Time box

What kind of contract is best for Agile Development?

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The basic structure of development contracts is all about risk management and creating incentives – for both sides. Fixed fee minimizes certain risks for the customer and maximizes them for the contractor. T&E minimizes certain risks for the contractor and maximizes the customer’s risk. There are many variations between these poles.

Although there are some exceptions, most projects are funded with a finite and limited budget of time and money, with considerable consequences for not meeting expectations. Telling a check signer they’ll know what they get when they get it usually leads to an interesting discussion.

We all know that the sponsors of bespoke software development often don’t know (exactly) what they want and that developers don’t anticipate all of the ways that complex software can get really screwed up. Some kind of iteration is necessary to resolve this. Techniques for managing software development risk are well-known and have been successfully applied (and ignored with predictable results) for over 40 years, including Agile practices.

The essential risks of software development don’t change as a result of using an Agile process (for a primer on Software Risk, I like Higuera and Haimes Software Risk Management.)

So, I think “Agile versus Waterfall” as criteria for terms is a misleading distinction that can’t really provide much help in identifying and managing risks. Choosing a process model and then a risk management/contracting approach is essentially putting the cart before the horse.