www.luxoft.com

Agile Pricing Models

Luxoft Agile Practice webinar

by Sergey Prokhorenko

17 Aug 2016

www.luxoft.com

Sergey Prokhorenko

Agile coach, head of Luxoft Agile Practice

sprokhorenko@luxoft.com

sergeyprokhorenko

www.luxoft.com

Session Plan

Difference between a delivery model and a pricing approach

Common pricing models for Agile projects

Delivery and billing approach for Agile fixed price

Choosing specific model for the particular engagement phase

Q&A

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Top 4 Client Problems

Never 45%

Rarely 19%

Sometimes 16%

Often 13%

Always 7%

Actual use of requested features

Source: The CHAOS Manifesto, The Standish Group, 2011

1. PAYING FOR THE WRONG THINGS

50% of money are spent on features

which are never or rarely used by real users

2. ALWAYS LATE WITH THE THINGS WE REALLY NEED

Engineers tend to reinventing the wheel and focusing on interesting

engineering stuff instead of business priorities

3. TOO EXPENSIVE TO MAKE EVEN LITTLE CHANGES

Long change cycles due to complicated change management

procedures which consumes time and money

4. DIFFICULT TO UNDERSTAND WHERE WE ARE RIGHT NOW

Client is overburden with different reports

but have no clue of real progress in terms of working features

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Perception of Agile as a Silver Bullet

Source: Developing Modern Applications With Agile Outsourcing, Forrester Research, 2014

Addressing Agile AD&M challenges…

Doing right things for business

Change for free

Clear progress

Cross-functional teams

…while following non-Agile SVM restrictions*

Greater vendor accountability

Fixed scope

Ring-fenced change

Shared resource models

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Common Engagement Models

Outstaffing (“Cost+”)

BOT (Build-Operate-Transfer)

Team Extension

Managed Delivery

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Top Agile Contracting Frameworks @ Luxoft

T&M

- “Plain vanilla” T&M

- T&M NTE (not-to-exceed)

- Good for initial stages

(build trust)

- Measurement unit: man-

day

Fixed Capacity (Agile

Pod)

- T&M-like pricing, but

packaged for a team

- Vendor responsibility for

strong team building

- Good for long-term

projects with sustainable

requirements flow

- Measurement unit: team-

sprint (for fully functional

team)

FP per Work Unit

- Output-based pricing

- Vendor margin is based

on performance

- Best risk management

approach for client

- Measurement unit: story

point (aligned with pre-

agreed Definition of

Done)

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T&M and T&M NTE

Pros

• Least formal contracting framework

• Easy scaling

• Good for team extension model

Cons

• Vendor is not accountable for result

• Uncontrollable spending (for standard T&M)

• Low-level engagement with lower margin

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Fixed Capacity (Agile Pods)

Fixed price per team

- Minimum team setup is defined upfront (e.g. 3x senior Java developers, 1x QA/BA, 1x BA/QA – one of them plays

Scrum Master role)

- Team minimal target velocity is agreed in SoW

- Definition of Ready and Definition of Done is contracted (if needed)

Billing for every complete cross-functional team (T&M rates + extra margin to cover team forming stage

and attrition risks) per sprint or several sprints

If team becomes dysfunctional due to attrition (falls under minimal target velocity), vendor is responsible for

hiring and training new people, otherwise team isn’t billed

Not fully managed delivery, as delivery risks stay on the client side

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Fixed Price per Work Unit (Story Point)

Definition of “done” and acceptance scenarios

agreed before development

Features are demonstrated to customer only

if 100% done and meet acceptance criteria

Indicative sizes of user stories (in Story Points) are

included into SoW

Features are billed after UAT closed

Monthly payments based on estimates of features

accepted within previous billing period

Client is responsible for providing backlog according to

Definition of Ready

Feature A Feature B Feature C

…

Feature Z

Sprint planning

Feature A (100% done)

Prioritized

backlog

Fixed sprint duration (2 weeks)

Demo (100% done features only)

Feature A

Feature B (100% done)

Feature C (85% done)

Feature B

UAT (1-2 weeks)

Feature A

Feature B

Issues and change requests are

added to product backlog

DoR DoD

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Forming Initial Backlog – Product Discovery Workshop

Identification of key user roles

Story mapping and identification

of key functional scenarios

Forming of product backlog based on user

story maps

Relative sizing of user stories in a backlog

Identification of acceptance criteria

for top priority stories

Predicting team velocity and planning

of first development sprint

Release roadmap

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36% OF FEATURES ARE REALLY USED BY BUSINESS CUSTOMERS

AGILE (BUSINESS VALUE-ORIENTED)

Feature A

Feature B

Feature C

…

Feature Z

“Big Bang” acceptance

Never 45%

Rarely 19%

Sometimes 16%

Often 13% Always

7%

WATERFALL (PLAN-ORIENTED)

Source: The CHAOS Manifesto, The Standish Group, 2011

Never 10%

Rarely 10%

Sometimes 27%

Often 24%

Always 29%

Feature A

Feature B

Feature C

…

Feature Z

Small batch

Small batch

Small batch

Small batch

Small batch

80% OF FEATURES ARE USED BY BUSINESS CUSTOMERS

Based on Luxoft experience

Agile Fixed Price (per Story Point) Savings

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Engagement Transformation

Grow and Scale Build Trust

Hiring

Environment and

Infrastructure setup

Business Domain

Induction trainings

Engage

Duration

and

Contract

Team

Structure

Cross-functional, cross-

component feature

team

Local PO proxy

Hiring

Fostering Advanced Domain

and Product Expertise

Building Hyper productive

teams

Introduction Build-in Quality

Luxoft DC

Activities

and Results

Core team of 5-7 team

members

Luxoft Agile

COE

Support

Engagement assessment

Core Team Interviews

Strategy development

Agile 101 & Sprint 0

Workshops and Trainings

Ongoing Team Coaching

Foster Relationships with

Client

Setup/Engage Local

Community of Practice

Team Mentorship

Grow/Scaling Workshops

Build-in Quality Workshops

Performance and Quality

Boosts Coaching

Staffing completed

Strong domain &

engineering expertise

Stable Velocity

On-site Coordinator

Pool of Feature teams

Scrum of Scrums

Business Requirement

Streams

3-6 months

T&M

Fixed Price per Capacity

N/A

Fixed Price per Capacity

Fixed Price per Work Unit

1-3 months

T&M

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Engagement and Pricing Models Compatibility

Fixed Price per Work Unit

Fixed Capacity T&M (T&M NTE)

Team Extension

Managed Delivery

+ +

+ +

-

+/-

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Blogs

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Luxoft Agile Practice Trainings

ICAgile Certified Professional - Agile Fundamentals https://icagile.com/icagile-certified-professional

ICAgile Certified Professional - Business Value Analysis https://icagile.com/icp-business-value-

analysis

ICAgile Certified Professional - Agile Team Facilitation https://icagile.com/icp-agile-team-facilitation

Professional Scrum Master https://www.scrum.org/Courses/Professional-Scrum-Master

Management 3.0 https://management30.com/events/two-day-course/

Custom Workshops

Registration and more info at

agile@luxoft.com

www.luxoft.com/agile

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THANK YOU!

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