Incremental Funding (Book Review)

The customer wanted an on-line currency exchange capability added to their on-line financial service offerings. They figured it would take several months to implement. But the development team suggested a different approach: start by hiring a dozen telephone operators and implement the necessary software for these folks to execute currency trades. The company gave it a try, and in six weeks the first iteration was ready. With no more than an 800 number on their web site and a rudimentary interface to the currency market, new business was being transacted and profits being made.

Over the course of the next several months, the on-line trading capability was implemented around the core module originally used by the telephone operators. Not only did the company see early revenue, but the risk of failure disappeared once trading started. In addition, system requirements were defined by observing real trades.

In the book Software by Numbers – Low Risk, High Return Development (Prentice Hall, 2004) Mark Denne and Jane Cleland-Huang make the case for incremental delivery of software. Mark Denne developed the Incremental Funding Methodology (IFM) in the 1990’s to help land a large software development contract. In an attempt to distinguish his bid from the pack, he reorganized the deliveries into units of value, and adjusted the development sequence so that the customer would realize revenue faster and in the end, receive a greater return on their investment. The customer discovered that this approach dramatically reduced their need to borrow money and gave them earlier product release with lowered risk. In what seemed like hotly competitive bidding process, Mark’s company won the bid by emphasizing “time to value” instead of development efficiency.

Software by Numbers recommends dividing a project into Minimum Marketable Features (MMF’s). These are small feature sets which deliver some identifiable value to the customer. Each MMF should have its own return on investment (ROI). By laying out the potential ROI’s of various feature sets, an optimal development sequence for the MMF’s can be determined. Early deployment of key MMF’s reduces risk while generating revenue to help fund the remainder of the project.

When business people and software developers focus on identifying and valuing marketable features, their conversation is changed. Developers are exposed to ROI and stakeholders are confronted with the realities of software development. The entire team is focused on achieving business ROI early in the development cycle. Management sees continuously measurable progress, and the team benefits from the early and compelling feedback generated by real software being used in production.

With so many benefits, why wouldn’t IFM be the preferred approach for developing software? Denne and Cleland-Huang note that many practitioners view software architecture as a monolithic whole, requiring early definition because of the extensive impact that architectural changes can have on a system. On the other hand, they argue, it is not until the details of an architecture are implemented that one can tell if the architecture is viable. Thus architecture presents us with a chicken and egg problem.

The book recommends that architectural elements which support each set of MMF’s should be developed with their respective MMF’s. In other words, architectural development should be sequenced using the same financially driven priorities as feature development. While there may be times where architectural coherency may dictate early development of features not immediately related to the current feature set, in general it is not only possible but also preferable to defer implementation of architectural elements until the features requiring these elements is being developed.

As we discover that architecture not only can evolve, but in fact, in any deployed system, the architecture will evolve over time, the view that architecture must be fixed early in the development process becomes a liability. This is a view that creates architectures that are not tolerant of the change they inevitably must undergo. Once we accept that software architectures must be designed to be change-tolerant, the barrier to early deployment of high value features is lowered.

Returning to the currency trading example, we see that early deployment of marketable features is a compelling strategy for increasing return and reducing risk. At the same time the stage is set for a better understanding of the real system requirements and improved collaboration between developers and their customers.

Reference
Software by Numbers: Low-Risk, High-Return Development by Mark Denne, Jane Cleland-Huang, Prentice Hall, 2004

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