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Agile IS Risk Management -- Dump the Heavyweight Process and Embrace the Principles
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Agile IS Risk Management -- Dump the Heavyweight Process and Embrace the Principles

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How applying core agile principles make the development process robust and at times antifragile to the disorder of uncertain events, allowing us to avoid harm and reap the benefits of uncertainty, …

How applying core agile principles make the development process robust and at times antifragile to the disorder of uncertain events, allowing us to avoid harm and reap the benefits of uncertainty, without the need for heavyweight risk management processes.

Many believe that agile is lacking because there is no formally defined risk-management process. To compensate for this “failing” some people introduce a heavyweight risk-management process. Others might not believe that any form of risk-management process is necessary; if a risk matures into a real issue, then just deal with the issue through the normal agile process. In my experience, organizations that successfully “manage” their risks don’t fall into either of these camps. In this presentation, I discuss how a large part of successful risk management in agile is applying core agile principles to prevent risks from occurring rather than using a complex process for dealing with the risks that easily could be avoided in the first place.


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  • 1. 1Copyright © 2014, Innolution, LLC. All Rights Reserved. Agile IS Risk Management April, 2014 by Ken Rubin
  • 2. 2 Author Copyright © 2014, Innolution, LLC. All Rights Reserved. Background of Ken Rubin Trainer/Coach Trained more than 20,000 people in Agile/Scrum, SW dev and PM Provide Agile/ Scrum coaching to developers and executives Experience My first Scrum project was in 2000 for bioinformatics Former Managing Director Executive
  • 3. 3Copyright © 2014, Innolution, LLC. All Rights Reserved. Agenda Overview Risk Management Assumptions Agile Principle- based Risk Management Uncertain Events Traditional Risk Management Maximize Expected Monetary Value Using Agile to Avoid Some Uncertain Situations
  • 4. 4Copyright © 2014, Innolution, LLC. All Rights Reserved. Overview
  • 5. 5 Our goal today is to discuss… Copyright © 2014, Innolution, LLC. All Rights Reserved. How applying core agile principles make the development process robust and at times antifragile to the disorder of uncertain events, allowing us to avoid harm and reap the benefits of uncertainty, without the need for heavyweight risk management processes
  • 6. 6 What are we interested in? Copyright © 2014, Innolution, LLC. All Rights Reserved. When appropriate, applying simple traditional risk management techniques in a parsimonious (simplest possible) way Applying agile principles to avoid the self-creation of inherently risky or uncertain situations Applying agile principles to avoid the harm (be robust) and reap the benefits (be antifragile) from uncertainty in our environment
  • 7. 7 Many words for the same concept Copyright © 2014, Innolution, LLC. All Rights Reserved. Risk Randomness Volatility Variability Uncertainty
  • 8. 8 For our purposes we will treat them the same Copyright © 2014, Innolution, LLC. All Rights Reserved. Boils down to a lack of knowledge regarding uncertain events
  • 9. 9Copyright © 2014, Innolution, LLC. All Rights Reserved. Uncertain Events
  • 10. 10 Example uncertain events Copyright © 2014, Innolution, LLC. All Rights Reserved. Earthquake disables California data center housing the development servers Vendor fails to deliver a component when promised Application fails to scale to 10m current users Changing requirements Building the wrong product Knowledgeable people leaving company
  • 11. 11Copyright © 2014, Innolution, LLC. All Rights Reserved. Typical mental model of uncertain events “Uncertain” event Probability of occurrence Consequence (payoff / exposure function) Impact of occurrence sum of all has a has Cost Candidate action Effectiveness has has changes changes 1..* Can influence 1..* 1..* Expected monetary value used to compute used to compute
  • 12. 12Copyright © 2014, Innolution, LLC. All Rights Reserved. Maximize Expected Monetary Value
  • 13. 13 We strive to… Copyright © 2014, Innolution, LLC. All Rights Reserved. “Uncertain” event Probability of occurrence Consequence (payoff / exposure function) Impact of occurrence sum of all has a has Cost Candidate action Effectiveness has has changes changes 1..* Can influence 1..* 1..* Expected monetary value used to compute used to compute Goal is to maximize the “economic benefit” in the presence of uncertainty
  • 14. 14 Fragile, Robust, Antifragile Copyright © 2014, Innolution, LLC. All Rights Reserved. Fragile Harmed by disorder Robust Resilient to disorder Antifragile Benefits from disorder AgileWaterfall
