Over on the AgilePDX mailing list, there's an interesting conversation on making predictions with Agile. It started off with Michael Kelly asking if Agile can help with predictability. Here's my response:
It's entirely possible to make predictions with Agile. They're just as good as predictions made with other methods, and with XP practices, they can be much better. Agile leaders talk about embracing change because that has more potential value than making predictions.
Software is inherently unpredictable. So is the weather. Forecasts (predictions) are possible in both situations, given sufficient rigor. How your team approaches predictions depends on what level of fluency they have.
One-star teams adapt their plans and work in terms of business results. However, they don't have rigorous engineering practices, which means their predictions have wide error bars, on par with typical non-Agile teams (for 90% reliability, need 4x estimate*). They believe predictions are impossible in Agile.
Two-star teams use rigorous engineering practices such as test-driven development, continuous integration, and the other good stuff in XP. They can make predictions with reasonable precision (for 90% reliability, need 1.8x estimate*) They can and do provide reliable predictions.
Three- and four-star teams conduct experiments and change direction depending on market opportunities. They can make predictions just as well as two-star teams can, but estimating and predicting has a cost, and those predictions often have no real value in the market. They often choose not to incur the waste of making predictions.
So if a company were to talk to me about improving predictability, I would talk to them about what sort of fluency they wanted to achieve, why, and the investments they need to make to get there. For some organizations, *3 fluency isn't desired. It's too big of a cultural shift. In those cases, a *2 team is a great fit, and can provide the predictability the organization wants.
I describe the "how to" of making predictions with Agile in "Use Risk Management to Make Solid Commitments".
*The error-bar numbers are approximate and depend on the team. See the "Use Risk Management" essay for an explanation of where they come from.