Too many technology projects fail to deliver the promised value, and some do not deliver at all. Traditional project management methods when applied to software initiatives continue to frustrate financial professionals and offer poor risk mitigation. In the current economic environment, businesses are forced to reduce their capital budgets and cannot afford to make significant investments without more certainty of appropriate return.

• 30-40% of systems projects fail prior to completion1
• Half of all systems projects overrun their budgets and schedules by 200% or more1
• 64% of features are rarely or never used2

• Reduce cash tied up in work-in-process
• Reduce project risk
• Reduce overall project investment

• Lack of enough information upfront to make effective large and detailed scope decisions
• Inaccurate estimates and schedules
• Unplanned change
• Scope and focus drift

• Spend more and wait longer (further increase risk) or

• Take the hit and kill the project

  

• Fail fast and stop early
• Succeed early and increase project investment
• Shift funds from lower to higher value projects

Unlike the Waterfall process where the cash is locked up until the end of the project, an Agile project is broken into smaller deliverable "chunks".  The goal is to get value from delivery as early as possible in the process.  Once the value recognition begins, the project starts to pay for itself.  With subsequent releases, value compounds, increasing the cash generated by the project and reducing the amount of net cash required to support the ongoing development.  Therefore, the overall cash investment necessary to fund an Agile project can be dramatically lower than what is necessary for a waterfall project if releases start early and occur frequently.

In the above diagram you can see that in the Agile project cash investment increases during the first iteration of development. In this example, the aggregate cash investment does not increase during the second iteration because cash resulting from the first release offsets the development costs. Thereafter the aggregate cash investment continues to be reduced as additional value is received from subsequent releases. Project cash flow more than covers ongoing development costs.  By the fourth release, the net cash investment is zero and the project is starting to generate net positive cash flow to the company.  At this point in the waterfall project, no cash has been received and the overall investment continues to climb.

Frequent releases allow the business to realize a return faster, frequently so that the business receives value sooner and realizes a return faster.  This reduces work-in-process and frees up cash, conserving capital. This capital can be invested or accelerate another project.

Let's compare the traditional approach versus an Agile approach:

More frequent releases mean more opportunities throughout the life of the project to use current market information to shape the project design and outcome.  This greatly expands project management options to change features based on real time information.  The business gains flexibility in managing the project portfolio and has the opportunity to make strategic and tactical changes at known intervals. The business can now choose to:

• Expand scope by adding new features thereby accelerating received business value.
• Reduce scope and decrease project investment.
• Reprioritize features.

With heavy design up front and a "big bang" release, traditional projects are designed to be larger and  will take more time to complete. With a fixed capital budget, larger projects mean fewer projects. When no return is available until the waterfall process is complete, longer projects increase the likelihood that no return will be obtained during the annual budget cycle. This leads to fewer investments and limited opportunity to offset losing projects with winning projects. Unlike the stock market where you can actively manage your stock portfolio on a daily basis, using a traditional approach limits the kinds of changes you can make without jeopardizing what you have already invested.

With an Agile portfolio approach, the business can break down long-term projects into short-term projects. This provides more frequent opportunities to both evaluate and adjust investments so that you can:

• Adjust portfolio on the basis of market changes and customer feedback
• Actively reprioritize the project portfolio.
• Reallocate funds to stronger performers.

• Increased diversification with more and smaller projects.
• Ability to monitor and manage performance within the budget cycle.
• Redirecting funds from losers to winners every few weeks.
• Optimizing the portfolio within the budget cycle.

• Wider adoption of Agile practices among Fortune 1000 companies.
• 75-80% of IT organizations use some Agile practices.
• 15-25% of organizations have established a repeatable Agile process.

Comments (1)

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written by Mike W Jones, July 06, 2009

Nice article. Another key aspect of going Agile is what I like to call the 'innovation' factor. For many traditional project managers, the thought that your business users were going to get 'innovative' meant big problems like rework, scope creep and budget overruns. In Agile, the process actually encourages feedback and innovation with the result delivering a much higher RoI and happy business users - not so common with traditional waterfall processes.

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