This is part two of a mini-series on risk management. Part one discussed how I…
Before we start our conversation about governance in the structure-governance-metrics framework we’re building out, I want to take a minute and see if I can finally tell you guys about the house my wife and I were planning to build this past summer. It’s an important conversation because we need to establish a shared understanding around what it means to plan on an agile project.
Scenario One – Team Agile Home Builder
My wife and I decide we want to build a new home. We find a piece of property we like in a nice neighborhood. We find a builder we like and think we can trust. We have a really good idea of the type of house that will work for us and our family. We decide that we want to spend somewhere around $500K to get the house completed but it needs to be finished sometime before our kids leave school for the summer.
Next step is to reach out to the builder and see what he can do.
The next day we show up at the builders office and tell him about our plan for our new home. The builder is really excited, seems competent, and is very confident he can get the house built within the time and cost constraints that we’ve established. We ask him what’s the next steps for planning construction on our new home. To our surprise, he tells us that he is an agile builder and doesn’t do any planning.
The builder proceeds to explain to us that as an agile builder, he doesn’t do any planning. He will meet with us every two weeks to determine our priorities and figure out the next most important thing to build. Every two weeks we can inspect what he’s built and change our mind about anything anytime. He tells me this is really in my best interest because I won’t know exactly what I want until I see it.
When I ask if I’ll have the house I want when I run out of time and money, he doesn’t know, but assures me I’ll have the most valuable parts of the house early. Furthermore, I could actually move into the house anytime during the build process, and if I decide I’ve built enough house at any time, I can cancel the contract early and pay him for only the weeks he worked plus 20% of the remaining contract.
So here is my question… would you spend your money this way?
Most people when they are spending their own money, want to have some idea of what they are going to get when the time and money runs out. They want some assurance that they’ll have enough bedrooms and enough bathrooms. They want to know the acreage of the lot and if they are going to get a one story or a two story house and how many cars they’ll be able to fit into the garage.
People understand they might have to make some tradeoffs later in the build process. They might go over on carpet and have to make some tradeoffs with the lighting. They might decide they want fancy cabinets and go with a less expensive hardwood floor. They might want to defer decisions about the colors, or the finish, or the bushes they want to put in the front yard. They aren’t willing to leave out bedrooms.
We wouldn’t spend our own money this way, but this is the way we are asking our customers to spend their money when they build software with us.
Scenario Two – Scaled Agile Home Builder
Fortunately for us, this wasn’t the way that our builder asked us to build our house. We did meet with him and describe our dream home. We talked about the property we wanted to build on, the number of bedrooms and bathrooms, and the number of cars we’d be able to fit into the garage. We talked about the quality of the finishes and flooring and how we wanted the yard landscaped. That took about an hour.
After that, we spent a week or two having meetings with the architect. We got pretty specific about the room layout, the number of floors, the layout of the basement, and the placement of the house on the lot. We made high level decisions about floors and cabinets, but didn’t pick any specifics, decide any colors, or pick specific appliances, light fixtures, or door knobs. There was way more left open then decided.
What we did decide was the stuff that would drive the cost of the house. The stuff that would be expensive to change later. We went into the process understanding that a ton of stuff was going to change, but there was also stuff that would be really difficult to change, and those decisions had to be made early. We talked about potential risks once they broke ground and buffered in case anything went wrong.
The result was a blueprint and elevation for the house. We had a line item budget for construction costs, material costs and miscellaneous tools and supplies. Every line item factored in a profit for the builder. Every line item represented some feature or attribute of the house that I would probably care about when the house was complete. We did all that in a few weeks and made no detailed decisions about the home.
It was interesting, the first cut of the plan was about $200K more than we wanted to spend and we were aware that there was some risk and should probably buffer another $50K just in case. Even though I trusted the builder, I had my CPA and advisor review the plan line-by-line just to make sure all the costs were reasonable and we were making a sound financial decision before we decided to move forward.
