Business Accent

The Free Cycle Development Model

The principles of open source and grid computing can be applied to increasing business profitability says Vikas Mujumdar.

Vikas Mujumdar

It is an indisputable fact that the software development business is facing unprecedented challenges in growing the bottom line, even as the top line scales new heights. Several factors are contributing to the reducing margins. Some of them are global factors, such as the depreciating dollar, and competition between older outsourcing destinations such as India and newer low cost regions such as China and Latin America. However, many factors are internal to the organization and its business models.

Rising wages, lower productivity, ineffective processes, poor quality of deliverables, and increasingly demanding customers all contribute to lowering profits. Most software development companies continue to operate using simple deployment and billing models. Two of the classic and still prevalent project models are Fixed Price and Time and Materials.

For the uninitiated, Fixed Price models offer a fixed scope of work to the customer to be delivered in the stated time frame at the quoted price. In this model the number of people deployed to complete the work is not indicated to the customer the software development company bears the risk of any increase in effort to deliver the defined work.

The Time and Materials (T&M) model offers the services of a specified number of appropriately qualified human resources at a fixed rate per working hour. The scope of work need not be defined; the resources will work on the assigned work as long as it takes to complete. The customer takes the responsibility of ensuring that the assigned resources complete the right amount of work in any given time.

Undoubtedly, the T&M model is low risk but also leads to a revenue ceiling and linear growth. The revenue for the year will be fixed based on the number of billable human resources employed by the company. Making a reasonable assumption that billing rates are more likely to head south rather than north, revenue growth can be achieved only by increasing head count. There is also limited potential for an upside by way of premiums. The best a company can do is charge differential rates based on qualifications and experience, but the total revenue that can be generated remains dependent on the number of resources at various experience and qualification levels. Also, clearly the cost of a more experience or qualified resource is higher and hence a rate differential more often than not simply goes towards making up the cost differential, keeping the same margin or profitability for all resources.

The Fixed Price model definitely performs better in revenue possibilities and non-linear growth. Software companies are free to charge any price for a given scope of work using any of the standard pricing models: cost plus profit, what the market will bear, premium pricing, competitive pricing to name a few. Depending on the customer, nature of the project, time of the year, urgency of the project, and other such circumstantial aspects, the revenue that can be generated from the same group of human resources can vary significantly.

However, predictable and sustained in crease in profitability can only be achieved by increasing operational efficiencies, thus reducing the cost of delivering a unit of work.

Some of the traditional approaches to improve operational efficiencies include adopting better processes, skill building and enhancement, and reuse mechanisms. This article describes a new and innovative, albeit challenging approach, the Free Cycle Development Model (hereafter abbreviated to FCDM).

The New Computing Paradigms

To understand the FCDM it is necessary to understand the underlying principles that help evolve this model. Interestingly, these are paradigms from the computing industry itself, some new, some old but just gaining acceptance.

The concept of Free Cycle Development Model derives from the following computing paradigms:

The Open Source Development Methodology

Open source is a development method for software that harnesses the power of distributed design, development, review and testing. In this approach a core group may control the software product being developed but contributions towards the various tasks in the software development lifecycle may come from multiple people, who may or may not belong to the core group, and may be widely distributed geographically.

Contributions in a true open source model are welcome from anyone across the world, cutting across organizations or countries. In a more controlled open source model, contributions are requested from and accepted only from a select set of individuals as defined by the core or controlling group.

Grid Computing

Grid computing is a type of distributed computing where several loosely-connected computing resources contribute part of their computing capacity to work on discrete pieces of a problem to complement the dedicated cluster of computing resources working on the problem. The grid is capable of arriving at the solution much faster and at a lower cost than the single cluster of dedicated computing resources. All computing resources on the grid contribute varying quantities of computing power, depending on their other utilization and available free cycles of computing power.

Web 2.0

One of the guiding principles of the Web 2.0 paradigm is stated as “harnessing collective intelligence”. This requires little explanation, since all of us have grown up being advised of the saying “Two heads are better than one”.

The Free Cycle Development Model

The primary objective of the FCDM is to improve organizational throughput and hence profitability. To put it simply, this model will help an organization get a day’s work from a day’s labor for a day’s pay. Today, because of the cyclic nature of business and even the cyclic nature of work load in the software development lifecycle, a day’s pay does not guarantee a day’s work and in many cases due to no shortcoming in the day’s labor.

Free Cycles

What are “Free Cycles”? Free cycles are simply work hours that are available with each human resource, after having delivered all that was expected from the day’s labor. Just like computing resources have idle time for several reasons, human resources too have idle time, which can be put to productive use. These are the free cycles that form the basis of FCDM. Depending on the nature of their project, designers and programmers in a software development firm have anywhere between 25% and 50% of free cycles. That translates to anywhere between 2 hours and 4 hours of available time per day.

Further, it is standard practice for most software development service providers to maintain a bench, or unutilized resources, for purposes of ramping up quickly for new business. These resources are a 100% free cycles.

When multiplied by the total number of working days in a year and the total number of human resources employed, the total available free cycles can be a staggering number.

As can be seen from the representative figures in the table below, an organization may have as many as 16.5 resource-days available for every 100 resource-days allocated to projects. These 16.5 resource-days can be used to accomplish other work, thus increasing the amount of work produced by the same number of resources, at no additional cost.

The conclusion to this article will appear in our next issue.

The author has 15 years of experience in software development and is currently a Senior Delivery Manager with the PrimeSourcing division of i-flex solutions ltd. based in Mumbai. The views and ideas in this article are entirely his own and do not in any way reflect the views or ideas of i-flex solutions ltd.