Executing Fixed Price projects using Agile methodology

Introduction

In recent times, there has been a growing trend of companies wanting to fix budgets and timelines for projects while executing them using Agile methodologies, allowing scope to remain flexible. However, by definition, fixed-price (FP) projects have predetermined budgets and timelines tied to a specific scope of work, leaving little room for changes unless timelines and costs are renegotiated. Agile, on the other hand, emphasizes responding to change over following a rigid plan, focusing on delivering features that provide the most value quickly. Agile values individuals and interactions over processes and tools. The challenge is: how can we respect the fixed nature of FP projects while still accommodating scope changes effectively?

Recommendations

Focus on Business Outcomes Over Features - Fixed-price (FP) projects are successful when delivered on time and within budget. Agile’s timeboxing approach supports this by prioritizing measurable business outcomes rather than rigid feature delivery. Instead of committing to specific features, focus on goals like increasing revenue or reducing costs. Clearly define these outcomes, estimate costs and timelines, and adjust the scope as needed to stay aligned with these objectives. De-scoping non-essential features when complexities arise ensures the project meets its bottom-line objectives without compromising timelines or budgets.

Define a Clear “Definition of Done” - Many FP projects fail due to unforeseen requirements, often subtle non-functional needs like quality, compliance, or documentation. To avoid this, explicitly discuss expectations with the sponsor during estimation and capture them in a “Definition of Done.” This ensures all functional and non-functional requirements are addressed, preventing estimates from overlooking critical but less visible elements. A clear definition avoids costly surprises and ensures alignment with the sponsor’s needs.

Measure Size Instead of Scope - For FP projects using Agile, teams should measure size in story points rather than locking into a fixed scope. This allows flexibility for scope modifications that make sense for the project while adhering to the agreed-upon size. Sponsors also gain a clear understanding of capacity and thresholds, enabling informed trade-off decisions that balance scope changes with the fixed size.

Ensure Accountability Across All Levels - FP projects often place most of the risk on the project team, while sponsors and stakeholders take a back seat. In Agile, changes are welcomed, and accountability must be shared. A clear RACI matrix involving all stakeholders, including external ones, should be communicated early. Regular updates on dependencies, risks, and pending tasks ensure everyone understands their role and the impact of delays. Dependency trackers and risk registers help identify potential delays, keeping tasks on track and challenges manageable.

Enhance Communication and Collaboration - Regular meetings and touchpoints with sponsors and stakeholders provide constant visibility into project status and health. Encourage collaboration to share reusable artifacts and clear roadblocks promptly. Sponsors must remain engaged beyond the initial discussions to prevent communication breakdowns. Active participation ensures timely decisions and avoids delays caused by misunderstandings or poor coordination.

Use the MoSCoW Method for Cost Estimation - Agile FP projects benefit from the MoSCoW prioritization technique, which categorizes requirements into:

Must have: Essential for success (60% of scope).

Should have: Important but not critical (20%).

Could have: Desirable but not necessary (20%, often as contingencies).

Won’t have: Excluded from scope.

Early discussions with clients define these priorities, enabling a shared understanding of goals. By focusing on “must haves” and “should haves,” with flexibility for “could haves,” teams can deliver solutions that exceed client expectations, driving satisfaction and market value.

Train the Team for Agile FP Projects - Project teams need specialized training to adapt Agile practices for FP projects. This includes recognizing scope changes, escalating unclear requirements to leadership, and ensuring product owners and scrum masters understand budget and story point allocations. Empower teams to make prioritization decisions during sprint planning, ensuring budget alignment while maintaining flexibility

Conclusion

Managing FP projects with Agile methodologies and flexible scopes is challenging. Unmanaged changes can lead to delays, budget overruns, and losses. The project manager plays a critical role in keeping stakeholders informed about status, health, risks, and dependencies and their impacts on budgets and timelines. By adopting the recommendations outlined above, teams can navigate these complexities effectively, making projects more manageable and successful.

References:

1:Fixed price agile projects

2. Agile and fixed price projects: How to make it work | Globant Blog