Budget planning in Scrum projects and possible reactions to cost explosions

Complex IT projects are always subject to uncertainty. You must often deal with unclear conditions and changing priorities, are dependent on third-party systems and/or service providers, are using new technology and must face new requirements. That’s why it’s difficult to make professional, reliable estimates on company expenditures regardless of which project management method you use. Risks, however, are significantly lower in Scrum projects, because you always remain in complete control of the budget.

Quick and dirty initial estimates that are adjusted over time

In conventional projects, all product requirements are precisely defined in advance and all details are estimated based on previous experience. While estimates like this are laborious and time-consuming in Waterfall projects because they must be as accurate as possible (which in the end they almost never are), they are rough in Scrum projects and can be implemented quickly. During the initial assessment, the complexity of requirements is estimated based on story points. These values are then used to forecast the total budget.

One benefit of this approach is speed. Often, teams can generate results in as little as one to two hours. This is possible because teams cannot account for the complexity of requirements at the start. From experience, we know these estimates are very rough.

The total budget becomes more transparent with every iteration

Unlike in Waterfall projects with their requirements specification, the initial estimates in Scrum are not fixed. They become more realistic over time. As soon as the project starts, the requirements and general conditions become clearer with every iteration. And by using high-performance relative estimation methods, the team becomes better at telling how much a complex aspect will affect the budget and how high the total budget will be.

After just a few iterations (which is very early in the course of the project), the customer has truly reliable and valid information about the required budget.

Possible reactions to a total budget ends up greater than planned

What happens if after a few sprints, the estimates are much higher than the initial estimates? Does the customer lose all control over the budget in Scrum projects?

On the contrary. The customer always has options due to the new, incoming information about the total budget. This is where Scrum plays one of its ace cards. Early on in the project, the customer has functional software containing the most prioritized core functions and offering the greatest benefit to customers. In this case, the customer has four options:

• If meeting all requirements is expected to cost more than budgeted, the customer can abort the project at an early stage. A basic version of the project is generally released after just a few iterations.

• The customer can let the project run until the planned budget is consumed and then suspend or terminate the project. In any case, they will have functional software that contains the most important functions.

• Alternatively, the customer has the option of changing the project scope by postponing or omitting less important functions.

• Lastly, the customer can increase the budget.

Conclusion: Full budget control and thus full flexibility.

Unfortunately, serious, realistic planning is impossible at the start of a software project. This is true for conventional and Scrum projects and does not reflect the service provider’s capabilities. It is due to the nature of complex IT projects.

Scrum projects, however, always guarantee transparent budget control. Cost explosions, which might need to be accepted in a Waterfall project if you want to actually see your software in the end, can be avoided with Scrum. The customer will still receive a high-quality software product, albeit with fewer features than initially planned. For this reason, we believe Scrum is the better approach for completing software projects in regards to the budget and from the customer’s perspective.

Your partner for individual software development with Scrum

Are you planning a software project in which high quality and full budget control are equally important? Then //SEIBERT/MEDIA is the right partner for you. For us, expandability, performance, scalability, platform independence and testability are what really matter. Using agile project management methods, we create custom, high-end software solutions that can be expanded and modified flexibly in the future. Feel free to contact us with no obligation! You can find more detailed information in our public wiki: Introduction into software development with //SEIBERT/MEDIA.

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