The Agile Daily Standup - AgileDad

Converting Story Points to Money - Mike Cohn

Oct 23, 2024

Discover how to transform agile story points into financial metrics that resonate with stakeholders. The discussion highlights a simple yet effective method to calculate cost per story point, fostering better communication. Learn to avoid the pitfalls of individual cost breakdowns and focus on a collective forecasting approach for projects. This practical insight can significantly enhance project management and stakeholder satisfaction.

04:45

Creator website

AI Summary

AI Chapters

Episode notes

Podcast summary created with Snipd AI

Quick takeaways

Converting story points to monetary values enhances communication with stakeholders by presenting financial metrics they can understand and relate to.

Accurate cost estimation should include additional factors like rework and overhead to provide a comprehensive financial picture for project budgeting.

Deep dives

Converting Points to Financial Estimates

Converting story points to monetary value is essential for effective communication with stakeholders who prefer financial metrics. The process begins by gathering data on the team's total compensation over a specific period and dividing that by the number of story points delivered. For instance, if a team earned $100,000 while delivering 100 story points, the cost would be $1,000 per point. This calculation offers a straightforward estimate of the project's labor cost, allowing teams to present the project's financial requirements clearly to leadership.

Transforming Agile Story Points into Financial Estimates

5min

Converting Story Points to Money - Mike Cohn

It’s often worthless to tell a boss, client, or customer that a project will be done in, say, 142 story points.
Even if stakeholders fully understand what a story point is, telling them how many points a project will take or cost isn’t awfully helpful to them.
These stakeholders are accustomed to hearing how much time and money a project will take. And it’s important that teams and their leaders communicate with stakeholders in the terms those stakeholders prefer.
Fortunately, it is quite straightforward to convert an estimate of points into money. Here’s how.
From Points to Dollars
To start, gather data on how much the team has been paid over a period of time. Ideally this should be at least a few months, but you could start with as little as one sprint.
Next, divide total team compensation by the number of story points delivered by the team in that period. This gives you a cost per point.
For example, suppose a team has been paid $100,000 over some period. During the same period, the team delivered 100 story points. Dividing $100,000 by 100 gives a cost per point of $1,000.
This can then be multiplied by the total expected size of the project to give an estimate of the total financial cost.
Getting Fancy (If You Want)
You can get fancy with this calculation, if you’d like. Instead of using compensation as I did in this example, you might want to use fully loaded labor cost. As its name implies, this includes compensation as well as other costs such as benefits, overhead, and payroll expenses (taxes, Social Security in the U.S., etc.).
A company controller can easily (and usually immediately) provide this as a percentage. It will typically be in the range of 25–40% added to compensation.
You can get fancy by trying to adjust for seasonality or team size changes. However, that’s usually not worth the effort: it shouldn’t significantly impact the cost per point.
Keep it simple.
Clearly communicating expected costs with your stakeholders will improve your relationship with them. Everyone appreciates being communicated with in terms they understand.

How to connect with AgileDad:

- [website] https://www.agiledad.com/

- [instagram] https://www.instagram.com/agile_coach/

- [facebook] https://www.facebook.com/RealAgileDad/

- [Linkedin] https://www.linkedin.com/in/leehenson/