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Agile estimation and contract

Time, budget, and cost estimation

Time, budget, and cost estimation is an important knowledge and skill area of agile.

According to Highsmith, the nature of the agile method, whereby it welcomes changing scope, means that it lends itself well to fixed budgets and a fixed schedule because changing scope makes it difficult to estimate a total cost.

Generally speaking, the budget and schedule constraints are known but before a project will commence there needs to be an agreed upon set of base product functionality defined in an initiation phase; fixing scope reduces an agile team’s innovative tendency to provide improved value.

For companies that are familiar with fixed-price contracts, where requirements are agreed upon before contract closing, adopting agile can be a weary initial venture.

Instead, other contract vehicle types are recommended for agile efforts.

These include:

a general service contract for the initiation phase and separate fixed-price contracts for iterations or user stories;

time-and-material contracts;

not-to-exceed with fixed-fee contracts; and,

incentive contracts (e.g., fixed price with incentive; cost-reimbursable with award fee).

[Agile Project Management: Creating Innovative Products – 2nd Edition. Jim Highsmith.]

Best contracts

A general service contract for the initiation phase
And separate fixed-price contracts for iterations or user stories
Time-and-material contracts
Not-to-exceed with fixed-fee contracts
Incentive contracts
Cost-reimbursable with award fee
Fixed-price with incentive

Fixed-price contracts, although typical of traditional projects where scope is defined ahead of time, are not well suited for agile.

Fixed-budget and fixed-schedule is a good agile contract

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Agile, PMI-ACP, PMI-ACP exam by admin