17 October 2021

Agile estimation and contract

Time, budget, and cost estimation

  • Time, budget, and cost estimation is an important knowledge and skill area of agile.
    • Fixed-budget and fixed-schedule is a good agile contract
      • According to Highsmith, the nature of the agile method, whereby it welcomes changing scope, means that it lends itself well to fixed budgets and a fixed schedule because changing scope makes it difficult to estimate a total cost.
    • Generally speaking, the budget and schedule constraints are known but before a project will commence there needs to be an agreed upon set of base product functionality defined in an initiation phase; fixing scope reduces an agile team’s innovative tendency to provide improved value.

Agile contracts

  • For companies that are familiar with fixed-price contracts, where requirements are agreed upon before contract closing, adopting agile can be a weary initial venture.
    • Fixed-price contracts, although typical of traditional projects where scope is defined ahead of time, are not well suited for agile.
  • Instead, other contract vehicle types are recommended for agile efforts, these include :
    • A general service contract for the initiation phase and separate fixed-price contracts for iterations or user stories;
    • Time-and-material contracts;
    • Not-to-exceed with fixed-fee contracts;
    • Incentive contracts (e.g., fixed price with incentive; cost-reimbursable with award fee).
    • Cost-reimbursable with award fee
    • Fixed-price with incentive
  • [Agile Project Management: Creating Innovative Products – 2nd Edition. Jim Highsmith.]

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