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Agile Pricing Models
Luxoft Agile Practice webinarby Sergey Prokhorenko
17 Aug 2016
www.luxoft.com
Sergey Prokhorenko
Agile coach, head of Luxoft Agile Practice
sergeyprokhorenko
www.luxoft.com
Session Plan
Difference between a delivery model and a pricing approach
Common pricing models for Agile projects
Delivery and billing approach for Agile fixed price
Choosing specific model for the particular engagement phase
Q&A
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Top 4 Client Problems
Never45%
Rarely19%
Sometimes16%
Often13%
Always7%
Actual use of requested features
Source: The CHAOS Manifesto, The Standish Group, 2011
1. PAYING FOR THE WRONG THINGS
50% of money are spent on features which are never or rarely used by real users
2. ALWAYS LATE WITH THE THINGS WE REALLY NEED
Engineers tend to reinventing the wheel and focusing on interesting engineering stuff instead of business
priorities
3. TOO EXPENSIVE TO MAKE EVEN LITTLE CHANGES
Long change cycles due to complicated change management procedures which consumes time and money
4. DIFFICULT TO UNDERSTAND WHERE WE ARE RIGHT NOW
Client is overburden with different reports but have no clue of real progress in terms of working
features
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Perception of Agile as a Silver Bullet
Source: Developing Modern Applications With Agile Outsourcing, Forrester Research, 2014
Addressing Agile AD&M challenges…
Doing right things for business Change for free Clear progress Cross-functional teams
…while following non-Agile SVM restrictions*
Greater vendor accountability Fixed scope Ring-fenced change Shared resource models
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Common Engagement Models
Outstaffing (“Cost+”)
BOT (Build-Operate-Transfer)
Team Extension
Managed Delivery
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Top Agile Contracting Frameworks @ Luxoft T&M
“Plain vanilla” T&M
T&M NTE (not-to-exceed)
Good for initial stages (build trust)
Measurement unit: man-day
Fixed Capacity (Agile Pod)
T&M-like pricing, but packaged for a team
Vendor responsibility for strong team building
Good for long-term projects with sustainable requirements flow
Measurement unit: team-sprint (for fully functional team)
FP per Work Unit
Output-based pricing
Vendor margin is based on performance
Best risk management approach for client
Measurement unit: story point (aligned with pre-agreed Definition of Done)
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T&M and T&M NTE
Pros• Least formal contracting
framework• Easy scaling• Good for team extension
model
Cons• Vendor is not accountable for
result• Uncontrollable spending (for
standard T&M)• Low-level engagement with
lower margin
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Fixed Capacity (Agile Pods) Fixed price per team
Minimum team setup is defined upfront (e.g. 3x senior Java developers, 1x QA/BA, 1x BA/QA – one of them plays Scrum Master role)
Team minimal target velocity is agreed in SoW
Definition of Ready and Definition of Done is contracted (if needed)
Billing for every complete cross-functional team (T&M rates + extra margin to cover team forming stage and attrition risks) per sprint or several sprints
If team becomes dysfunctional due to attrition (falls under minimal target velocity), vendor is responsible for hiring and training new people, otherwise team isn’t billed
Not fully managed delivery, as delivery risks stay on the client side
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Fixed Price per Work Unit (Story Point)
Definition of “done” and acceptance scenarios agreed before development
Features are demonstrated to customer only if 100% done and meet acceptance criteria
Indicative sizes of user stories (in Story Points) are included into SoW
Features are billed after UAT closed
Monthly payments based on estimates of features accepted within previous billing period
Client is responsible for providing backlog according to Definition of Ready
Feature A Feature B Feature C
…
Feature Z
Sprint planning
Feature A (100% done)
Prioritized backlog
Fixed sprint duration (2 weeks) Demo
(100% done features only)
Feature A
Feature B(100% done)
Feature C (85% done)
Feature B
UAT (1-2 weeks)
Feature A
Feature B
Issues and change requests are added to product backlog
DoR DoD
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Forming Initial Backlog – Product Discovery Workshop
Identification of key user roles Story mapping and identification
of key functional scenarios Forming of product backlog based on user
story maps Relative sizing of user stories in a backlog Identification of acceptance criteria
for top priority stories Predicting team velocity and planning
of first development sprint Release roadmap
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36% OF FEATURES ARE REALLY USED BY BUSINESS CUSTOMERS
AGILE (BUSINESS VALUE-ORIENTED)
Feature A Feature B Feature C
…Feature Z
“Big Bang” acceptance
Never45%
Rarely19%
Some-times16% Often
13% Always7%
WATERFALL (PLAN-ORIENTED)
Source: The CHAOS Manifesto, The Standish Group, 2011
Never
10%
Rarely10%
Sometimes27% Often
24%
Al-ways29%
Feature AFeature BFeature C
…Feature Z
Small batchSmall batchSmall batchSmall batchSmall batch
80% OF FEATURES ARE USED BY BUSINESS CUSTOMERSBased on Luxoft experience
Agile Fixed Price (per Story Point) Savings
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Engagement Transformation
Grow and ScaleBuild Trust
Hiring Environment and
Infrastructure setup BusinessDomainInductiontrainings
Engage
Duration and
Contract
TeamStructure
Cross-functional, cross-component feature team
Local PO proxy
Hiring Fostering Advanced
Domain and Product Expertise
Building Hyper productive teams
Introduction Build-in Quality
Luxoft DCActivities
and Results
Core team of 5-7 team members
Luxoft Agile COESupport
Engagement assessment
Core Team Interviews Strategy development Agile 101 & Sprint 0
Workshops and Trainings
Ongoing Team Coaching
Foster Relationships with Client
Setup/Engage Local Community of Practice
Team Mentorship Grow/Scaling Workshops Build-in Quality
Workshops Performance and Quality
Boosts Coaching
Staffing completed Strong domain &
engineering expertise Stable Velocity
On-site Coordinator Pool of Feature teams Scrum of Scrums Business
Requirement Streams
3-6 months T&M Fixed Price per Capacity
N/A Fixed Price per Capacity Fixed Price per Work Unit
1-3 months T&M
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Engagement and Pricing Models Compatibility
Fixed Price per Work UnitFixed CapacityT&M (T&M NTE)
Team Extension
Managed Delivery
+ ++ +
-+/-
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Blogs
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Luxoft Agile Practice Trainings ICAgile Certified Professional - Agile Fundamentals https://icagile.com/icagile-certified-professional ICAgile Certified Professional - Business Value Analysis
https://icagile.com/icp-business-value-analysis ICAgile Certified Professional - Agile Team Facilitation https://icagile.com/icp-agile-team-facilitation Professional Scrum Master https://www.scrum.org/Courses/Professional-Scrum-Master Management 3.0 https://management30.com/events/two-day-course/ Custom Workshops
Registration and more info at
www.luxoft.com/agile
www.luxoft.com
THANK YOU!
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