Is it possible to utilise an agile approach and lock in a fixed price contract for project delivery?
Two trends are emerging in project delivery that may, on the surface at least, appear to be quite contradictory.
Many organisations are looking at ways to share project risk and quantify costs upfront by locking in fixed-price contracts for project delivery at the same time as exploring Agile techniques for more rapid and targeted application development. But can these two trends – fixed price project delivery and Agile – co-exist or are they in fact mutually exclusive?
The Hallmarks of Fixed Pricing vs an Agile Approach
Typically fixed pricing of projects has been the domain of waterfall methodologies whereby the scope, deliverables, governance and sequencing are understood and agreed upfront.
The vendor or project delivery organisation will include a premium in the fixed price in return for accepting the risk of owning the success or otherwise of the delivery of the project within the agreed constraints.
The hallmarks are the outcomes and benefits of the project are largely understood and agreed before work commences, the governance framework is robust and a traditional waterfall approach to the project delivery is used.
Agile projects operate in a more flexible and collaborative way. Agile does not have a signed-off scope instead a feature log is agreed and regular meetings are held (as frequently as weekly) with the customer to assess progress and adjust priorities as required.
The outcomes are less understood upfront but in return the organisation is provided a delivery platform that is iterative and focused on speed to market and targeting the must-have business functionality during the development life cycle.
The Right Circumstances for Co-existence
Whilst the nature of Agile projects would seem at odds with a fixed price model, it is achievable given certain circumstances.
Firstly the customer must have some clear view on the key functionality required and the order of importance. This should be discussed, sanity-checked and scoped with the delivery team and will form the basis of the initial fixed price quote for the effort to complete. This is then drawn down upon during execution.
A fixed price, however, should not be written in stone. One of the key benefits for an organisation when deploying Agile techniques is the ability to make quick business-focused decisions to re-prioritise what should be worked upon at any given point.
To enable fixed price costing and Agile to co-exist it is imperative there is a simple yet effective change control mechanism in place which allows for the effort to be re-directed as required and signed off in a timely and effective manner.
Equally it is critical that the communication between the delivery team and the customer is open and transparent.
Budget and Spend Checkpoints
There need to be regular checkpoints of where the overall spend is up to and why reconciling the initial scope with any change requests. The delivery team must at all times work on the ‘no surprises’ principle and be very transparent on estimated costs, effort to date and where under-estimation is likely to occur.
Ultimately the trend toward customers expecting more accurate costing and the sharing of risk is a trend that is set to continue. Whilst fixed pricing is not the ideal model for Agile techniques they are not mutually exclusive if there is a spirit of transparency, co-operation and flexibility on both sides to achieve the best outcomes.
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