RallyDev.com
Wed 11 Mar 2009
Agile Cuts Costs by a Factor of Four – or More!
The waterfall team with average productivity (page 2)
This is a good software team producing 100 story points with typically 20% of “always used” software features that are worth $100,000 of value per “always used point” with a team of 10 at $100,000/year. It will take this team 12 months to run through all the waterfall phases to ship this product. In addition, four people working for 3 months will pull together the business case and high level-requirements necessary to prove the business case and get through the first stage gate of development. For simplicity, these folks also cost $100,000/year.
As a result, the cash flows for this waterfall team looks as follows:
| Waterfall – Not Agile | |||||||
| Q0 | Q1 | Q2 | Q3 | Q4 | Q5 | Total | |
| Value Producing Throughput (income) |
$0 | $0 | $0 | $0 | $0 | $2,000,000 | $2,000,000 |
| Operating Expense (costs) |
$100,000 | $250,000 | $250,000 | $250,000 | $250,000 | $0 | $1,100,000 |
| Net Profit (per period) |
($100,000) | ($250,000) | ($250,000) | ($250,000) | ($250,000) | $2,000,000 | $900,000 |
| Cumulative Net Profit |
($100,000) | ($350,000) | ($600,000) | ($850,000) | ($1,100,000) | $900,000 | |
As a result of these cash flows, the project would have the follow business impact:
Net profit over 6 quarters $900,000
ROI over 6 quarters 0.8
Net Present Value @ 10% $317,614.80
Self funding date ~17 months from start of business case
Break even date ~ 21 months from start of business case
Thanks for this excellent post.
I’m sure a lot of Project Managers out there will strongly disagree with you (I wonder how come no one commented on this post yet), Agilists, of course, will definitely agree.
I’m not going to discuss the charts or the numbers, but I have to say that cutting costs by 4-6-8-10 is no easy thing, and I don’t think it should be attributed to the methodology (alone), the Project Manager and the Project Team should have the lion’s share of the credit for such achievement.
PM Hut – I totally agree! – truly going agile versus adopting agile in name only is not just a change in process. It takes the whole team and organization to get 4 to 10X better productivity and it changes everything including strategy, organization, enabling technology and process. The point of my post was to show that the managerial economics are possible using document changes observed in large, scale distributed teams.
I hope that helps?
Ryan
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