Beyond Story Points: Agile Contracting & Efficiency Management

As agile methodologies take root and organizations transition from project-centric to product-centric models, a critical question arises: how do we effectively contract in this new landscape? Traditional methods, often reliant on story points, struggle to capture the dynamic nature of agile development and ensure value delivery.

Story Points: A Flawed Metric for Agile Contracting

While story points offer a relative measure of effort, they fall short in several key areas:

• Subjectivity: Assigning story points is inherently subjective, leading to inconsistencies across teams and projects.
• Value Disconnect: Focusing solely on story point completion disregards the true value delivered. Teams might prioritize speed over quality, compromising functionality or user experience.
• Inefficient Measurement: Story points don't directly translate to efficiency gains. Completing more stories doesn't necessarily equate to greater value delivered.

And we can understand this with an example:

Scenario

Let’s assume, a bank contracts a System Integrator to build a new mobile banking app. The bank prioritizes the following business values:

• On-time completion: Launching the app within the agreed-upon timeframe to capitalize on market opportunities and meet customer expectations.
• Complete feature set: Delivering all the promised functionalities, including account management, fund transfers, bill payments, and investment options, to provide a comprehensive user experience.
• Increased customer engagement: Encouraging users to actively manage their finances through the app, leading to higher retention rates and potential revenue growth from additional services.

Challenge:

The development team, incentivized by a story point-based contract, focuses solely on completing individual user stories within their allotted points. This approach might lead to:

• Prioritizing speed over quality: To meet story point targets, the team might rush through development phases, neglecting crucial aspects like code testing and user interface refinement. This can result in bugs, glitches, and an unintuitive user experience, ultimately hindering customer adoption and engagement.
• Scope creep: Unforeseen complexities during development might require additional effort beyond the initial story point estimates. If the contract rigidly adheres to pre-defined points without allowing for adjustments, the team might be forced to either:

a. Cut corners: Sacrifice essential functionalities or features to stay within the point limit, compromising the app's overall value proposition.

b. Request budget revisions: This can lead to delays and strained relationships with the bank, as exceeding the initial agreement necessitates renegotiations.

• Misaligned priorities: The team's focus on story points might not directly translate to delivering business value. For instance, they might complete stories related to less critical functionalities while neglecting features crucial for user engagement, such as personalized financial insights or intuitive navigation.

Consequences:

• Delayed launch: Compromised quality and unforeseen complexities can push back the app's release date, jeopardizing the bank's initial launch plan and potentially missing out on market opportunities.
• Poor user experience: Bugs, glitches, and an unintuitive interface can frustrate users, leading to low adoption rates and negative feedback, ultimately failing to achieve the desired increase in customer engagement and revenue.
• Strained relationships: Disagreements over scope creep, budget revisions, and misaligned priorities can create friction between the bank and the development team, hindering collaboration and hindering future project success.

And if you add up the complexity for a large program, where delivery cut across multiple value stream, identifying true cost for story delivery and efficiency gains can become nightmare and business can never get a comprehensive view of TCO and ROI.

The Procurement Dilemma:

Now if we understand the shortcomings of story point estimation with the help of above example, then, these limitations pose significant challenges for procurement teams:

• Standardization Difficulty: Establishing a unified metric across diverse teams and projects proves difficult due to the inherent subjectivity of story points.
• Contentious Sizing: Determining the appropriate story point value for specific tasks often leads to disagreements and disputes.
• Misaligned Value: The focus on story point completion can incentivize quantity over quality, potentially hindering true value delivery and efficiency optimization.

Moving Beyond Story Points: Embracing New Approaches

To address these challenges, we need to move beyond story points and explore alternative contracting models:

• Team-Based Pricing: This approach focuses on paying for a team with the right skills and experience rather than specific deliverables. This fosters trust and collaboration, aligning incentives between teams and clients.

You may have a question, in new scheme of things how team will determine the minimum value is delivered with efficiency, as trust and collaboration is subjective things. Here your OKR and Flow metrics comes into the picture. OKR will bring discipline and Flow will act as a diagnostic and visibility tool.

• Flow Metrics for Value Delivery: Since story point completion alone doesn't guarantee efficiency, flow metrics like flow time, velocity, and efficiency offer valuable insights. These metrics act as diagnostic tool, helping identify bottlenecks and assess whether teams are delivering more with the same capacity or achieving the same with less effort. Also, we start thinking about outcomes not outputs and start integrating key IT SLI with key customer experience(CX) metrics.

Conclusion: A New Paradigm for Agile Contracting

The evolving agile landscape demands a shift from story point-based contracts to fixed capacity-based pricing combined with flow metrics for efficiency evaluation. This empowers procurement teams to focus on acquiring skilled teams and measuring the true value delivered, ensuring successful project execution within the agile framework.

By embracing these new approaches, we can bridge the gap between agile development and effective contracting, fostering collaboration, value delivery, and ultimately, project success.