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57309Re: [scrumdevelopment] How to perform estimation for custom (billable) work

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  • Kurt Häusler
    Oct 18, 2013
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      Hi Alex,

      I have written a blog post about this topic and have given a talk at a
      conference about it:

      Blog post: http://kurthaeusler.wordpress.com/2013/05/20/pricing-and-a-little-bit-about-estimation/
      Conference talk video: http://www.youtube.com/watch?v=NgOnS1scD24
      Conference talk slides: http://www.slideshare.net/kurthaeusler/offers-andpricing

      The theoretical best is value based pricing, or basing the price on
      the value that the customer will get from the software, but it might
      be hard for a software development service provider to work with for
      various reasons. The customer might not know or be willing to share
      the value. Or even if we discover a value, we still have to make sure
      our costs are covered.

      My current favorite is price per (in Scrum terms) PBI. Simply divide
      the teams total costs for the past 12 months by the number of PBIs
      they have delivered to work out your costs per PBI. Add a small margin
      and there is your price per PBI.

      However in my recent experience customers have their favorite pitch
      and purchase procedures and allow little flexibility. For example 95%
      of the customers I have worked with recently ask for an hourly rate,
      and the number of hours the development will take. The web page that
      you (or the person in the purchasing department you talk to on the
      phone) asks for that information, there is no slot for doing anything
      else. In a sense this makes things easier as it takes the issue of the
      table.

      Since you are asking the question, am I right in assuming the customer
      actually allows you some flexibility in how you come up with a price?
      If that is the case, then you are very lucky. You actually have a good
      chance to get things started right, without the disadvantages of the
      old t&m and fixed price models that we seem to have automatically
      carried over to the agile world without thinking about it.

      If you don't get this flexibility, then the answer is depressingly
      simple. Just do it however the customer permits or understands.

      May I ask, what industry you (or your customers) are in?

      On Thu, Oct 10, 2013 at 10:24 PM, <vilson_a@...> wrote:
      >
      >
      > Hello everyone,
      >
      >
      >
      > I was wondering if you guys could help me out with this problem. Although I
      > have worked in an Agile environment before, even as an Scrum Master, this is
      > actually the first time I’m working in a company (currently implementing
      > Agile) that does custom (billable) work.
      >
      > I am sure most of you have had the opportunity to deal with this situation,
      > and I was wondering how you have worked it out.
      >
      >
      >
      > Estimation to price the “project” is currently done in hours, and of course
      > it is a completely unrealistic number. Since I have been a Scrum master
      > before, I am trying to help the Dev Manager figure this out.
      >
      >
      > Just to clarify, for regular product roadmap items we do estimate in points
      > (Fibonacci).
      >
      >
      >
      > Please let me know if any more detail is required.
      >
      >
      >
      > Thanks!
      >
      > Alex Pereira
      >
      > www.brainstack.net
      >
      >
      >
      >
      >
      >
      >
      >
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