Cost, Value & Investment: How Much Will This Project Cost? Part 1

I’ve said before that you cannot use capacity planning for the project portfolio. I also said that managers often want to know how much the project will cost. Why? Because businesses have to manage costs. No one can have runaway projects. That is fair.

If you use an agile or incremental approach to your projects, you have options. You don’t have to have runaway projects. Here are two better questions:

  • How much do you want to invest before we stop?
  • How much value is this project or program worth to you?

You need to think about cost, value, and investment, not just cost when you think about about the project portfolio. If you think about cost, you miss the potentially great projects and features.

However, no business exists without managing costs. In fact, the cost question might be critical to your business. If you proceed without thinking about cost, you might doom your business.

Why do you want to know about cost? Do you have a contract? Does the customer need to know? A cost-bound contract is a good reason.  (If you have other reasons for needing to know cost, let me know. I am serious when I say you need to evaluate the project portfolio on value, not on cost.)

You Have a Cost-Bound Contract

I’ve talked before about providing date ranges or confidence ranges with estimates. It all depends on why you need to know. If you are trying to stay within your predicted cost-bound contract, you need a ranked backlog. If you are part of a program, everyone needs to see the roadmap. Everyone needs to see the product backlog burnup charts. You’d better have feature teams so you can create features. If you don’t, you’d better have small features.

Why? You can manage the interdependencies among and between teams more easily with small features and with a detailed roadmap. The larger the program, the smaller you want the batch size to be. Otherwise, you will waste a lot of money very fast. (The teams will create components and get caught in integration hell. That wastes money.)

Your Customer Wants to Know How Much the Project Will Cost

Why does your customer want to know? Do you have payments based on interim deliverables? If the customer needs to know, you want to build trust by delivering value, so the customer trusts you over time.

If the customer wants to contain his or her costs, you want to work by feature, delivering value. You want to share the roadmap, delivering value. You want to know what value the estimate has for your customer. You can provide an estimate for your customer, as long as you know why your customer needs it.

Some of you think I’m being perverse. I’m not being helpful by saying what you could do to provide an estimate. Okay, in Part 2, I will provide a suggestion of how you could do an order-of-magnitude approach for estimating a program.

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  1. stridenyc.com – I’m Agile But My Contract Isn’t: How to Align Contracts with Agile Software Development Teams - […] contrain the “money” variable in the contract. I love the way Johanna Rothman states it in a recent blog…

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