Many companies that hire IT services are looking for a solution that solves any business need, a tool that optimizes a process, the development of a new communication channel or simply a solution to a very concrete problem. Traditionally these services are contracted at Fixed Price and managed using the Waterfall model.
On the other hand, when needs are more volatile and less predictable, or teams are managed by the client himself, the hiring model is usually Time & Materials, and then delivered using Agile methodologies.
In this article we present a new model – Output Driven – comparing it with traditional delivery models.
The path of Traditional Delivery Models to Output Driven
Nowadays there are evolutions in more traditional delivery models, to better understand the advantages and differences, it makes sense to know the delivery models that served as a starting point for this evolution.
The projects in the Fixed Price model are based on very strict contracts, in which the scope must be fully known at the beginning in order to be able to estimate and dimension them.
In this model, any change must be managed as a new contract or as a change to the existing one, which brings a need for increased management and may have an influence on the normal development of projects.
Despite the advantages, such as being highly predictive projects in terms of costs and dates, for large projects there is a real risk that the solution delivered will not be aligned with the real needs of the business at the time of delivery. This misalignment often leads to conflicts that are difficult to manage and with huge losses for one or both parties, being an increasingly common problem in the reality of today’s companies in which change and the need for rapid adaptation is constant.
The Fixed Price model works best on short-term projects with a small scope and an objective that is fully known before it starts. It can be used well, for example, in MVP (Minimum Viable Product).
Time & Materials
This model involves the regular payment, based on a rate / hour or a rate / day, of the effective working time.
The Time & Materials model brings an increased risk to the customer, who becomes responsible for developing the solution. However, it allows customers to monitor development as programmers develop the solution, allowing them to adapt the product to the current reality.
In this model, it is normal for customers to feel a departure from supplier companies in monitoring resources, as there is no objective for the supplier other than the availability and allocation of resources.
Bearing in mind the constraints of these two models, the misalignment of the objective of the solutions delivered and the difficulty of having suppliers’ commitment makes companies look for alternative models.
Output Driven: a Hybrid Delivery Model
Output Driven is a model aimed exclusively at agile methodologies that promotes quality and speed of delivery and is based on trust between customer and supplier, usually using the SCRUM framework and its rituals.
The most disruptive feature of Output Driven is the fact that the client does not hire a scope or a team or set of resources, but rather a speed of delivery (Work Unit) of value, within a certain time interval (Sprint), staying on the side the responsibility of the supplier to guarantee this same capacity.
At the end of each sprint, the customer pays for the Sprint product delivered and validated by him.
In order to make this operational model , there are three fundamental pillars that have to be objectively defined:
- The price per Work Unit;
- The Definition of Done (DoD);
- The contracted speed.
Traditionally, in Agile models, the cost of a Work Unit is made in Story Points. In these models, the exercise of estimates is usually done by comparison, which means that the speed of one team may be different from another to deliver the same product, so it is essential to limit it to specific elements. For this, the estimates are based on a matrix that limits, guides and standardizes the estimates between teams, making the process more objective.
The estimation matrix is based on a set of simple and concrete weights in which the sum of them is used to obtain the dimensioning of a User Story.
The price of a Work Unit can never be dissociated from the agreed acceptance criteria, so it is critical that the Definition of Done is also explicit and objective.
For example, if a given project requires test automation or a UX / UI study is carried out on all deliverables, the value defined by Work Unit must also be explicit in the DoD will also reflect this need.
Last but not least, it is necessary to define the team’s speed, that is, the number of Story Points that the team must deliver in each Sprint. This is a critical point for the supplier, who has to build a team with the capacity to deliver at the expected speed and with the necessary skills to develop the solution increments according to the defined DoD. This speed can be adjusted throughout the project according to the needs of the business, thus giving the customer the ability to scale without complexity.
The Output Driven model places the responsibility for delivery on the supplier, but maintains agility and flexibility for the customer, where the customer only pays Sprint the Story Points delivered and accepted, thus stimulating the commitment, speed and quality of the supplier’s teams.
In an ecosystem as heterogeneous as the IT world, where customers are in all business sectors, which are so different from each other, there is no perfect delivery model for all scenarios and challenges.
Output Driven appears as a response to the limitations of traditional models, thus representing a natural evolution of delivery models.
It is a delivery model focused on speed and quality of delivery that aggregates the main advantages of the most classic models, also trying to respond to their weaknesses.
It combines the flexibility and agility of Time & Materials, maintaining the commitment and focus of the supplier, invoicing only the amount delivered.
It is also a risk-sharing model between the customer and its supplier, in which both have a common goal.
For this to be possible, it is essential that there is a true partnership relationship, to the detriment of a customer-supplier relationship, in which there is trust between the customer and his supplier.