Scrum and Fixed Price in outsourcing: cannot be combined
Few people find a way out, some do not see it, even if they find it, and many do not even search.
From “Alice in Wonderland”
The article raises the following questions.
- On the inconsistency of the components of the outsourcing formula ‘Scrum + Fixed Price’.
- About one possible error (root cause) preceding the wrong choice of the Scrum tool.
- About one situation when the real question is about combining Scrum and Fixed Price, which requires in-depth analysis and compromises to resolve it.
The article touches on a very controversial point, which does not have an unambiguous point of view and is the subject of endless discussions. Therefore, when reading, please keep in mind that your opinion may not coincide with the one presented, but this does not mean at all that one of us is absolutely right as well as that someone is absolutely wrong. i>
As stated in the article “How does pseudo-Scrum in outsourcing begin” , in a large number of outsourcing projects whose teams combine ( or, it is possible, wishful thinking) Scrum and Fixed Price, the life cycle of the project is not correctly identified. Those. An error was made in choosing between iterative incremental or flexible LC. And, as a result, the management tool, the Scrum framework, is not correctly selected. And already a consequence of this choice is the emergence of a number of problems, incorrect conclusions about Agile, Scrum and attempts (from the word "torture"?) To combine these two mutually exclusive concepts.
Mutually exclusive ?!
Now I argue.
It is assumed that the reader has further read the materials of the above article.
Scrum + Fixed Price is the same as going back and forth at the same time?
No matter how she tried, she could not find a shadow of meaning here, although all the words were perfectly clear to her.When concluding a contract for the provision of outsourcing services, the client almost always insists on a Fixed Price (“turnkey” scheme). His desire is to fix the Product Scope (or the scope of work), see the budget, and the deadlines. He wants to see what he is “buying.” On Time & amp; Material customers rarely agree.
From “Alice in Wonderland”
Thus, the key point: the client’s need is to be fixed in the contract, and the service provider is to fulfill the contractual obligations and ensure that the parameters are unchanged with the predicted error (due to some degree of uncertainty and risks at the sales and contracting stages) after the development begins. The question of reducing the degree of uncertainty and risk is the question of the possibility of conducting and the quality of the Discovery phase (Pre-sale, diagnostics) in relation to the Product Scope.
It is quite obvious that if we fix something (we guarantee the client under the contract), then we are obliged to plan and manage it in such a way as to ensure the fulfillment of our obligations. Those. manage the plan (or the fixed characteristics of the project triangle).
Fixed Price simply obliges us to give priority to the management of the plan. Otherwise, why do we need to fix something, knowing that it will change, and we really do not plan to manage it? To just sign a contract? A critical mistake of established sales processes: we fix it, knowingly knowing that we will change, only to sign a contract!
Why “will we change”? Because Scrum is always about uncertainty and its result is change. This is about change management priority. And after all, it is possible that they may appear after the first sprint. Why?
Digression on the Possible Reasons for Change
What could be the reason for the change? For example, it can be in a poor-quality phase of Discovery (Pre-sale, diagnostics) in a situation where the Product Scope can be determined to some extent (for an example, see paragraph 3 of Case Study in the article ), but for some reason this was not done. In this case, this is a problem of the phase and internal processes, and not the reason for choosing Scrum for a contract with Fixed Price, a flexible LC instead of iterative in order to compensate for the mistake made.
Although, in fairness, I note that in sales (Pre-sale activities of business analysts) in outsourcing (one of the most problematic phases from the point of view of Product Scope!) It is not so simple as in a store when you buy finished goods with specific properties (functionality). And the Discovery phase is the hard-selling activity of business analysts and the team. But minimizing to one degree or another uncertainty and risk assessment is one of the main tasks of a competently built sales process. As well as the formation of an understanding with the client about the necessity and importance of these activities (it can be very difficult!). But for this there is a sufficient number of techniques and tools. And it comes down to the question of the quality of the services provided, rather than the sale of a “pig in a poke."
