An overview of the use of alternative funding and contracting approaches relevant for agile software development: A systematic review of real-life experiences

Abstract

Agile software development emphasizes flexibility and iterative processes, which may conflict with the more linear, rigid, and time-consuming traditional funding and contracting approaches. This review synthesizes real-life experiences of using alternative (non-traditional) contracting and funding approaches. The focus is on identifying approaches that align better with agile principles and understanding the motivations, benefits, and challenges these alternatives present. A systematic literature review was conducted in SCOPUS, Web of Science, and Google Scholar, where we identified 38 relevant peer-reviewed empirical studies from private and public sector contexts. Four alternative funding and four alternative contracting approaches were identified. Organizations were motivated to adopt these alternative approaches because traditional approaches often proved too rigid, conflicted with agile principles, hindered effective client-contractor collaboration, and limited profitability. The benefits of these alternatives included higher client satisfaction, reduced contractor risk, and more efficient resource utilization. Adopting alternative funding and contracting approaches may promote flexibility and efficiency in agile projects but also presents cultural and structural challenges, increases the risk of scope creep and analysis paralysis, and requires additional effort in terms of time and resources. The context of the organization matters highly in selecting a suitable approach, such as the organizational readiness in terms of its leaders, people, and systems. Thus, instead of fully adopting alternative approaches and introducing changes abruptly, organizations may benefit from starting with hybrid approaches that balance flexibility and control and progressively transition to fully flexible approaches tailored to their needs