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Target Costing (was: Optional Scope Contract)   01 Jan 05
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Kent Beck postd this to the XP-ML.
  I don't have a sample contract. The times I've worked this way the contracts
  have been verbal, not written.

  There were some comments about what to call these contracts. One analogy I
  found with the help of Greg Betty at Intelliware is "target costing". Target
  cost product development starts with a target cost (a $400 digital camera,
  for example). From that you can figure out how much you can pay to
  manufacture the product. The goal is to pack as much functionality as
  possible into the product given the price, either by reducing the cost of
  components or the cost of assembly. This process is called value
  engineering. I think Bill Wake's ideas about unbundling point to an
  effective way to do this in software development.

  You could write a target cost software development contract by specifying
  how much the contract would cost, along with the quality levels/practices
  and the process for choosing scope. The difference between fixed cost and
  target cost is that fixed cost contracts imply that the scope is fixed,
  while target cost contracts explicitly float the scope. One thing I like
  about target cost is that choosing scope is a value-added activity where
  choosing scope in fixed cost contracts is a transaction cost (the principle
  of opportunity at work).

  Kent Beck
  Three Rivers Institute


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