Giving estimates for large scale projects in an Agile Environment

Question

My firm just got its first large-scale development project inquiry and I would like to use an Agile process. The client has a vision for the application but openly admits to having very few requirements and recognizes that we will have to charge by the hour. Because of this, I've all but sold him on an Agile approach.

The problem is that he wants a figure to budget around. I've read a number of articles that pretty much advocate against giving up an estimate because the client will budget for that number and even as requirements change, the number in their head and in the books doesn't.

I've read there are a number of ways to factor in pricing in the contract, but almost all of them (save one) incorporate an up-front number. This just seems to violate the entire set of principles of Agile development.

So my question is, if you're an Agile shop, how do you manage to circumvent this Catch-22 of Agile development?

Thanks!

Answer 1

First of all, I want to say I think it's great you've sold him an on agile approach and per hour pricing. That's very hard to do.

Regarding your dilemma, I think you should present him with a rough pricing estimate and the features / scope it includes. During the development process, if you see something important coming up that will change the scope / cost, you say to the client "stop - this is great, but understand that it changes the original scope we discussed."

At this point the client has the privilege of agreeing, being aware that he will pay more than he originally thought, or halting the new development for now. Many agile projects are built in many mini-stages - for which you can give pretty accurate estimate of price / time. Before any new mini-stage commence, it's important that you and the client see eye to eye on what is up next and how much time / cost will be spent on it.

Answer 2

For this situation, we've provided an estimate for the first chunk of work, and then let the client purchase more sprints as required to complete the work to the desired level.

As you get more of the system developed, and incorporate feedback from the client into the sprint deliverables, you will both get a better feeling for the amount of work involved, and hence the costs involved.

Edit: Cool. Way excellent! From the fact that you've sold them on an Agile approach, BTW good one!, chances are you will be able to seel them on approaching it from an agile point of view in terms of features to be implemented. Maybe have a listen to this "Intro to Scrum" podcast. You might be able to sell them on the fact that they probably won't need to have all the bells and whistles that they think tha they need right now.

HTH

cheers,

Rob

Answer 3

As always there's quality, functionality and time (=resources) which are your main parameters. We're not messing with quality any more, so there's only features and resources left. Fairly often you can get away with convincing that a certain amount of resources will at minimum reach a certain feature set. So as long as you can find an amount of resources that delivers a plausible feature set I believe this is enough for quite a few customers. The upside is that they can control progress while on the move, and there's always the option of backing out.

Answer 4

The way that I have done this is to use my current velocity and estimate a range based on rough estimates of complexity (number of stories). You would update this as you begin planning the application so that the range estimate gradually becomes better and better.

For example, give an estimate from 6mos to 2 years (if you're sure that it will take less time than 2 years. As you break it down into features, then plan for those features, you come up with better and better estimates so that after 6mos you can reliably say (absent any other changes), we'll be done in another 2-3 months (total of 8-9 months). Eventually, you get to the point where you can say, we'll be done after the next iteration (2weeks to 1month).

You need to pair this with letting the customer know that adding features will increase the time to completion, then let them decide how to proceed -- either drop the feature or increase the time. For any given project, scope and time are really the only variables that you can effectively change. Quality and resources are pretty much fixed. Actually, you can add resources, but generally you see an increase in time and decrease in quality initially so this only works if your time horizon is long.

Answer 5

Here's the fundamental question.

When will the client think they're done?

If they think they'll be done by June, then you put an Agile team in place. That's 4-6 people for 6 months. That's the budget. Essentially, you do the multiplication for them. team * rate * 6 months.

If they think they'll be mostly done by June, but there will be more work after that, then you're possibly looking at 9 months of work. Again, you're just doing a multiply that they could do for themselves. team * rate * 9 months.

If they think that you'll be their development team for the foreseeable future, give them a price that will get the project through to the end of the year. team * rate * 12 months.

Since each release is an opportunity to reprioritize, you should be pricing each release as as separate piece of work based on the things you will get done in that release. Since it's their priority scheme, they control what you build, they control the budget, phase by phase.

Often your client really wants to know how much a particular feature set will cost. Instead of ask that, they ask about overall budget (which is silly). Spend a lot of time on the first release showing what they get and how much that first release will cost.

Eventually, they'll see the fundamental truth.

They're buying the features from most important to least important. If they prioritize correctly, they can stop spending money at any time and have something useful.

Done is a relative term. Some projects are "done" because there's no more money. Others are done because there's no more time. Rarely (at least in software development) is a project ever done because we ran out of things to do.

Answer 6

This is a really tough issue. See what Robert Glass has to say on the subject in his book "Facts and Fallacies of Software Engineering". (Note that Amazon has books available new for less than they're available second-hand! [as of 2009-01-05 12:20 -08:00]; also at Google books.)

