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How do you run an Agile project using a fixed cost model?

Our standard has always been to quote client prices by using hourly rates but lately as budget dollars continue to be tight, more and more clients want to know the total cost for a project up front. Specifically with Agile, projects can end at any point if the product owner is satisfied with the implemented features and I am having a hard time estimating a fixed cost model for Agile.

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d. cooksey

Well, one possible solution is to quote a fixed price for a specific set of features. That should make it clear to the client that any feature not specified up front would require additional funding.

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jonathan cogley [ Admin ]

We typically budget a fixed price for a certain number of hours (so it is still really "time and material"). For example: 2 developers x $y/hr x 3 sprints

This fixes the cost and the time of the project, the only variable now being scope. The most important features are implemented first with lots of feedback to the customer and regular demos. If the customer ends the project early then the cost is only for the hours used. If the entire scope is not completed then new budget is planned for new sprints to occur. The key for us is the collaboration with the customer and having working software that the customer can use throughout the process (frequent demos and releases).

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