One of the riskiest decisions you can make in software development is to require a "precise" cost and schedule estimate at the beginning of the project. Although there is nothing wrong with fixing just the price, as I wrote in Agile on a Fixed Budget, the situation quickly becomes dysfunctional when you also decide to fix the schedule and the project scope. Although customers often demand to work in this manner, particularly when the system is being built by another organization such as a system integrator (SI), as professionals we must question the ethics of fixed-price IT projects. We know fixed price is a bad idea, our customers inherently know fixed price is a bad idea, and it's high time that as an industry we choose to abandon this highly questionable approach.
I want to start by defining three critical terms:
- Fixed price refers to a project where the cost, schedule, and scope are set early in the lifecycle. "Fixed-iron triangle project" would also be a valid term, albeit a mouthful. This is different from a "fixed-budget project" where the budget is set, but at least one (if not both) of the scope or schedule are allowed to vary.
- Customer refers to the person(s) or organization(s) for which an IT solution is being developed (or purchased, as the case may be).
- IT provider refers to the person(s) or organization(s) who performs the work to provide the solution to the customer. The IT provider may be internal to the customer (for example, the customer is a bank and the IT provider is the IT department within that bank) or external to it (for example, the bank chooses to hire an SI to build a system.)
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