ScrumDay Chile - Value Estimation and Prioritization using Cost of Delay
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Transcript of ScrumDay Chile - Value Estimation and Prioritization using Cost of Delay
VALUE estimation and prioritization using Cost of Delay (CoD)
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
http://homebodyandsoulblog.com/wp-content/uploads/2014/05/yashow-4.jpg
Disclaimer! This is an original copy! A LOT of the content comes from Joshua Arnold and César Idrovo’s materials
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
1
The DON Hello, my name is
If you only quantify one thing, quantify the
cost of delay
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
2 Value is rare and extreme
$0 $200,000 $400,000 $600,000 $800,000
$1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 $2,000,000 $2,200,000 $2,400,000 $2,600,000 $2,800,000
0 10 20 30 40 50 60 70 80
A small number of features have a very high
Cost of Delay
Cost
of D
elay
/ w
eek
Requirements sorted by Cost of Delay Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Top vs bottom quartile: 1,000x
$230,000/wk $220/wk
Bottom 25%
Top 25% of RQs
$18,600/wk
Next 25%
$5,200/wk
Next 25%
Average $ Benefits Per Requirement
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Without information about
VALUE
the system optimizes for other things
3
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
4 examples that you will have to be able to explain…
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
h"ps://leopardsolu.ons.files.wordpress.com/2015/04/group-‐decision-‐making-‐in-‐communi.es-‐peytonbolin5.jpg
#1 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
MoSCoW
Must Have
Should Have
Could Have
Won’t Have
ROI
Relative Cost of Delay
Class of Service
Benefit-to-cost ratio
4:1
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Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Let’s prioritize!
Feature
A
B
C
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Let’s prioritize!
Feature MoSCoW
A Must have
B Must have
C Must have
Which one should we do first? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Let’s prioritize!
Feature MoSCoW ROI
A Must have 10%
B Must have 15%
C Must have 8%
How about now? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Let’s prioritize!
Feature MoSCoW ROI Relative CoD
A Must have 10% 10
B Must have 15% 4
C Must have 8% 7
And now? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Let’s prioritize!
Feature MoSCoW ROI Relative CoD
Revenue /week
A Must have 10% 10 $100k
B Must have 15% 4 $15k
C Must have 8% 7 $800k
Are you sure? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
h"p://collegian.tccd.edu/wp-‐content/uploads/2013/10/poli.cal-‐incivility-‐color.jpg Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
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#2 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
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Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Productivity
-15pp Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
What other key parameters do you need to know?
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Help us speed up the purchasing
process!
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
~$2,330,000
Irrecoverable, lost VALUE:
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Time
$ /week
work work work
Total Delay Cost
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
~$40k/week Benefit
Time
work work work
Total Delay Cost
$ /week
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
~$40k/week Benefit
Time
work work work
Total Delay Cost
$ /week
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Productivity
-15pp Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Weekly cost of a developer
$800 + $120 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Weekly net value delivered per developer
$32,533 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Cost of Delay per developer
$32,653 /week 5 teams, 6 developers each:
$979,600 /week Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
~$2,330,000
Irrecoverable, lost VALUE:
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
15,985 monitors
By now we could have bought
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
<<< 1 day
Time to break even
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Put a price-tag on time
$ Business value of the
feature
Cost of Delay
Information Discovery Value How that value
varies over time
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
A framework for thinking about value
Increase Revenue
Increasing sales to new or existing customers. Delighting or Disrupting to increase market share and size
Protect Revenue
Improvements and incremental innovation to sustain current market share and revenue figures
Reduce Costs
Costs that we are currently incurring, that can be reduced. More efficient, improved margin or contribution
Avoid Costs
Improvements to sustain current cost base. Costs we are not currently incurring but may do in the future
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Example: Cost of not having Monitors for Pair Programming
Start generating revenue without
delay
Avoid paying 15% more to achieve the
same outcome
Estimate the value of the effects of the change 1
A couple of tactics for getting to $
Avoid Costs
Reduce Costs
Protect Revenue
Increase Revenue
$120 $32,533 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Make the value equal to cost of alternatives
Example: Automating a process
Avoid Costs
Reduce Costs
Protect Revenue
Increase Revenue
Cost of human error
Current manual
cost
A couple of tactics for getting to $
2
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
h"p://.p.gatech.edu/sites/default/files/Resolución%20en%20cajas%20(Medium).JPG
#3 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Automating a Process Automating a process to satisfy new regulation: • Reduce the additional manual processing resource which
is estimated to cost about 20 FTEs at $20k (p.a.) per FTE • Due to the current manual process, there is a 10%
probability of an error • Once a month there’s an inspection. If an error is found,
the company has to pay a $5,000,000 fine
What is the cost of delaying this automation? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Reduce Cost: 20 FTEs at $20k each per year = $400,000 /year ~ $8,000 /week
Avoid Cost:
$5,000,000 in fines per month * 10% Probability of finding an error = Expected Value = $500,000 /month ~ $125,000 /week
Cost of Delay: ~ $133,000 /week
Automating a Process
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Put a price-tag on time
$ Business value of the
feature
Cost of Delay
Information Discovery Value How that value
varies over time
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Willingness to pay for the info?
