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Breaking the golden rule - why would you enter into a fixed price agreement for agile development?

Agile software development principles mean that you don’t know what exactly you are going to get for your money; but you can expect that they will deliver a valuable solution.
Agile ContractWhen it comes to software development, agile principles have become widely adopted as one of the most effective ways to achieve faster results. Anyone who understands the agile manifesto can immediately tell you that agile work should be done on a time & materials (T&M) basis. Agile software development principles mean that you don’t know what exactly you are going to get for your money; but you can expect that they will deliver a valuable solution.
This uncertainty of outcome may be commercially acceptable for some categories of organisation, but larger businesses that are undergoing the process of digital transformation will be less prepared to accept uncertainty. These large complex organisations are more likely to build business cases based on expected functionality, and often base strategic planning on product roadmaps.
Yet these organisations still want to reap the benefits of agile development – accelerated development timescales, and early confidence in the end product. So how can this be achieved under traditional commercial models?

Delivery through multiple small packages of work

  • Instead of committing to a single large programme with all the functionality needed, deliver multiple fixed price phases which show incremental business benefit. Margins of error are smaller as the units are smaller, and accuracy can be increased over time as the technology and processes are continually improved.
  • Use a supplier that has accelerators to help them deliver inception and releases to tighter timescales. The first product might be a technical demonstrator, giving board level confidence in the product capability. The first releasable delivery should then be a true minimum viable product, consisting of essential requirements only – functionalities that, if omitted, would cause the product to fail.
  • Subsequent releases will iterate and refine the product, provide advanced functionality and help you towards your end goal. 


Advanced estimation techniques that involve the customer

  • When receiving a fixed price estimate, be confident in the accuracy of that estimate. At BAE Systems we focus on a bottom-up estimate, modelled on every single component that needs to be built. Top-down estimates (e.g. based on the number of requirements included) tend to be less successful as they rely on more assumptions and less information.
  • Involving the customer in the estimation process builds confidence in a shared understanding, and allows the supplier to draw out and clarify ambiguities as part of the technical process.

Closer customer-supplier relationships

  • Utilise a flexible supplier who will adapt their process to your business. They should be able to mirror your downstream production tooling and environments to improve time-to-market and reduce risk
  • Co-location and a one-team mentality are vital, so that all project members are working to the same objective. Product owners, business analysts and architects from both customer and supplier need to regularly speak to developers and testers so all problems are shared and understood. 
  • Ensure suppliers are able to work in the cloud, securely, and can jointly develop and collaborate with the client on development tooling
By following the above principles, it is possible to successfully deliver fixed price agile programmes. BAE Systems credentials at delivering these types of programmes with a wide range of private and public sector clients mean that we are well placed to understand and mitigate the challenges, whilst ensuring that our clients get the benefits they are seeking. We are flexible in our delivery approach to enable the best of scaled agile, and have experience in moulding our methods and accelerators to integrate with clients delivery, operational and commercial models.
top David Compton, Business Analyst
David Compton, Business Analyst, BAE Systems 22 August 2016