Another reason may be the inability to determine Product Scope & amp; Vision at the moment (for an example, see paragraph 2 of the Case Study in the article ). And this is really a very difficult and disadvantageous situation for both parties, when a serious contradiction arises and the question arises of combining Scrum and Fixed Price when providing outsourcing services. It requires a thorough analysis, additional steps to build a comprehensive understanding of the client (often technically and ideologically far from the realities of development processes) about possible difficulties and risks, and search for compromise solutions.
So why is Scrum chosen? To manage the changes that, for example, arise as a result of an incorrectly performed Discovery phase (Pre-sale, diagnostics) or when the Product Scope cannot be determined at this phase? In the first case, in my opinion, this is erroneous. In the second - it is difficult to implement with Fixed Price.
The third possible option for choosing Scrum as an Agile tool, a flexible LC instead of iterative incremental in a situation where the Product Scope is worked out and fixed at the Discovery phase (Pre-sale, diagnostics), and the contract is Fixed Price, is also not rational in my opinion: why choose a tool for managing change (diverting a clearly more priority thing - a plan from focus) when their probability is minimized?
Return to the main point of the article.
But let's say Scrum is selected. Again, Scrum is a change management tool where the degree of uncertainty can only be reduced in the process and only when appropriate approaches are used. And this downgrade is the result of this process.
But a contract with Fixed Price sets priority in managing the plan!
Thus, the “formula” ‘Scrum + Fixed Price’ transforms into ‘change management + plan management at the same time’. The manager’s task is to manage the plan and the changes to different degrees, but the priority can be only one thing: either the plan or the changes.
Either plan management or change management is a kind of axiom laid in the foundations of management and business analysis. It is reflected in the basic (and not only) manuals for managers (PMBOK) and business analysts (BABOK). And the classification of life cycles (and their identification in relation to specific projects) is based on it: there are life cycles designed to manage the plan (for example, Waterfall, iterative incremental (IID)) and flexible, Agile to manage changes. The choice of a life cycle (and subsequently of tools) is built from what is given priority in management.
Flexible LC is a type of iterative incremental LC for projects with certain dominant features/features (a list of control questions is given in the above article ), allowing to identify it as a separate life cycle and "direct all efforts" to change management. These signs may include: the impossibility of “here and now” to achieve some degree of certainty of the Product Scope (the most important!), The search for a business solution (or its quick delivery to the business to form feedback) that will “shoot”, the formation of a list of key functions product (Key Features), short iterations, variability, experiment, gradual build-up of functionality, retrospectives, improvement of not only the product, but also the processes in order to obtain the best version of the product.Is it possible in such circumstances to get adequate estimates of the budget and timelines?
The devil is all in one piece, or... it's all about Product Scope
Everything has its own moral, you just need to be able to find it!
From “Alice in Wonderland”
What can you say about certainty (the ability to establish it) in relation to Product Scope & amp; Vision at the sales stage, Discovery phase, at the start of the project in outsourcing?
If the Product Scope cannot be determined, evaluated, fixed due to the uniqueness of the product, the idea of a start-up, uncertainty regarding the effectiveness of business decisions (the need to find them) and the difficulty of determining the key functions of the product, the presence of hypotheses that require verification, etc.. (see again point 2 of Case Study here ), then, of course, the Scrum framework is the most suitable tool.
However, for outsourcing, this situation is significantly complicated by the client’s desire to use the Fixed Price scheme when concluding a contract and appears in an unfavorable light for both parties. To some extent, with some assumptions, a compromise can be reached when concluding a contract and managing such a project. It is important to formulate the correct understanding and true expectations of the client (investor), assess risks, consider possible other schemes of financial interaction, and constantly work with client loyalty in the process of project implementation, etc. I will not delve into the question, since it is beyond the scope of the article.
In outsourcing, most often the question is primarily the competent implementation of the Discovery phase (Pre-sale, diagnostics) in relation to the Product Scope and choosing the right LC. And if Agile and Scrum are selected in a situation where the Product Scope can be fixed (and even more so when it was not done for some reason on time, with the expectation/assumption of its development in the future), and at the same time in the contract - Fixed Price, in my opinion, a mistake is made that casts doubt on the positive outcome of the project.
Thanks for your attention!.