  • 15. 15 Goal is NOT to eliminate uncertainty, risk, or variability Copyright © 2014, Innolution, LLC. All Rights Reserved. “Uncertain” event Probability of occurrence Consequence (payoff / exposure function) Impact of occurrence sum of all has a has Cost Candidate action Effectiveness has has changes changes 1..* Can influence 1..* 1..* Expected monetary value used to compute used to compute Not trying to eliminate all uncertainty; taking risks is central to developing innovative solutions and creating value Need to distinguish between variability that increases economic value and that which decreases it Focusing just on probabilities is focusing on the item we are often least able to predict Working with our exposure is typically the best way to maximize the economic outcome
  • 16. 16 Asymmetric payoffs create economic value or harm Copyright © 2014, Innolution, LLC. All Rights Reserved. Positive asymmetric payoff (antifragile) anything that has more upside than downside from random events (variability) Negative asymmetric payoff (fragile) anything that has more downside than upside from random events (variability)
  • 17. 17Copyright © 2014, Innolution, LLC. All Rights Reserved. Risk Management Assumptions
  • 18. 18Copyright © 2014, Innolution, LLC. All Rights Reserved. Assumptions in traditional risk management “Uncertain” event Probability of occurrence Consequence (payoff / exposure function) Impact of occurrence sum of all has a has Cost Candidate action Effectiveness has has changes changes 1..* Can influence 1..* 1..* Expected monetary value used to compute used to compute That you know about the events That you can predict the probabilities That your actions can change the probabilities
  • 19. 19 Operate in a complex domain Copyright © 2014, Innolution, LLC. All Rights Reserved. Cynefin Framework, by David Snowden
  • 20. 20 Unknown unknowns Copyright © 2014, Innolution, LLC. All Rights Reserved. These are the unknown unknowns Many uncertain events aren’t predictable proactively
  • 21. 21 Some are inconsequential Copyright © 2014, Innolution, LLC. All Rights Reserved. Don’t design a risk management system to deal with these, and even if we did these items would not be in our tables and charts
  • 22. 22 Others are Black Swans Copyright © 2014, Innolution, LLC. All Rights Reserved. Large-scale unpredictable (or very hard to predict) events of massive consequences
  • 23. 23 Black Swan characteristics Copyright © 2014, Innolution, LLC. All Rights Reserved. “Uncertain” event Probability of occurrence Consequence (payoff / exposure function) Impact of occurrence sum of all has a has Cost Candidate action Effectiveness has has changes changes 1..* Can influence 1..* 1..* Expected monetary value used to compute used to compute If you could predict one, the probability would be estimated to be so low as to make it dismissible (they are rare events) The consequences if one occurs can be catastrophic There is likely nothing you can do to change the probability of occurrence before the first occurrence Most of the time you will never see them coming You need to focus here, but you likely can’t or won’t
  • 24. 24Copyright © 2014, Innolution, LLC. All Rights Reserved. Exercise – Identifying Black Swans Identify Black Swans that you have seen affect software development efforts
  • 25. 25 Dealing with Black Swans Copyright © 2014, Innolution, LLC. All Rights Reserved. Leverage Agile principles to be robust or antifragile to things we can’t predict or the very improbable Focus our efforts on modifying our exposure the Black Swans instead of trying to quantify their statistical properties
  • 26. 26 We know some events will happen, but we can’t predict or change probabilities Copyright © 2014, Innolution, LLC. All Rights Reserved. We can predict earthquakes will happen in California We can’t predict the occurrence of a specific earthquake of a given magnitude, or change the probability of it happening We can describe the consequences to our business via a disruption in our California-based data center if we are affected by an earthquake
  • 27. 27 Adjust your exposure Copyright © 2014, Innolution, LLC. All Rights Reserved. “Uncertain” event Probability of occurrence Consequence (payoff / exposure function) Impact of occurrence sum of all has a has Cost Candidate action Effectiveness has has changes changes 1..* Can influence 1..* 1..* Expected monetary value used to compute used to compute When you can’t change the probability of occurrence… That change your exposure to the event You take actions…
  • 28. 28 More sophisticated process does NOT solve this problem Copyright © 2014, Innolution, LLC. All Rights Reserved. Mistaken belief that we need better computation in order to more accurately predict the event and figure out the probabilities More effective approach is to modify your exposure and learn to get out of trouble fast
  • 29. 29Copyright © 2014, Innolution, LLC. All Rights Reserved. Traditional Risk Management
  • 30. 30 Traditional risk management Identification Qualitative Analysis Quantitative Analysis Plan Control Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 31. 31 Traditional risk management in Agile? Copyright © 2014, Innolution, LLC. All Rights Reserved. Yes, it’s a matter of degree! Domains where human lives are at risk will likely employ a more heavyweight risk management process Most other domains can get along with very simple traditional risk management techniques and rely on effective application of agile principles as an a primary means of dealing with uncertainty
