The Business Case for Agile: What Every Executive Needs to Know

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John Rudd gave this presentation on 16 May, 2011 as an invited speaker at the Scrum Gathering – Seattle Global Event.

Too many technology projects fail to deliver on the expected value. Some don’t deliver at all. From experience we’ve all come to know the outcomes of software initiatives where results aren’t matching forecasts. The application of traditional project management methods offer poor risk mitigation and continue to frustrate business professionals.

The impact of today’s economy only adds to the challenge, forcing financial and technology professionals to make tough decisions in order to free up capital, reduce cost, and increase overall project and portfolio return. Business as usual is risky. In the current economic environment, businesses are forced to reduce those capital budgets as they cannot afford to make significant investments without more certainty of returns.

Do Agile practices offer an attractive alternative to wholesale cost cutting? How can we reduce cash commitments to projects? Can we align incremental cost with incremental value? Are there proven practices that will enable us to realize more value, sooner, with better results? In this session, we discuss some of the financial benefits of adopting Agile, and quantify the potential value of these innovative practices for your organization. We will also discuss how you can demonstrate this value for key decision makers.

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The Business Case for Agile: What Every Executive Needs to Know

  1. 1. The Business Case for AgileSeattle Scrum Gathering Copyright © 2011 SolutionsIQ. All rights reserved.
  2. 2. Audience Introduction Copyright © 2011 SolutionsIQ. All rights reserved.
  3. 3. Speaker Introduction: John Rudd • Co-owner and Managing Director of SolutionsIQ • Lead Principal at a financial consulting and restructuring firm • Lead Principal at an investment banking firm • Specialized in operational & financial restructurings, mergers & acquisitions, and interim management • Filled multiple interim executive roles including CEO, president, CFO, and chief restructuring officer • Worked as CFO of a West Coast oil company and a commodity lender for ING • Received his B.S. in Economics from the University of Minnesota and his MBA from the University of Southern California Copyright © 2011 SolutionsIQ. All rights reserved.
  4. 4. A Business Case for Agile: Agenda1. Financial management in an increasingly uncertain world2. The use of Real Options3. Real Options applied to portfolio management4. Quantifying the benefits5. Putting it all together Copyright © 2011 SolutionsIQ. All rights reserved.
  5. 5. Financial Management in an increasingly uncertain world5/20/2011 5 Copyright © 2011 SolutionsIQ. All rights reserved.
  6. 6. New Technology Adoption Number of Years for New Technology to be Adopted by 25% of US Households3025201510 # of Years 5 0 Copyright © 2011 SolutionsIQ. All rights reserved.
  7. 7. Computer processing (Moore’s Law) Transistors 1,600,000,000 1,400,000,000 1,200,000,000 1,000,000,000 800,000,000 Transistors 600,000,000 400,000,000 200,000,000 0 1970 1972 1974 1978 1982 1984 1989 1993 1996 1999 2000 2003 2004 2007 Copyright © 2011 SolutionsIQ. All rights reserved.
  8. 8. Adoption rates: Facebook & Twitter Facebook Active Users Twitter Number of (per million) Unique Visitors700 30,000,000600 25,000,000500 20,000,000400 15,000,000 # of Monthly Active Users300 Visitors 10,000,000200 5,000,000100 0 0 2004 2005 2006 2007 2008 2009 2010 2011 2007 2008 2009 2010 2011 Copyright © 2011 SolutionsIQ. All rights reserved.
  9. 9. Technology change is accelerating Rate of Technology Change from 1950-2011 1950 2011 Copyright © 2011 SolutionsIQ. All rights reserved.
  10. 10. Product lifecycles are getting shorter andshorter Rate of Technology Change vs. Product Lifecycle 1950 2011 Copyright © 2011 SolutionsIQ. All rights reserved.
  11. 11. The near term is more & moreuncertain• Fewer constants, more variables, more choices• Horizon of predictable future decreasing• Market change is outpacing our ability to adequately estimate likely outcomes Copyright © 2011 SolutionsIQ. All rights reserved.
