The Fixed Price Debate : Agile 2011 Sprint 5

See Previous: Agile 2011 Sprint 4: Stimulate your thinking process
In a panel discussion on

‘Agile cannot be done for a fixed-price’

Patrick Eltridge, the Telstra CIO elaborated on how to get skin in the game. His view is that it’s about culture and trust. One of the constraints or challenges in moving to an Agile approach is that it impacts the entire procurement process, including HR, Legal and Commercial.

The 3rd way to contract. The Agile Contract

From my experience running Professional Services businesses in the IT Outsourcing, Offshoring and System Integration space, I can attest to the ongoing Fixed Price vs Time and Material debate. I’ve seen possibly every combination attempted by the creative and persistent sales force to get a deal through, and the Agile Contract is going to mix things up a bit.

The approach Patrick has taken is to send some of the HR, Legal and Financial teams on Agile Training. I think this is excellent as it provides context to one of the key elements of the Agile Contract — TRUST.

Trust is up there with world peace and government transparency in terms of business contracting, penalties, risk mitigation, etc, so getting the broader team on board to effect the Agile culture change is brilliant.

Patrick gave the example of selling the Agile concept to the toughest customer. The internal CFO.

When approaching this from the traditional FP vs TAM point of view, the conversation would go as follows:

CIO: I need money for Agile Project x

CFO: How much?

CIO: I don’t know

CFO: ok. How long will it take?

CIO: I don’t know

CFO: ^%$%^ off… :-)

Patrick suggested the following approach, which focuses on the burn rate and team size, which can be understood in financial terms.

CIO: I need money for Agile Project x

CFO: How much?

CIO: I don’t know

CFO: ok. How long will it take?

CIO: I don’t know, but I know that I’ll need a team that will cost me $x per month. Can you approve $x for the rest of the financial year to deliver Agile Project x

CFO: You’re the CIO. I TRUST you to deliver the benefits of Agile Project x. Approved.

This may seem simplistic, but it’s a very different mindset as it’s relies on trust and risk mitigation.

I’m interested to see how this plays out IRL (in real life).

Trust the Vendor

It’s one thing to sell in an internal, trusted environment, but quite another to engage a vendor on these terms.

I would love to see the contracted terms for an Agile project delivered by an external supplier. One possible option could be to structure the contract as

• a blended team rate,
• on a time and material contract
• with a cap
• based on very high level milestones.

Either way, when Telstra gets on board, it’s serious and it impacts the supply market in a big way. Let’s see.

“Fixed Price is just BS”

[ff @adam_b]

Adam Boas from Aconex had stronger views on the issue:

• ‘Fixed Price is just BS’
• Fixed Price is abut how much of the project you want to move into change management
• Fixed Price is trying to outsource your risk
• Agile is asking you to share the risk and fail early
• Anything else is an erosion of trust and poorly spirited

Falling into the Fixed Price trap

[ff @nxdnz]

Nigel Dalton, from Lonely Planet shared some lessons.

After ‘falling into the Fixed Price trap’ he shared that he’s re-learned that it’s about trust and asking:

• How much will you spend to solve the business problem?
• Now go spend it smartly
• Incentive to save off the maximum spend
• Share the savings

Let me know your views in the comments below on this interesting issue.

Next Post : Agile 2011 Sprint 6: Agile IS mainstream. Telstra has adopted it!