Roadmaps Project Contracts Detailed Requirements Inventory as mentioned in TOC Non Value Added waste as mentioned in Lean... So how do we turn those things into business value added decision taking or commitments?
Which color of M&M to eat or in which sequence you will empty the pot of candy...
And as long as possible
Later you are smarter, you know more, you have more information. You can deal with uncertainty. We don’t decide in the evening if we will go by bike or by car to school: We don’t know how rushy the moment between bed and finished breakfast will be
Common sense is not so common – Voltaire (Francois Marie Arouet – french writer and philosopher) Most of us don‘t like uncertainty which leads us to commit on things too much up front. Real options is a disciplined approach to deal with uncertainty. It requires... Comon Sense
That all looks like common sense. Well sometimes common sense is not that common.
Identify the last point at which a decision can be made. i.e. the conditions to be met to make a commitment.
Put those options on a timeline
Decision time = deadline – option implementation time.
The first decision is made before the first option expires.
What about the time before the first decision to make? Do we just wait till the moment pops up? Procrastinating??? Not at all! Real Options is not procrastinating: you postpone the decision until the latest responsible moment. You identify when the last responsible moment is, so that you know exactly when that moment comes. While options are open, you actively go after information that will inform your decision.
Attempt to push back the decision time. Quite often this is free or very low cost. To do this, we need to be able to implement the option as quickly as possible. During slack time, work on how to speed up the process.
Understand that cost optimisation is not the same as revenue optimisation or risk reduction. Sometimes it is worth investing in more than one option even though this may cost slightly more. After all, options have value. I’m pretty sure all of you are familiar with plan B even though you started with plan A anyhow, don’t you? Anyhow, when you need to make a commitment and act... do so as quickly as possible. And you can proceed with confidence because you know you have made the best informed decision possible.
But then again one of the main difficulties to acquire within a business environment! Let us have a look at some examples where Real Options is applied within Lean & Agile environments before the real experts, Chris Matts & Olav Maasen take it over from us...
Toyota which had the fastest product development process build the Prius even faster, in less than 18 months Toyota planned the design process using the optimal decision process!
20 vehicle designs were entered in a competition. 5 models were worked out in detail. 4 clay models were made. 2 prototype models were made and revised. 1 model was chosen.
80 types of engine were considered. Testing narrowed this down to 10. After more extensive testing, four types remained. The four types were evaluated carefully through computer simulation. One alternative was selected.
Stories are an option that the customer takes to add a certain feature to the product. Option buying price is the effort to write the user story, determine acceptance tests, elaborate it deep enough for the developers to estimate, The exercising price is the number of story points. The decision must be taken before the release when you want the feature. Of course, you can change the release plan during the release.
TDD/Refactoring/Simple design lower the price of implementing new requirements late in the project. Thus, they push back the time when the customer has to decide what will be in the project. They enable the story option and keep options open regarding architecture and design until late in the process.
In dimentional planning we look at 3 ways of creating software. The dirt road: the quickest way to do something. Feels more like a work around. Lots of manual work.
This would be the normal way of doing without wistles and bells
This is the full blow version with all the whistels and bells of every person involved. Most customers don’t need all these bells.
Imagine we want to create a road from Amsterdam to Heusden.
But when we created the highway, we figure out it is not Heusden (B) but Heusden (NL) Oeps a very expensive road build for nothing. Who will pay for this road???
Now imagine we first create the dirt road version. When you notice your mistake, you add the dirt road version of Heusden nl
Now you add the cobblestone (normal ) road
Your users tell you, they don’t actually need the highway version. they are happy with what they have.
Let’s look at the costs.
And also look at the ROI. Dimentional planning is not only cheaper, you also get ROI way faster( you can already use the dirt road) even if it is for feedback. Or a try out. Which bring us to the conclusion that Dimensional Planning will support you with applying Real Options delaying decion time and allow us to go for multiple options before committing to build a highway.
Real options applied well and in different contexts might help you get rid of those expensive change requests all the time. <CLICK> of which some people make it their business to live from though!
1. Real Options Jürgen De Smet & Yves Hanoulle
2. Up-Front Decisions
3. You do not need to decide right now!
4. Only decide when to decide
5. Keep as many options open as possible
6. Actively gather information until you have to decide
7. You only commit when you must
8. When you have a good reason to
9. Why would you want to do that?
10. Later you are smarter
11. You can deal with risk
12. A real option has a value
13. A real option has expiration criteria
14. A real option has a purchase cost
15. Common sense?
16. Comon Sense
17. Real options decision making – Identify Options A B C Options
18. Real options decision making – Identify Conditions A B C X or Y X and Y Z conditions
19. Real options decision making – Identify Conditions A B C X or Y X and Y Z
20. Real options decision making – Identify Conditions A C X or Y Z B X and Y
21. Real options decision making – Time to decide A B C X or Y X and Y Z first decision point
22. Real options decision making – wait for first condition A B C X or Y X and Y Z ?
23. Real options decision making – Refine options A2 B C X or Y X and Y Z
24. Real options decision making – Find new options B C X and Y Z D Y A2 X or Y
25. Real options decision making – Push back decision B C X and Y Z‘ D Y A2 X or Y C Z
26. Real options decision making – Plan D? B C X and Y Z‘ D Y A2 X or Y
27. This is great
28. Set based design
29. Design options <ul><li>Vehicle designs </li></ul><ul><li>20 entered in a competition </li></ul><ul><li>5 worked out in detail </li></ul><ul><li>4 clay models made </li></ul><ul><li>2 prototypes made and revised </li></ul><ul><li>1 model chosen </li></ul>
30. Types of engines <ul><li>80 types considered </li></ul><ul><li>narrowed down to 10 by testing </li></ul><ul><li>4 types after more extensive testing </li></ul><ul><li>1 selected after evalutation by computer simulations </li></ul>
31. Agile user stories
32. Test Driven Development
33. Dimensional planning – Dirt road
34. Dimensional planning – Cobblestone road
35. Dimensional planning – Highway
36. Why is dimensional planning valuable? Heusden Amsterdam
37. Why is dimensional planning valuable? Amsterdam Heusden (Belgium) Heusden (Netherlands) Who is paying for this expensive mistake? Lets create a tighter contract so the customer does!
44. Get “real” <ul><li>Generate as much options as possible </li></ul><ul><li>Identify the conditions and expiration timing </li></ul><ul><li>Decide when to decide </li></ul><ul><li>Actively go for more info </li></ul><ul><li>Go for multiple options if needed </li></ul><ul><li>Wait as long as possible </li></ul><ul><li>Decide fast </li></ul>
45. Resources <ul><li>http://www.agilecoach.net/html/Real%20Options%20handout.pdf </li></ul><ul><li>The Toyota Way-Jeffrey Liker, pp 239-240: http://www.amazon.com/The-Toyota-Way-ebook/dp/B000SEGIVS </li></ul><ul><li>Koen van Exem: http://www.inxin.com/wiki/DimensionalPlanning </li></ul><ul><li>Software by Numbers: http://www.amazon.com/Software-Numbers-Low-Risk-High-Return-Development/dp/0131407287/ </li></ul>Jürgen De Smet & Yves Hanoulle