  • 32. 32 Example of simple risk Copyright © 2014, Innolution, LLC. All Rights Reserved. Vendor might fail to deliver a component on a promised date “Uncertain” event Probability of occurrence Consequence (payoff / exposure function) Impact of occurrence sum of all has a has Cost Candidate action Effectiveness has has changes changes 1..* Can influence 1..* 1..* Expected monetary value used to compute used to compute We can easily identify the uncertain event We can derive a probability that isn’t too wrong There are easily identifiable candidate actions The consequences are well understood
  • 33. 33 Candidate Action 1 – Manage the dependency risk Copyright © 2014, Innolution, LLC. All Rights Reserved. Affects prioritization of other items in the product backlog This feature is dependent on delivery of the component Manage risk via product backlog grooming
  • 34. 34 Candidate Action 2 – Create new product backlog items Copyright © 2014, Innolution, LLC. All Rights Reserved. Employ the parallel hedge strategy Insert one or more product backlog items to develop the component ourselves Manage risk via product backlog grooming
  • 35. 35 Candidate Action 3 – Not shown in our backlog Copyright © 2014, Innolution, LLC. All Rights Reserved. Send one or more of our employees to vendor to help expedite Risk Prob Exposure Mitigation Vendor fails to deliver Component X 50% $1m/month Send Barbara to vendor to help expedite Manage risk via lightweight traditional techniques
  • 36. 36 Candidate Action 4 – Also not shown in our backlog Copyright © 2014, Innolution, LLC. All Rights Reserved. Pay expedited charge to move to head of queue Risk Prob Exposure Mitigation Vendor fails to deliver Component X 50% $1m/month Pay more money to get head of queue privileges Manage risk via lightweight traditional techniques
  • 37. 37 Traditional risk management summary Copyright © 2014, Innolution, LLC. All Rights Reserved. Like anything else in Agile, we would embrace the minimum (barely sufficient) amount of process that would be sufficient for dealing with the risks in our particular environment
  • 38. 38Copyright © 2014, Innolution, LLC. All Rights Reserved. Using Agile to Avoid Some Uncertain Situations
  • 39. 39 Some uncertain events can be avoided altogether If you don’t go into space, you don’t have to worry about the risk that your spaceship could run out of fuel If you don’t write fixed price subcontracts, you can avoid the risks of fixed price contracts! Copyright © 2014, Innolution, LLC. All Rights Reserved. Avoid the self-creation of inherently risky or uncertain situations Fixed FixedFixed Contract
  • 40. 40Copyright © 2014, Innolution, LLC. All Rights Reserved. Effort saved not having to “manage” uncertain events “Uncertain” event Probability of occurrence Consequence (payoff / exposure function) Impact of occurrence sum of all has a has Cost Candidate action Effectiveness has has changes changes 1..* Can influence 1..* 1..* Expected monetary value used to compute used to compute Think of the effort saved if we end up injecting less uncertain events into our environment
  • 41. 41Copyright © 2014, Innolution, LLC. All Rights Reserved. Exercise – Uncertain events avoidable by Agile What are some known risks or uncertainties that we can avoid just by applying Agile development?
  • 42. 42Copyright © 2014, Innolution, LLC. All Rights Reserved. Agile Principle- based Risk Management
  • 43. 43 Agile principles Copyright © 2014, Innolution, LLC. All Rights Reserved. Described in detail in Chapter 3 of my book
  • 44. 44Copyright © 2014, Innolution, LLC. All Rights Reserved. Variability and Uncertainty
  • 45. 45Copyright © 2014, Innolution, LLC. All Rights Reserved. All before any is “risk generating” All-Before-Any: assumes all” of one activity can be completed before any of the next activity begins
  • 46. 46 Agile is iterative & incremental Copyright © 2014, Innolution, LLC. All Rights Reserved. Get things wrong before we get them right Build some of it before you build all of it Reduces forecasting errors Offers opportunity for continuous deployment
  • 47. 47 Agile is an empirical process model Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 48. 48 Address all forms of uncertainty simultaneously Copyright © 2014, Innolution, LLC. All Rights Reserved. Means Uncertainty EndsUncertainty High Low Low Defined Empirical Means Uncertainty EndsUncertainty High Low Low
  • 49. 49Copyright © 2014, Innolution, LLC. All Rights Reserved. Prediction and Adaptation
  • 50. 50 Risk of trying to get it right upfront Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 51. 51 Keep options open (last responsible moment) Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 52. 52 Exercise – Architecture A vs. B Copyright © 2014, Innolution, LLC. All Rights Reserved. First day of a new product development effort. There are two architectural choices: A or B. Each appears to have viable characteristics. Which one should we select?