As we were reviewing the plan… the builder said something to me that was pivotal for how we were going to manage this project. He told me that I had a 20K budget for hardwood floors. For that price, he assured me that I would be able to get a high quality floor, extra long and extra wide boards, and a very high quality wood with a very high quality finish. That said, my budget was 20K for the hardwood floors.
When it got time to build put in the hardwood floors, it was up to me to choose what kind of floors I wanted to put in. If I decided I wanted a less expensive floor, I could save money and use it for something else. If I wanted an exotic wood like Brazilian Cherry, that would cost more and I’d pay extra. It would ultimately be up to me, but he would work with me to understand my trade-offs and any associated costs.
At Enterprise Scale, Estimates Become Budgets
I instantly made the connection that this was exactly how I coached teams to define, estimate, and plan software projects. You have to have a high level plan. You have to make key decisions early. You have to have time and cost estimates to present to the customer. What you don’t have to do is define anything and everything before you even get started. You have to establish budgets to bound your uncertainty.
At the point the builder made the estimate, he was bound to manage the project to that estimate… the estimate became a budget. The builder had to work with me as the primary stakeholder to help me make tradeoffs to live within that budget. As we break down software requirements, focusing on minimally marketable features and maximizing value, we are effectively doing the exact same thing.
Okay… let me drive this one point home. Just like you wouldn’t build a house with an open ended scope, your stakeholders don’t want to commit to an open ended software project. We have to do enough work up front to put together a credible plan, mitigate risk, and understand costs. We have to estimate the work, set budgets, and make tradeoffs to ensure the product is done on time and on budget.
It is important to be able to tell people what the project is going to cost and when it’s going to be done. It’s important to tell people what they are going to get for their time and money. It’s also important they know the risks and can buffer some contingency. They also need to know what’s locked and what’s open and the kinds of tradeoffs that they might have to make along to way to ensure success.
Why Is This Such a Difficult Problem to Solve?
The problem is that many software teams are trying to build products in less than ideal conditions. They are constantly realizing issues and risks they didn’t anticipate. They are working across too many projects at one time. They have external dependencies that can’t be managed or controlled. People are not dedicated to the team. The result is that people are coming to the conclusion software can’t be estimated.
Going back to the house analogy, it’s as if we are building on rocky soil and are constantly finding boulders that have to be broken up and hauled away. It’s as if we have contractors that never show up when they say they will. It’s as if we are constantly changing our mind between a one story house and a two story house or deciding we want a basement after the foundation has already been poured.
Summing It All Up
The answer can’t be throwing our hands up and refusing to make a commitment. We might have to pay a few thousands dollars to determine if the build is feasible. We might have to pay another few thousand for soil tests to make sure the land can accommodate our new home. You can spend money to mitigate risk. Sometimes you need to do some work to learn what you don’t know.
No estimating, no planning, and not committing won’t be the answer for most organizations. It’s not a starting place anyone can live with.
You have to ask yourselves what it is going to take to stabilize the delivery process. Forming teams that stay together helps, that was my previous post on structure. Having a governance model to control the flow of work helps too, that’s my next post. Having a means to mitigate risk, invest in discovery, establish baseline metrics, and the ability to measure improvement over time all play a part. More posts to come!
#noestimates is a #nonstarter
One final note… Kimi and I never ended up building this house. The neighborhood was beautiful. The plan and elevation were beautiful. We really liked our builder and trusted he could deliver our dream house within the time and cost constraints we agreed on. The problem was that housing prices were depressed in the county we planned to build in and the appraisal came in at 60% of the build cost of the home.
We could have moved forward anyway, but would have been instantly in a house that was worth less than we paid for it, with no indication it would recover in the foreseeable future. So sure, we spent a bunch of time and mental energy, and even some hard cash to find out we shouldn’t build the house. Had we built the house using mainstream agile thinking, we’d have found out too late it wasn’t worth what we’d actually paid for it.
We spent a few weeks of time and a few thousand dollars but avoided what would have been a very, very expensive mistake. That’s not waste in my opinion… that’s good risk management.
Check out the previous post, Shu Level Agile Isn’t The Same As By-The-Book Scrum.