Answer 7

One approach you could take is to give the client a general estimate that you believe is relatively close. Also give a percentage. The percentage will be an increase or decrease allotment in the budget due to changing requirements.

Example: General estimate of $10,000 but since the requirements are vague and the project could change course easily there is a +/- 30% price adjustment option.

This way the client can have a general idea of what to budget and you have some flexibility in charging to the project.

Answer 8

Look, there's a core fact here. You will be asked to estimate cost, contract for a particular delivery date, and commit to a full set of delivered features.

You can't do all three.

Not "you shouldn't" or "it would be wise not to"; you (for all practical purposes) can't. By which I mean that the probability of successfully doing all three is extremely small.

The best answer is to commit to a cost and schedule, and to an iterative process with quick iterations and regular feedback, and then write the agreement so that what is done unde the fixed cost and schedule is what will be delivered. That is, you keep delivering new features (and modifications) until the time and money runs out.

The truth is, even if you do sign up to all three, the best you'll ever be able to do is two out of three anyway. Might as well be open about it.

Answer 9

These answers are really great. I don't have a lot of experience to share, but I thought of an analogy:

Last year my wife and I remodeled our kitchen. The contractor proposed billing on time & materials instead of giving an estimate, because we didn't know what we'd discover with respect to plumbing, subfloor damage, and so on. We agreed, because I'm working from home and I was available continuously to answer questions. The contractor and I had a good rapport so when something came up, he felt free to knock on my office door and we'd discuss it. Decisions got made quickly and the work was done the way I wanted it. That seems similar to the Agile priority on frequent customer review.

By contrast, my wife's cousin is also remodeling his house. He's an ER doctor and he is not available on site during the remodel. So he described being regularly surprised by the contractors making major decisions without consulting him ("What? I didn't want that picture window blocked off! Tear out the wall and reframe the window the way it was!"). This is of course painfully expensive and blows the schedule out of the water. Definitely not Agile.

So one way to convince a client that a time & materials mode will work may be to assure them you'll make frequent progress reports to get their feedback. I believe this is already a core recommendation of most Agile methodologies. To begin, of course this requires the customer give their trust to the consultant.

As a separate resource, I searched and found a book on this subject: "Agile Estimating and Planning" by Mike Cohn. Read the praise quotes on that page, from an impressive set of Agile experts.

Answer 10

Here's how a crusty old government contractor I know recently put it: "As the prostitutes say, first you gotta get them upstairs."

That doesn't answer your question, but it's worth remembering. If they won't come upstairs without number up front (and they won't), you have to give them a number.

Anybody sponsoring a software project needs to have an idea of what kind of return they're going to get on their investment, so that they can evaluate whether or not the investment is worth making. A project may be worth doing if it costs $1m and takes 12 months. It may not be worth doing if it costs $2m and takes 24 months.

The real question is: can you do this project within a time frame and budget that makes it possible for the client to realize an appropriate return on their investment? If your answer to that question is anything but "yes," then they shouldn't hire you to do the project. Otherwise, they're just spending money and rolling the dice.

If your current answer to that question is "we don't know yet," then they shouldn't hire you to do the project. But that doesn't mean that they shouldn't hire you to find out whether or not the project is worth doing. A good consulting-firm buzzword for this is "preliminary scoping exercise."

Agile development is about managing a curve in three dimensions: money spent, calendar time, and feature set. It's a given that if the budget and schedule are fixed, the feature set must be variable. You can't know what the final feature set will be, given those constraints. But you can know if a feature set that you'll be able to produce within those constraints falls inside a range that your client will find acceptable.

You can know this, and you can find it out. Finding that out is something that your firm can do and your client can't. It's a service that you can provide to them and that they should pay you for. Avoid the temptation to do this for free and call it a cost of sales. Project scoping is every bit as much a part of professional services as software development. You're not doing this to close a sale; you're doing this to help your client make a business decision that they don't yet have enough information to make.

But first you gotta get them to come upstairs.

Answer 11

If you have successfully sold the customer an on Agile approach, and billing by the hour, do not give them an estimate for how much it will cost to complete the project!. Even if they say they want it only for budgeting purposes, do not do it!.

The reason is that any estimate of cost will come to be treated as a definite commitment; no matter how many times you say it isn't, and how many times the customer says they understand that, it will be treated as a commitment. Even if the customer understands, their boss won't, and although they won't be able to legally force you to deliver for the price you said, you will come to known as a company that doesn't deliver what it promised. Providing an estimate throws away all the advantage of being agile in the first place.

What I suggest is telling them that you will spend no more than such-and-such an amount before the end of the financial year (or whatever other billing period your customer is interested in). That should be enough for them to plan financially without in any way saying that the project will be finished by then.