Procurement Management Done Agile (Part 1)

PMI Los Angeles Chapter

Don is an entrepreneur and business leader with over 15 years experience specializing in aligning management-driven technologies and initiatives together with business and project strategies resulting in thoroughly planned and comprehensive business solutions. His expertise as a project manager, developer, tester, analyst, trainer, consultant, and business owner has spanned across diverse industries such as finance, retail, health care and information technology

For software development firms procured by a company to develop new systems (or enhancements to existing systems), it is not uncommon to run into disputes with the buyer for software systems developed utilizing formal contractual agreements. This typically involves arguments over the business value being delivered for the costs incurred by the buyer, despite the often difficult and nebulous task of “measuring” the actual value delivered for the costs incurred by both parties.

This problem will be compounded if the software development firm is one that has adopted agile methods and processes and is hired by a company that follows the traditional linear and sequential procurement process. Such a firm will require a fixed price contract to manage costs and to ensure their procurement keeps within budget. As I mentioned in a blog related to this topic, the advantage of using this type of contract is the reduced level of work required by the buyer to manage the contract. The buyer will know the price being charged and the incentive lies with the seller to control costs. The sales and procurement dept of the software firm (seller) will typically negotiate away changes likely requested by the buyer and accept terms and agreements that are fundamentally in opposition to agile processes. That results in the suboptimal outcomes outlined above, including budget, scope …

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