  • 53. 53 Rapidly intermingle exploration and exploitation Copyright © 2014, Innolution, LLC. All Rights Reserved. Knowledge acquisition Predicting Exploration Exploitation always a tension between requiresinvolves in the presence of UncertaintyUncertainty in the presence of increases Level of certainty does not increase Adaptive processes Predictive processes heavily focus on early interleave small-scale
  • 54. 54 Real options Copyright © 2014, Innolution, LLC. All Rights Reserved. The right but not the obligation to do something Options have value Options expire Never commit early to an option unless you know why
  • 55. 55 The risk of trying to eliminate change Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 56. 56 Reduce risk by flattening the cost of change curve Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 57. 57 Managing change risk during a traditional development project Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 58. 58 Managing change risk using Scrum Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 59. 59 Upfront work should be helpful without being excessive Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 60. 60Copyright © 2014, Innolution, LLC. All Rights Reserved. Validated Learning
  • 61. 61 Assumptions = accrued risk Copyright © 2014, Innolution, LLC. All Rights Reserved. Assumption is a guess or belief that is assumed true, real, or certain Not-yet-validated assumptions represent significant accrued risk during development Don’t let important assumptions live long without validation
  • 62. 62 Reduce risk by going fast through the loop Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 63. 63 Organize flow of work for fast feedback Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 64. 64 Fast feedback is antifragile Copyright © 2014, Innolution, LLC. All Rights Reserved. Agile benefits from the uncertainty (unpredictable things we learn) in fast, frequent feedback Learn fast you are going down the wrong path you can truncate the path Exploit newly acquired knowledge to realize an emergent opportunity Asymmetric payoff by limiting downside harm and providing much greater upside potential
  • 65. 65Copyright © 2014, Innolution, LLC. All Rights Reserved. Work in Process (WIP)
  • 66. 66 Use economically sensible batch sizes Copyright © 2014, Innolution, LLC. All Rights Reserved. Reduced cycle time Reduced flow variability Accelerated feedback Lower risk of failure Reduced overhead Increased motivation & urgency Reduced cost and schedule growth
  • 67. 67 Inventory (WIP) represents a flow risk Copyright © 2014, Innolution, LLC. All Rights Reserved. Manufacturing inventory is both physically and financially visible Product-development inventory are knowledge assets that aren’t visible in the same way as physical parts
  • 68. 68 Risk is idle work, not idle workers Watch the Baton Not the Runners Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 69. 69Copyright © 2014, Innolution, LLC. All Rights Reserved. Progress
  • 70. 70 Adapt to real-time information and replan Copyright © 2014, Innolution, LLC. All Rights Reserved. Using Agile, progress is measured by validating working assets (e.g., features)
  • 71. 71 Reduce risk by focusing on value- centric delivery Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 72. 72 More frequent checkpoints reduce risk Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 73. 73Copyright © 2014, Innolution, LLC. All Rights Reserved. Planning Risks
  • 74. 74 Belief that loading planning on the front-end reduces risk Copyright © 2014, Innolution, LLC. All Rights Reserved. Better the planning the better the understanding and therefore the better the execution Give appearance of orderly, accountable, and predictable approach Developing a product rarely goes as planned Beliefs don’t match uncertainty in product development
  • 75. 75 Scope is the risk-reducing degree of freedom Copyright © 2014, Innolution, LLC. All Rights Reserved. Scope can be binary Scope can be shades of grey Allows us to bound the downside on the asymmetric payoff function
  • 76. 76 Communicate uncertainty with range answers to questions Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 77. 77 Teams with T-Shaped skills Copyright © 2014, Innolution, LLC. All Rights Reserved. Can offset random increases in demand by quickly compensating with changes in capacity Example of negative covariance or counter balancing (one random variable counterbalances the other)
  • 78. 78 Visual AGILExicon® Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 79. 79 www.essentialscrum.com Copyright © 2014, Innolution, LLC. All Rights Reserved.
  • 80. 80Copyright © 2014, Innolution, LLC. All Rights Reserved. Contact Info for Ken Rubin Email: krubin@innolution.com Website: www.innolution.com Phone: (303) 827-3333 LinkedIn: www.linkedin.com/in/kennethrubin Twitter: www.twitter.com/krubinagile Facebook: www.facebook.com/InnolutionLLC Google+ plus.google.com/+KennyRubin1/ Essential Scrum: A Practical Guide to the Most Popular Agile Process www.essentialscrum.com Comparative Agility Website www.comparativeagility.com