Quantifying the value of information
Cost to obtain info first-hand?
Information Discovery
Value
What is it worth to avoid taking
the wrong path?
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Put a price-tag on time
$ Business value of the
feature
Cost of Delay
Information Discovery Value How that value
varies over time
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Urgency Profiles Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
For ideas with a very long-life, with peak unaffected by delay
Time
Cost of Delay
$ Be
nefit
s /
wee
k Long-life, unaffected peak 1
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
For ideas with a very long-life, with peak unaffected by delay
Time Late Entry
Cost of Delay
$ Be
nefit
s /
wee
k Long-life, unaffected peak 1
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
For ideas with a very long-life, with peak unaffected by delay
Time Late Entry
Cost of Delay
$ Be
nefit
s /
wee
k
Delay Cost
Long-life, unaffected peak 1
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
For ideas with a very long-life, with peak unaffected by delay
Time Late Entry
Cost of Delay
$ Be
nefit
s /
wee
k
Delay Cost
Long-life, unaffected peak 1
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Short benefits horizon, and reduced peak due to late delivery
Time Late Entry
Reduced Peak
Delay Cost
$ Be
nefit
s /
wee
k Short-life, affected peak 2
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
For ideas with a very long-life, with reduced peak due to later delivery
Time Late Entry
Reduced Peak
Delay Cost
$ Be
nefit
s /
wee
k Long-life, affected peak 3
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Time Late Entry
Delay Cost
$ Be
nefit
s /
wee
k Seasonal/date-driven 4
Last Responsible
Moment Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Automating a Process Automating a process to satisfy new regulation: • Reduce the additional manual processing resource which is
estimated to cost about 20 FTEs at $20k (p.a.) per FTE • Due to the current manual process, there is a 10% probability of an
error • Once a month there’s an inspection. If an error is found then the
company has to pay a $5,000,000 fine • The new regulation will be effective starting 1st May 2016 • The duration of the implementation is estimated to be 13 weeks
What is the total delay cost by December 17th? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Automating a Process Automating a process to satisfy new regulation: • Reduce the additional manual processing resource which is
estimated to cost about 20 FTEs at $20k (p.a.) per FTE • Due to the current manual process, there is a 10% probability of an
error • Once a month there’s an inspection. If an error is found then the
company has to pay a $5,000,000 fine • The new regulation will be effective starting 1st May 2016 • The duration of the implementation is estimated to be 13 weeks
What is the total delay cost by December 17th? *Hint: ~19 weeks away Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Urgency Profiles
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
https://dereklieu.files.wordpress.com/2011/01/tetris-marathon-tetris.jpg
#4 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Feature Cost of Delay X $133,000/week Y $80,000/week Z $1,000,000/week
Which one would you do first?
