How to reduce risk effectively in fixed price software development

Abstract

In this paper we consider 20 years of software development at a medium-sized European software company (called adesso).We identify changes and trends in software project management and we name typical risks inherent to fixed price projects (beyond the common sense that unclear requirements, missing domain knowledge and breakdown of project communication are permanent risks). Fixed price projects and their related derivatives can have a huge economical upside for companies like adesso, which goes along with sometimes even larger risks. The goal of this research is to identify both risk drivers and risk reduction or even elimination strategies. On this basis, we introduce the notion of a Project Management Office (PMO) and supporting tools and mechanisms which help to identify project risks early. Experience reported is based on eight years of monitoring software development projects with these tools and mechanisms. We also give some insights how PMO at adesso has changed over time and why these changes were implemented. As key message of this paper we show the correlation between the systematic usage of the PMO tools and a decreasing overspend rate over eight years and more than 320 projects.