Fixed Price Contract is a Big Lie and Unethical - Scrum Day Bandung

© 2009-2016 Enterprise Path to Agility (http://enterprisepathtoagility.com), All Rights Reserved. 1
© 2009-2017 PT. Scrum Asia Pasifik (http://scrum.co.id), All Rights Reserved.
/josh.partogi
/jpartogi
Joshua Partogi
PT. Scrum Asia Pasifik
Path to Agility
Fixed Price Contract is a
Big Lie and Unethical
#ScrumDayBdg2017
2© 2009-2017 PT. Scrum Asia Pasifik (http://scrum.co.id), All Rights Reserved.
MIN
Traditionally the success of software
development was assessed upon 3
criteria:
1) Deliver all promised requirements
2) Within the planned time
3) For the allocated budget
How do you feel about these criteria?
What Defines Success? 2

So why do we still want
fixed contract?
• 3
4© 2009-2017 PT. Scrum Asia Pasifik (http://scrum.co.id), All Rights Reserved. 4
We hate randomness.
We hate uncertainty.
We hate unpredictability.
We hate failures.

• Uses emotional feelings.
• Who am I as a person? What
kind of situation is this? How
will this affect me as a person?
• Uses analytical and rational
approach.
• What is the benefit of doing
this? Is it true?
How people make decisions
Identity Model Consequence Model
Source: James March
Unconscious Conscious
Intuition, emotional Analytical, logical
Fast processing Slow processing
Built from experience Requires justification

Our past shape the way we view the
world and our expectations about the
future.
Why do smokers enjoy smoking
when they know it is bad for
their health?

We don’t necessarily make a choice
based on what is true but often times
based on what make us feel good.
We don’t necessarily make a choice
based on what is true but often times
based on what strengthen our identity.

Fixed contract  predictable
Accuracy in prediction  success
We see the inability to predict the future
accurately as a failure.

We see failure as something punishable.

Failure recovery is more important than failure avoidance.
Fail fast  Learn Fast  Deliver Fast
Epistemic arrogance
We overestimate what we already know
and underestimate uncertainty by
spending more time to predict the
future.

Sydney Opera House is Australia’s symbol of pride.
Sydney Opera House construction started in 1959.

Sydney Opera House construction was planned to complete in 1963.
Sydney Opera House construction was actually completed in 1973.

Sydney Opera House construction was planned to cost AU$ 7million.
Sydney Opera House construction was planned to cost AU$ 7million.

Sydney Opera House construction was actually cost AU$ 102 million.
And there was much less scope actually delivered.

We are arrogant about what we think we
already know and we have a tendency to
think that we know a little bit more than
we already know.
We keep on searching for
unicorns to protect our
identity and to prove what
we already know is the
absolute truths.

29© 2009-2017 PT. Scrum Asia Pasifik (http://scrum.co.id), All Rights Reserved.We can not teach people anything,
We can only help them discover it within themselves.
If we know what will happen in the
future, then we are already near the
future.

Repetitive
work.
Innovative
work.
We think more is better.
We think more time for planning will
result in better prediction.

Eating more vegetables
does not make you
lose weight.
Predicting the future does not make the
future become more predictable.

Anchoring effect
• This is a big banking project.
• This is a simple website project.
Anchoring happens often in software development

benefit
time
estimate
Time spent
to estimate
Cost to
estimate
Start
"Work”
Old Mindset
Customer Perspective
Developer Perspective
We want everything because
we are the customer who paid
a lot of money. We’ll blame
the developers or give them
penalty if they can not deliver
everything by the time we
have fixed.
We (unconsciously)
sacrifice quality because
the time, budget and
scope has been locked
by the customer.

On-schedule and on-scope?
Commitment and predictability
Commitment
is coming from
within the
person
Unpredictability
is an external
factor

• Fixed price contract denies the nature of software development
that is ambiguous and unpredictable.
• Fixed price contract encourage people to spend too much time
for planning, which may not be an added value activity.
• Fixed price contract prohibit people from taking risks and
innovating.
• Fixed price contract encourage people to add unnecessary
buffers.
• Fixed price contract encourage developers to cut corners.
• Fixed price contract introduce a blaming culture and does not
invite collaboration from both parties.
• Fixed price contract creates a culture of fear.
Fixed Price Contract is unethical and a big lie
profession = professus (latin) = affirmed
publicly.
professionals
Someone who has taken an oath and had an
obligation to use their power wisely and
honestly.
There are no professionalism in software development

We trust the developers will be
transparent and we will be
engaged with them to manage
unpredictability.
We will be transparent,
professional and commit to do
our best no matter what will
happen in the future.
Agile Mindset – it’s about collaboration
Customer Perspective Developer Perspective
Invest in preparedness, not in prediction.

Amazon is on
record as
making
changes to
production
every 11.6
seconds on
average in May
of 2011

Svenska Handelsbanken is one of the most
efficient banks in the world

Svenska Handelsbanken is one of the most
profitable banks in the world
Svenska Handelsbanken is one of the most loyal
customers of the banks in the world

Svenska Handelsbanken is one of the most loyal
customers of the banks in the world
Svenska Handelsbanken has no sales targets

Svenska Handelsbanken does not do budgeting
Svenska Handelsbanken branches is the bank

Borealis is the 2nd largest petrochemical company in Europe.
Borealis annual profit is Euro 1.1 billion in 2016.

But Borealis never do any budgeting since it was founded.
We should shift from investing in
predicting the future to monetizing
unpredictability.

• Quality is fixed, scope or time is
negotiable.
• Put probability in the estimate, not fixed
number.
• Product initial plan and goal is always
revisited during Sprint Review.
• Customer can terminate the project
earlier when they are satisfied with the
return investment.
Agile Contract – Emphasize on professionalism and quality
Q&A

Houston?
Scrum is a journey of
people.
Scrum starts and ends with
people.
HAVE A WONDERFUL JOURNEY WITH SCRUM

Fixed Price Contract is a Big Lie and Unethical - Scrum Day Bandung

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Fixed Price Contract is a Big Lie and Unethical - Scrum Day Bandung