On budget in a Scrum project


A study by McKinsey/Oxford found that "half of IT projects with budgets of over $15 million dollars run 45% over budget, are 7% behind schedule and deliver 56% less functionality than predicted.". KPMG New Zealand found in 2013, that an "incredible 70% of organizations have suffered at least one project failure in the prior 12 months and 50% of respondents indicated that their project failed to consistently achieve what they set out to achieve". Projects are in chaos as 31.1% is being canceled and 52.7% of the projects will go a staggering 189% above budget (CHAOS report, 2014). It is clear that something is not right in how these projects are planned and managed.

Most IT projects tend to go over budget up to a staggering 189%.

Projects going over budget is due to the fact that projects are given a fixed estimate prior to the start of a project. During the lifetime of a project requirements and wishes may change, which can lead to additional projects costs. Clients often want a fixed price quote as it gives certainty for the costs to incur. At Smartshore we often give fixed price quotes for a project, because we understand that from a business perspective it is hard to plan costs for a project if no clear price is set. On the other end we understand the uneasiness clients may feel when going for a SCRUM approach.

 

Our preference for any given project is to go with a SCRUM approach. However clients are hesitant due to various reasons. For example: “The project is never done with SCRUM.”, “I don't know what my total development costs will be.”. Thus clients request a fixed price quote, so they have a clear picture on IT budget spending. Though the fixed costs will in most projects not be met. To help companies better plan their IT investment, when Smartshore provides a quote to a company we set goals for various versions. What is needed the first “full” delivery and what can be done as an extra?

 

In order to determine requirements and goals, our team in The Netherlands will spend several days to get to know the business process and clients requirements. Getting as much detail as possible from our client to determine various goals for different product versions. Together with the client we determine goals and we provide a rough estimate of time needed in sprints to get to the first version. This way we are able to give fixed price quotes while using the SCRUM agile development methodology.

Flexible in approach, fixed in price.

Although the price quote is fixed, internally we always use the SCRUM methodology. Enabling us to provide the client flexibility to meet changing requirements to meet set goals. At the end of our development sprint we make a delivery for test, but continue with development of the rest of the project. In discussions with our SCRUM master the client can make changes to the project with a focus on meeting set goals. This method gives the client certainty about costs, while still having a certain degree of flexibility.

 

Using this method enables us to deliver 85% of our projects on time and within budget. Clients are satisfied with the product as delivered as it is meeting requirements and (changing) wishes.

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