1. IFCLA Conference 2010
Brian Hanly

2. A Vicious Circle
project
failure
increased
lower control
productivity
lower increased
morale documentation
increased
stress

3. …it’s all in the system…
“your organization's productivity is influenced by
the production process itself”- Edward Deming
“Simple, clear purpose and principles give
rise to complex, intelligent behavior.”
Complex rules and regulations give rise
to simple, stupid behavior.” Dee Hock, VISA

4. Systemic Issues with Waterfall
Analysis Design Build Test

5. Values, Principles & Practices
BEING
DOING

6. The Agile Manifesto
We are uncovering better ways of developing software by doing it and
helping others do it.
Through this work we have come to value
Individuals and interactions over processes and tools
Working product over comprehensive documentation
Customer collaboration over contract negotiation
Responding to change over following a plan
That is, while there is value in the items on the right, we value the items on
the left more.

7. Values
 Communication
 Feedback
 Simplicity
 Courage
 Respect
 Trust
 Transparency

8. The Principles
 Eliminate Waste
 Build Quality In
 Create Knowledge
 Defer Commitments
 Deliver Fast
 Customer First
 Respect People
 Optimize the Whole / Collaboration
 Working Solutions as Progress
 Continuous Improvement
 Economics
 Flow

9. Forms of Waste being examined
 Overproduction of features, or of specific elements before they
are needed
 Waiting and Delay
 Handoff
 Extra Processing (relearning, reinvention)
 Partially done work – reduce work-in-process
 Task Switching and interruptions
 Rework and Defects
 Under using your people’s talents
 Knowledge scatter or loss
 Wishful Thinking
 Untimely management of risk

10. Agile Sourcing
Agreements

11. “Based on a fundamental understanding
and acceptance of the unpredictable
nature of software development.”

12. Fear of Opportunism
 Taking advantage of opportunities without regard for the
consequences to others.
 Seeking immediate advantage with little regard for ultimate
consequences.
 Self-Interest
 Self-Seeking

13. Transaction Costs
 Selection
 Negotiation and Renegotiation
 Monitoring and Enforcement
 Billing and Payment
 Inventory and Transportation
 Cost of Diminished Communication
 Cost of Loss of Skill Base
 Cost of Poor Results
“Transaction Costs do Not Add Value”

14. The Purpose of Contracts
 Conventional Wisdom
- Companies inevitably look out for their own interests
- Contracts are needed to limit opportunistic behaviour
 The Lean Approach
- Assume other party will act in good faith
- Let the relationship limit opportunism
“The Lean Approach Lowers Transaction Costs”

15. Contract Models
 Fixed Price
 Time-and-Materials
 Multi-Stage
 Leading to Fixed Price
 Progressive or Delivered Feature
 Target (Cost)

16. Selecting a Contract Model
 All contract models create a bi-lateral monopoly.
- Switching Costs are prohibitively high
 Risk should be born by the party best able to manage it.
- Uncertainty in the domain
- Customer
- Uncertainty in the technology
- Supplier

17. Fixed Price
 Generally do not give the lowest cost
 Competent suppliers will include cost of risk in bid
 Selection favours the most optimistic [desperate] supplier
- Least likely to understand project’s complexity
- Most likely to require
- Rescue by Customer
- Loss sustained by Supplier
- High Cost Change Orders
 Fixed Price Contracts Lead to:
- Early Scope Definition (to protect the vendor)
- Excess Scope (to protect the customer)

18. Lean Fixed Price
 Fundamental Rule:
- Scope Must Be Negotiable
 Vendor must have confidence that when the money is gone, the
customer will either agree that the work is done or negotiate in
good faith for more funding.
 Customer must have confidence that when the money is gone,
their basic business objectives will be met.
 Most Fixed Price Contracting Language does not support
Negotiable Scope.

19. Time and Material Contracts
 Customer is at Greatest Risk
- Supplier has little incentive to control costs
 Need to Control Supplier Opportunism
- Enter – The Waterfall Lifecycle
 Transaction Costs of Control are High

20. Time & Material & Agile
 Fundamental Rule:
- Control with Feedback
 Customer must develop confidence as the money is being
spent, that their business objectives will be met in a reasonable
timeframe for a reasonable cost.
 Vendor must have confidence that they will have regular access
to the customer and obtain regular, reliable feedback.
 Most Time-and-Material Contracting Language stipulates
traditional control rather than control with feedback.

21. Progressive Contracts
 Start With An Umbrella Contract
 Release Work In Stages
 Each Stage is an Iteration
 Often Early Stages are Time-and-Materials
 Later Stages May Be Fixed Price
 Scope Beyond the Existing Stage
 Remains Negotiable

22. Summary
 Trust-Based Partnerships
 Require risk sharing
 Adapt to change and uncertainty
 Depend on the relationship to limit opportunism
 Are nurtured through excellent communications
 Almost always yield faster, better, cheaper results

23. Thank you!!