If these take the same amount of time to deliver:
Scheduling decisions
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Cost of Delay Simulation
Feature Duration (weeks)
Cost of Delay (m)
A 5 $1
B 1 $4
C 2 $5
(BlackSwanFarming.com)
Which one should we do first? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Cost of Delay Simulation
Time
Valu
e Po
tent
ial
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Cost of Delay Simulation
A
Time
Valu
e Po
tent
ial
5 4 3 1 2
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Cost of Delay Simulation
$ A
Time
Valu
e Po
tent
ial
5 4 3 1 2 6
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
B
Cost of Delay Simulation
$ A
Time
Valu
e Po
tent
ial
5 4 3 1 2 6
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
B
Cost of Delay Simulation
$
$ $ $ $
A
Time
Valu
e Po
tent
ial
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
5 4 3 1 2 6
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
B
Cost of Delay Simulation
$
$ $ $ $
A
C
Time
Valu
e Po
tent
ial
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
5 4 3 1 2 6
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
B
Cost of Delay Simulation
$
$ $ $ $
$ $ $ $ $
A
C
Time
Valu
e Po
tent
ial
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $ $
5 4 3 1 2 6
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
A
Time
Cost
of D
elay
First-In-First-Out
Scheduling
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
B
A
Time
Cost
of D
elay
First-In-First-Out
Scheduling
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
$ $
$
$ $ $ $ $
$ $ $ $ $
$ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $
C
B
A
Time
Cost
of D
elay
First-In-First-Out
Scheduling
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
$ $
$
$ $ $ $ $
$ $ $ $ $
$ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $
C
B
A
Time
Cost
of D
elay
First-In-First-Out
Scheduling
Total Delay Cost = $50
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $
$50
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
$ $
$
$ $ $ $ $
$ $ $ $ $
$ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $
$50 C
B
A
Time
Cost
of D
elay
First-In-First-Out
Scheduling
Time
Cost
of D
elay
B
A
C
Cost of Delay (CD3) Scheduling
Total Delay Cost = $50
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
$ $
$ $ $ $ $
$ $ $
$
$ $ $ $ $
$ $ $ $ $
$ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $
C
B
A
Time
Cost
of D
elay
First-In-First-Out
Scheduling
Time
Cost
of D
elay
B
A
C
Cost of Delay (CD3) Scheduling
Total Delay Cost = $8 Total Delay Cost = $50
$50
$8 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
$ $
$
$ $ $ $ $
$ $ $ $ $
$ $ $ $
$ $ $ $ $
$ $ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $ $
$ $ $
$ $
$ $ $ $ $
$
C
B
A
Time
Cost
of D
elay
First-In-First-Out
Scheduling
Time
Cost
of D
elay
B
A
C
Cost of Delay (CD3) Scheduling
84% reduction in delay cost vs FIFO
In this simple example:
Total Delay Cost = $8 Total Delay Cost = $50
$50
$8
(BlackSwanFarming.com)
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
When time to deliver varies, use Cost of Delay Divided by Duration
Cost of Delay
Duration CD3
$ Business value of the feature
Information Discovery Value
How that value varies over time
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Cost of Delay Simulation
Feature Duration (weeks)
Cost of Delay (m)
CD3
A 5 $1 0.2
B 1 $4 4
C 2 $5 2.5
(BlackSwanFarming.com)
So again, which one should we do first? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
CD3 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
In CD3, why divide by
Duration…
and not
Cost? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Money? You can beg, borrow or steal…
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Time? Can’t be replaced. Can’t be reversed!
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Knowing how long the pipeline is
blocked is more valuable information
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Takeaways
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
Cost of Delay
Improves prioritisation
Enables better trade-off decisions
Changes the focus of the conversation
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
#1 #2
#3 #4 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
People make decisions Not the data, or an algorithm
Organisational strategy
Technology strategy
Start with CD3 ‘initial triage’
Adjust CoD to reflect strategy
State reasons for adjustment
Additional levers? In the real world…
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
1. Contact: [email protected]
2. Thanks [email protected] & emergn.com
3. Experience report and more detail: BlackSwanFarming.com by Joshua Arnold and Özlem Yüce
Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015