- project investment
- Shift funds from lower to higher value projects
Unlike the Waterfall process where the cash is locked up until the end of the project, an Agile project is broken into smaller deliverable "chunks". The goal is to get value from delivery as early as possible in the process. Once the value recognition begins, the project starts to pay for itself. With subsequent releases, value compounds, increasing the cash generated by the project and reducing the amount of net cash required to support the ongoing development. Therefore, the overall cash investment necessary to fund an Agile project can be dramatically lower than what is necessary for a waterfall project if releases start early and occur frequently.
In the above diagram you can see that in the Agile project cash investment increases during the first iteration of development. In this example, the aggregate cash investment does not increase during the second iteration because cash resulting from the first release offsets the development costs. Thereafter the aggregate cash investment continues to be reduced as additional value is received from subsequent releases. Project cash flow more than covers ongoing development costs. By the fourth release, the net cash investment is zero and the project is starting to generate net positive cash flow to the company. At this point in the waterfall project, no cash has been received and the overall investment continues to climb.
Frequent releases allow the business to realize a return faster, frequently so that the business receives value sooner and realizes a return faster. This reduces work-in-process and frees up cash, conserving capital. This capital can be invested or accelerate another project.
Let's compare the traditional approach versus an Agile approach:
More frequent releases mean more opportunities throughout the life of the project to use current market information to shape the project design and outcome. This greatly expands project management options to change features based on real time information. The business gains flexibility in managing the project portfolio and has the opportunity to make strategic and tactical changes at known intervals. The business can now choose to:
- Expand scope by adding new features thereby accelerating received business value.
- Reduce scope and decrease project investment.
- Reprioritize features.
With heavy design up front and a "big bang" release, traditional projects are designed to be larger and will take more time to complete. With a fixed capital budget, larger projects mean fewer projects. When no return is available until the waterfall process is complete, longer projects increase the likelihood that no return will be obtained during the annual budget cycle. This leads to fewer investments and limited opportunity to offset losing projects with winning projects. Unlike the stock market where you can actively manage your stock portfolio on a daily basis, using a traditional approach limits the kinds of changes you can make without jeopardizing what you have already invested.
With an Agile portfolio approach, the business can break down long-term projects into short-term projects. This provides more frequent opportunities to both evaluate and adjust investments so that you can:
- Adjust portfolio on the basis of market changes and customer feedback
- Actively reprioritize the project portfolio.
- Reallocate funds to stronger performers.
In comparing the traditional and Agile approaches to software development, it's easy to see why Agile adoption is becoming more mainstream. Companies want real options and flexibility at a time when adaptability is critical.
Now Is the Time
In the current economy, a company's ability to adapt quickly keeps the business viable. Businesses that embrace an Agile approach can actively manage the portfolio of projects, making it easier to reevaluate