Sunday, November 11, 2007

Agile Clients Present Challenges for Fixed-Price Consulting Firms

As more companies adopt agile development techniques, their increased desire for flexibility is causing pain for fixed-time, fixed-price consulting partners who have not yet figured out how to make the new dynamic work.

Traditionally, there are two models for technology consulting: "Time and Materials" (T&M), where the consultant bills per unit time and is only minimally responsible for the overall timeline, and "Fixed-time, Fixed-price," where the consultant is responsible for proposing a combination of scope, budget, and timeline and then delivering it.

The problem is that the initial time and price estimation models are based on a particular deliverable target. And while it's traditionally been a consulting challenge to keep change under control during an engagement, now clients are being completely upfront and saying, "We are developing alongside you and we intend to make substantial changes to the target every month, as the project develops."

With agile methods, this is not a shocker. And the client is justified in believing that if their organization can deliver new features and make spec adjustments every few weeks, surely high-priced consultants should be able to keep up.

The good consultants can keep up. The problem is figuring out a way for them to get paid for it; otherwise they won't be able to do these kinds of projects for long. Without a model that specifically addresses the possibility that expensive goal changes may arise, the consultants are forced into (a) being less agile than the client, (b) eating the cost of the changes, or (c) asking for more money or time. None of these options are good ones for the consulting relationship.

A first step toward a solution is to change agile co-development from an externality to a core part of the service delivery model. An iteration length should be defined as part of the project work statement. So far so good. The tricky part is allowing the consultants to make time or price changes at the checkpoints between iterations. After all, wasn't this whole project sold as fixed-time, fixed-cost? Sounds like having one's cake and eating it too. The reality is that both parties need to allow these changes (the client needs to change the specs; the consultant needs to change the cost) in order for the process to work.

The problem on the client's end is that development methods like agile, even if they tie in to product development processes, are often more "micro" in the budgeting scheme than the department budget or consulting budget. That is, the client's finances are not as agile as their development.

On the consultant's end, if the engagement is renegotiated -- even at a micro level -- between iterations, the overhead of managing and selling the project goes through the roof. And of course it's always possible that agreement can't be easily reached to match a spec change with a cost change. In that case, the whole engagement can fall though adding massive risk to delivery and reputation all the way around.

While not a complete solution, a number of elements would be helpful

  • Guidelines that throttle the rate of change between iterations via specified metrics, so that both sides have some ability to predict cost
  • Escalation chains for approval based on the amount of money or time involved, so that small and large changes alike don't necessarily need to go to a VP Finance or the legal department every time
  • Emphasizing these agile mechanisms in the sales process, so that an agile consulting firm (which might potentially cost a little more) remains competitive with others (who might offer a lower price but not be able to speak to how they will deal with these issues).

At this time, technology consulting opportunities abound and make good sense for clients and service providers alike. But to succeed in the long term, fixed-cost consultants need to evolve their models a few steps to keep up.

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