Mar 9, 2023
The agile fixed price: How to combine budgets and project goals in agile software development
In the world of software development, there is often a tension between the customer's need for reliable budgeting and the developer's need for flexibility and adaptability. In recent years, the agile approach has established itself as a promising approach to this tension.
In the 4th edition of the book "Der agile Festpreis" (The agile fixed price) by Andreas Opelt, Boris Gloger, Wolfgang Pfarl and Ralf Mittermayr, you can now learn about the company's approach in a practical commentary by Christof Stromberger, managing director of Denovo. Shortly after the company was founded, the agile fixed price was defined as the basis for its contracts. Christof Stromberger states in his commentary in this regard:
"The agile fixed price is a solid and easy-to-use contract model that enables a fair and cooperative working mode between client and contractor."
What is the agile fixed price?
The agile fixed price is a pricing model based on agile principles. It takes into account the flexibility and adaptability of the agile approach while providing a fixed cost estimate for the project. Under an agile fixed price, the project is divided into small, incremental phases. After each phase, the work to date is delivered to the client(s) and reviewed, and the results are adjusted to ensure that the project continues to meet the client's objectives.
How does the agile fixed price work?
The agile fixed price works by integrating agile principles into a fixed pricing model. At Denovo, a project is defined based on user stories and story points. User Stories are requirements for a digital product that are written down in non-technical language. Story Points reflect the complexity of the individual software function. A user story consists of a certain number of story points. Story Points are therefore the "unit of currency" of the agile fixed price contract.
Projects are divided into small, incremental phases. At Denovo, these are sprints with a length of 14 days. After each sprint, the developed user stories are made available to the customers for review to ensure that the project is still on track. Afterwards, the project can be sharpened and errors corrected.
Curious? Read more about the agile fixed price contract here.
What are the benefits of an agile fixed price?
An agile fixed price offers a number of advantages, both for clients and software development companies.
Some of the most important advantages are:
The Steering Board includes project participants from both the client and contractor sides. Through the collaboration of the clients, internal industry knowledge is made available to the development team.
Exchange for Free:
Requirements change in every project. The agile fixed price includes the possibility for the client to change the scope of the project at any time without additional costs.
Due to the iterations and close cooperation with the client, changes can be reacted to as quickly as possible. Through cooperative planning, reviews and backlog groomings, the common vision can be developed in the best possible way.
If it turns out during development that a story requires considerably more resources than originally estimated, the clients only bear a share of the additional costs.
If the client is not satisfied with Denovo's performance after the checkpoint phase, they only pay 50% of the previous effort and can withdraw from the rest of the contract free of charge.
The basic principle of the agile fixed price is fairness. The highest possible quality can only be achieved through cooperation. This is what the agile fixed price promotes and demands. Conclusion
Besides the possibility to combine the advantages of agile software development with the need for budget planning and predictability, the agile fixed price promotes cooperation between customer and development partner, minimizes the risk of errors and misunderstandings and enables faster delivery of the project. The agile fixed price results in clients and developers having a more effective project management experience together.