGILITY High

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 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.

Industry Org Project Purpose Size Metrics • • Electronic 20 teams 1,838 User Stories Google Adwords Advertising • 140 people • 6,250 Function Points Commerce • 5 countries • 500,000 Lines of Code • • Shrink Project 15 teams 26,809 User Stories Primavera Primavera • 90 people • 91,146 Function Points Wrapped Management • Collocated • 7,291,666 Lines of Code E • • Health Blood 4 teams 1,659 User Stories FDA m2000 • 20 people • 5,640 Function Points Care Analysis • Collocated • 451,235 Lines of Code E • • Law Case File 10 teams 3,947 User Stories FBI Sentinel • 50 people • 13,419 Function Points Enforcement Workflow • Collocated • 1,073,529 Lines of Code E • • U.S. Knowledge 3 teams 390 User Stories Stratcom SKIweb • 12 people • 1,324 Function Points DoD Management • 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. 20 (with DEVOPS)

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

3,645x Faster E U.S. DoD IT Project

62x Faster U.S. DoD IT Project

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

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

TYPE METRIC MANUAL DEV OPS MAJOR GAINS Build Time 40 Hours 3 Hours 13 x CYCLE TIME No. Builds 1-2 per Day 10-15 per Day 8 x IMPROVEMENTS Feedback 1 per Day 100 per Day 100 x Regression Testing 240 Hours 24 Hours 10 x Integration 10% 2% 5 x Planning 20% 5% 4 x DEVELOPMENT Porting 25% 15% 2 x COST EFFORT 5 x DISTRIBUTION Support 25% 5% Testing 15% 5% 3 x Innovation 5% 40% 8 x

Gruver, G., Young, M. & Fulghum, P. (2013). A practical approach to large-scale agile development . Upper Saddle River, NJ: Pearson Education. 22 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 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 E Prioritize Identify highest-priority, value-adding business needs Focus resources E Descope Descope complex programs by an order of magnitude Simplify problem E Decompose Divide the remaining scope into smaller batches Manageable pieces E 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 E Collaborate Use frequent informal communications as often as possible Efficient data transfer E Test Early Incrementally test each component as it is developed Early verification E Test Often Perform system-level regression testing every few minutes Early validation E Adapt Frequently identify optimal process and product solutions Improve performance

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 23 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 ) 24 Dave’s Professional Capabilities

Organization Government Government Cost Systems Change Acquisitions Contracting Estimating Engineering

BPR, IDEF0, Innovation & DoDAF Management Valuation — Cost-Benefit Analysis, B/CR, ROI, NPV, BEP, Real Options, etc.

CMMI & Evolutionary ISO 9001 Technical Software Project Development Quality PSP, TSP, & Mgt. Methods Mgt. Research Code Reviews Methods

Lean-Agile — Scrum, SAFe, & Delivery, DevOps, etc. DoD 5000, Statistics, CFA, TRA, & SRA EFA, & SEM

Lean Six Metrics, Workflow Big Data, Kanban Sigma Models, & SPC Automation Cloud, NoSQL

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 ). ● 32 Y EARS Data-mining/analysis . Collect facts ( then report findings ). PMP , CSEP , ● IN IT Simplification . Communicating complex ideas ( in simple terms ). ACP , CSM , ● INDUSTRY Git-r-done . Prefer short, high-priority tasks ( vs. long bureaucratic projects ). & S AFE ● Team player . Consensus-oriented collaboration ( vs. top-down autocratic control ). 25