RallyDev.com
Wed 11 Mar 2009
Agile Cuts Costs by a Factor of Four – or More!
An intermediate Agile team with the ability to deliver value incrementally (page 4)
In this scenario, the Agile team has attained “pull” and increased their ability to release incrementally and thus deliver value in an incremental model. The discipline of shortening your time-to-market has a significant impact on software development teams. To learn more about these types of savings, see “Agile Cuts Costs Through Time to Market Improvements.”
As a result, the cash flows for this intermediate Agile team looks as follows:
| Incremental Delivery of Value and 25% More Productive | |||||||
| Q0 | Q1 | Q2 | Q3 | Q4 | Q5 | Total | |
| Value Producing Throughput (income) |
$0 | $300,000 | $550,000 | $750,000 | $750,000 | $750,000 | $3,100,000 |
| Operating Expense (costs) |
$100,000 | $187,500 | $187,500 | $187,500 | $187,500 | $0 | $850,000 |
| Net Profit (per period) |
($100,000) | $112,500 | $362,500 | $562,500 | $562,500 | $750,000 | $2,250,000 |
| Cumulative Net Profit |
($100,000) | $12,500 | $375,000 | $937,500 | $1,500,000 | $2,250,000 | |
As a result of these cash flows, the project would have the follow business impact:
Net profit over 6 quarters $2,250,000 (250% better than waterfall)
ROI over 6 quarters 2.6 (3.4 times better than waterfall)
Net Present Value @ 10% $1,431,236 ($1,113,000 better than waterfall)
Self funding date ~7 months from start of business case (10 months better than waterfall)
Break even date ~ 10 months from start of business case (11 months better than waterfall)
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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