Thursday, May 14, 2009

Do You Have the Right Project Success Criteria?

Traditionally, projects have four success criteria: scope, cost, time, and quality. The focus tend to be on scope, cost, and time. Quality is quietly forgotten when the project is evaluated, unless the project deliverables malfunction.

Agile software development methods have a different success criteria: Maximum Return On Investment (ROI).

This tends to create a bit of confusion. Nobody knows how to measure ROI, so management sticks to specifying scope, cost, and time in contracts, usually with a wish for high quality, but nothing about how to measure it.

This is a bad idea. Here is why the traditional success criteria do not work:

Consider two software development projects A and B. Both have the following original assumptions:

Cost: 2 million Euro
Time: 12 months
Scope: 60 use cases

When we evaluate the projects after they have been executed, we find that:

Project A:

Cost: 3 million Euro
Time: 18 months
Scope: 52 use cases

Project B:

Cost: 1.9 million Euro
Time: 11 months
Scope: 60 use cases

Evaluating A and B in terms of cost, scope, and time, we would say that:

A failed
B succeeded

Now consider this additional information:

Project A:
First release: 3 months
Revenue first twelve moths: 2.5 million Euro
Revenue month 13-18: 2 million Euro
Revenue after project: 500,000 Euro per month

Project B:
First release: 11 months
Revenue first twelve moths: 50,000 Euro
Revenue month 13-18: 600,000 Euro
Revenue after project: 100,000 Euro per month

Which project is the more successful now?

I have worked on extremely profitable project failures, and successful projects that were economic disasters. This happens a lot when organizations mess up their success criteria.

Clearly, scope, cost, and time are lousy success criteria. This insight does not tell us how to use the ROI idea though. I'll get to that in a future post.

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