Project Cost Example

Important

Please read the previous post explaining this model, before reviewing the example below.

This example uses the following steps.

  1. Adds employee salary, benefits and contractor fees as cost variables.
  2. Calculates how much these variables cost each week.
  3. Sets highest number of story points burned down during a sprint as benchmark.
  4. Multiplies the weekly cost of the sprint by the length of the sprint.
  5. Divides that sum by the number of story points, revealing the cost per sprint based on actual throughput.
  6. Based on throughput of past sprints, creates data to calculate the cost of future sprints.

Step One:

  • Sum up cost variables
  • Calculate how much variables cost per week.
CategoryYearly SalaryYearly BenefitsHeadcountTotal Compensation
Weekly Total$9,440.00$1,214.4413$27,156.10
Average Employees Developers$97,000$30,361.005$636,805.00
Average Employees QA$97,000$30,361.000$0.00
Average Contractor Developers$97,0003$291,000.00
Average Contractor QA$83,0004$332,000.00
Average Contractor PM$98,0001$98,000.00
Employee Benefits*31.3%
Salary Weeks**50
Yearly Total$472,000.00$60,722.0013$1,357,805.00
This table includes employee salary, benefits and consultant fees only. All known costs should be included. Bottom line: It costs $27,156.10 per week to run projects with our team of 13 members.

 Step Two:

  • Multiply the weekly cost of the sprint by the length of the sprint.
  • Divide that sum by the number of story points, revealing the cost per sprint based on actual throughput.
  • Based on throughput of past sprints, the model creates data used to calculate the cost of future sprints.
Sprint IDTotal WeeksTotal Story PointsTotal Operating Expenses for SprintExpense Per Story PointTotal PBI’sExpense Per PBIThroughput Reduction
Maximum Throughput245
113168$81,468.30$484.9362$1,314.00-31.43%
123245$81,468.30$332.5268$1,198.060.00%
13255$54,312.20$987.4949$1,108.41-77.55%
143153$81,468.30$532.4730$2,715.61-37.55%
15397$81,468.30$839.8831$2,628.01-60.41%
16363$81,468.30$1,293.1521$3,879.44-74.29%
173167$81,468.30$487.8349$1,662.62-31.84%
Total Weekly Cost$27,156.10

The example above shows total backlog items closed during the sprint and their costs. Story points are used as a measure of throughput because they represent the lowest common denominator.

Inventory – another critical number

This example focuses on the cost of production as it responds to gains in throughput. Understanding the cost of inventory and how to manage this inventory is likewise important. If for example, a requirement or design is never built because consumers don’t want it, the value of that inventory is zero. The entire cost of that effort is lost.

Critical numbers, readily available using the Scrum Framework, should give you a clear financial overview of your project.

  • Throughput (Story Points or, if it is more helpful, PBI’s)
  • Operating expenses (salaries, equipment, etc.)
  • Inventory a.k.a Intellectual Inventory (Backlog items or prototypes, requirements, design documents, etc. not in backlog. Making sure all items are in the backlog, ensures costs for effort do not remain unreported and the Scrum principle of transparency is maintained.)

Don’t Forget Cost of Quality

Throughput improvements should come by implementing goals during the retrospective, not by becoming more sloppy. Subtract the effort each new bug takes from the total points for the sprint; rightly increases the cost. This may be an interesting way to introduce greater quality awareness.

Final Tip From Lean

If you discover your retrospectives are not having the desired effect on efficiency,  do a quick review using these five points of Lean. These may help.

  1. Identify the system’s bottle neck(s)
  2. Decide how to exploit the bottlenecks.
  3. Subordinate everything to the above decision (Make everything march to the “tune” of the bottleneck.)
  4. Elevate the system’s bottlenecks. (Improve capacity at the bottleneck.)
  5. If in a previous step a bottleneck is broken, go back to step one. (If the system begins to breakdown, reevaluate these five steps.)

 Worksheets with formulas

Feel free to download, use and improve this model.

Resources used to create this example:

About Larry

Passionate, experienced Agilest with a love for Scrum and Kanban. Huge fan of Lean, Theory of Constraints and of course the Toyota Production System. Avid learner. Deeply influenced by the works of Jeff Sutherland, Ken Schwaber, Eliyahu Goldratt, Jeff Patton and countless others. Active in both the PMI and Agile communities in Southern California.
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