Scrum and Agile in a Fixed Price Project Environment

A lot of people have been writing that they like what they read and hear about Agile and Scrum. They then give presentations to their senior management about Agile and they seem to like what they read and hear too. However, the biggest stumbling block is fixed-cost environment. This is primarily true for almost all services companies [and these outnumber new product development companies by a margin - my guess]. An amount of funding is bid for at the start of a project. The problem is how to come to a number for these bids.

Here are a couple of approaches to tackle this [which work for me]:

Approach One : Try using Scrum as a management tool without changing your current bidding structure. Once the team has experience with Scrum, then you should have some metrics collected. The team(s) should have an idea about their velocity and more people involved at bidding stage [think of planning for a fixed-cost project as any other Scrum planning session], the team should be able to give a good estimate for the first 2-3 sprints, even for the full
project if that is what’s required. More importantly, they will ask the Product Owner/ Manager/ Client very pertinent and relevant question about priority and testing to evaluate the story. The fixed costs are based on the knowledge you have at time of planning, so you can post these on the contract too. As time goes by, and your sprints commence, the requirements will change and so will your estimates. You can negotiate them using the existing negotiation framework. However, at the end of your budget [fixed price], the product should have these functions implemented that she wanted the most.

Approach Two : Try bidding low, not in price but what are you able to give to the customer as well as be aggressive on the date when you can launch the product. Most customers and product owners/ managers would give their right leg for the same. Try it on a low risk project/ low risk client [one where you have an option of trying]. If you are bidding low, chances of getting the bid right are higher [again that's just my guess]

You may also like to read Myths about Agile Software Development and Scrum, Agile Collaboration Schemas, Agile Contracts, Contracts in Agile, Business View, Learning and Evolution and Agile Estimating.

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One Response to “Scrum and Agile in a Fixed Price Project Environment”

  1. Phu Nguyen Says:

    Hi,
    Thank you for your post.

    I’m finding a suitable approach to apply Scrum methodology for our project development. Just some questions after reading this post, if you’re interested in, we can discuss more.

    In the first approach, I really like your way. But while you don’t have any guarantee of project winning chance, just wonder if it would take us much time to carry out planning for the project? And it may not bring us profit.

    For the second approach, I think it should be experimented more to have a exact evaluation.

    Thanks again,
    Phu

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