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How to manage budget and contracts for agile projects?

What is all about?

In a customer project we make the decision for an out-of-the-box solution and plan to implement it with an agile approach. But how shall we handle budget and contracts for the implementation? Using a practical example, this article contains a simple budget approach that forms the basis for the contract with a supplier.

By Peter Roth, February 1, 2021


Agile is everywhere. Agile is the new normal. Agility is a must. And without agility, you are out of business. Not always a reality, but that is how it seems with the super-hype of agile. And agile makes very often sense. Therefore, an agile approach is now offered and used for almost every development and implementation project. In all possible variations. But when it comes to the budget and the contracts, there suddenly seems to be no more agile approach. Here is an example.

Evaluation for an out-of-the-box solution

Recently we carried out an evaluation for a complex out-of-the-box software solution in a customer project. Every offer from manufacturers and suppliers always consisted of two parts, the product price and the price for implementation. The product price is either a license fee for an in-house solution or the fee for SaaS for an on-demand / cloud solution, including maintenance, support, and future updates. And the price for the (initial) implementation includes setting up the solution, the integration activities such as setting up interfaces to other solutions and adapting the solution by means of configuration and sometimes programming. The implementation is carried out either by the manufacturer himself or by a specialized third party, the so-called implementation partner.

Although the supplier suggest an agile or at least iterative approach starting with an initial setup phase, they offer a fixed price for the implementation, for example for six months, . From the point of view of resource planning, this procedure is of course much simpler and more efficient and therefore more interesting for a supplier because they can assign their consultants for a specified period of time. However, our customer has clearly agreed on an agile approach to keep the solution as lean as possible during customization. For the project team, there is no motivation to keep the solution lean with a fixed price model. Either new stories will be implemented with nice features and gadgets to keep the user happy as long as the budget is there or there will be serious discussions if the customer wants to leave the contract earlier.

Budgeting proposal

Our proposal to ensure sufficient cost control is to support the hybrid approach in the contract, by funding the initial phase and the first three sprints for each required solution (epic) with the most valuable stories. The project has budgeted for two more sprints to achieve the Minimal Viable Product (MVP) for each epic. However, these budgets must be requested from the sprint teams based on a clear, pre-defined process. All further sprints have no budget and must be requested with a formal change request.

Such a concept offers efficient and effective financial competencies on two organizational levels, on the level of the sprint team and on the level of the overall project. Of course, the number of sprint teams and sprints depends on the project. You might start with four approved sprints but budget for three more. With an implementation that is ready for immediate use, the number of sprints should naturally be lower than with an in-house development. The procedure gives the customer the opportunity to learn during the implementation and to examine and decide on requests for more functionality. Stories can also be rejected if they are not really needed, so that the project can focus on others that bring the greatest benefit. Or the solution can also be expanded to include additional functions that were not apparent to the project at the beginning. Such a budget approach is now also the basis for concluding a contract with the supplier.


Agile development has many advantages but requires an adjustment of the mindset not only in the development teams, but also in management, especially in finance and contract management. In addition, it requires a more agile quotation system when concluding contracts with suppliers.

Do you also want to implement an evaluation, an agile project or an implementation of an out-of-the-box product? We are happy to support you personally and individually. Contact us now.