An economic model of software development approaches

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Conference Proceeding
AusWeb 2006: 12th Australasian World Wide Web Conference, 2006
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As agile methodologies are being adopted by increasing number of organizations, there is a greater need to understand its value. This study attempts to explain the value of Agile Methodologies by introducing a new economic analytical model and using simulation techniques. The results show that uncertainty level has a strong effect of the level of process effectiveness. Lower level of uncertainty is associated with high levels of project effectiveness regardless the level of pre-committed project costs and project duration. When the level of uncertainty is high, the level of process effectiveness is low regardless of the level of pre-committed project costs and project duration; and, the process effectiveness declines at a fast rate with longer project duration and/or higher level of pre-committed project costs. Agile methodology's value-adding comes from its core values of effective communication, and starting from small for shorter duration. It is suitable for projects with high levels of uncertainty. In contrast, the plan driven approach, tends to increase project duration, pre-committed project costs and fails to reduce the level of uncertainty. It is only suitable for projects with low level of uncertainty. © 2006. Li Liu, Xiaoying Kong and Jing Chen.
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