  12. 12. As project uncertainty increases, expectedreturn reduces|--------------------||--------------------------------------------------------------------------|Investment Expected Return|--------------------||--------------------------------------------------------|Investment Return horizon shrinking|-----------|  |-------------------------------|Investment Expected Return Copyright © 2011 SolutionsIQ. All rights reserved.
  13. 13. But we can’t always reduce ourinvestment to match the reducedreturn• As our confidence in the length of return decreases, expected return decreases• We are converging on the point where we are unable to reduce the investment to a size that would provide an adequate return Copyright © 2011 SolutionsIQ. All rights reserved.
  14. 14. Snapshot from 1971 Rate of Technology Change vs. Product Lifecycle 1950 1971 1974 2011 Copyright © 2011 SolutionsIQ. All rights reserved.
  15. 15. The good old daysWith a slower pace of technological change, projectreturns were more certain Expected Return Horizon 1971 1972 1973 1974 Copyright © 2011 SolutionsIQ. All rights reserved.
  16. 16. Project business case• Quantifiable market opportunity• Estimated cost of investment• Program governance & control• Harvest the return over multiple years Copyright © 2011 SolutionsIQ. All rights reserved.
  17. 17. The good old days: Midwestasphalt distributor• 1960s mini-empire• Largely rural areas• Time capsule Copyright © 2011 SolutionsIQ. All rights reserved.
  18. 18. Snapshot from 2001 Rate of Technology Change vs. Product Lifecycle 1950 1998 2001 2011 Copyright © 2011 SolutionsIQ. All rights reserved.
  19. 19. Mounting uncertaintyAs the change curve increases, certainty of project returndecreases Expected Return Horizon 1998 1999 2000 2001 Copyright © 2011 SolutionsIQ. All rights reserved.
  20. 20. Mounting uncertainty: Lightingmanufacturer• Domestic manufacturing• Move to Mexico• The industry moved to China Copyright © 2011 SolutionsIQ. All rights reserved.
  21. 21. From the known(able) to the unknowable• Projects are undertaken to provide a solution to address an anticipated future market need• Ability to aggregate enough information to “prove” the business case is becoming impossible• We are moving from rational decision- making to…what? Copyright © 2011 SolutionsIQ. All rights reserved.
  22. 22. So what can be done?• Do US corps know how to invest in uncertain times? • Corporations now holding more cash than they have since the 1950s Copyright © 2011 SolutionsIQ. All rights reserved.
  23. 23. The Acme Payphone Componentcompany Business Situation Bet the farm project• $10 million capital budget • Credit card interface• Industry experiencing good • Replace the need for growth change• Projected unit growth • Replace phone cards excellent • Three year project• Where is the market going: • Percent of capital budget: – Limited local calls 100% – Heavy reliance on phone • Likelihood of success: cards “can’t miss!” – Need a competitive advantage Copyright © 2011 SolutionsIQ. All rights reserved.
  24. 24. Where did Acme go wrong?They bet on a “sure-fire” winner at the expense of allother options in a market changing faster than theirability to know # of Payphones (per million) 3.0 2.5 2.0 1.5 1.0 0.5 0.0 1998 1999 2000 2003 2006 2007 Copyright © 2011 SolutionsIQ. All rights reserved.
  25. 25. Acme Retrospective• Was there adequate information to determine future market need?• Was the investment estimate accurate?• Was the program managed properly?• Did the market demand meet expectations at the time of delivery? Copyright © 2011 SolutionsIQ. All rights reserved.
  26. 26. Real Options Copyright © 2011 SolutionsIQ. All rights reserved.
  27. 27. Options• Financial Option: Gives the buyer the right, but not the obligation, to buy or sell an asset at a set price on or before a given date.• Real Option: an option that a business gains by undertaking a certain investment. – In other words, an exploratory or limited investment a company makes to confirm the upside of a further investment. Copyright © 2011 SolutionsIQ. All rights reserved.
  28. 28. Real Options: an investment inknowledge• Investing just enough to confirm an assumption• When a variable becomes a constant, overall project uncertainty is reduced• This minimizes sunk costs and maximizes successful outcomes Copyright © 2011 SolutionsIQ. All rights reserved.
  29. 29. Blockbuster• Traditional retail model• Old Netflix model• Redbox model• Streaming• Next technology?• What happened to the brand? Copyright © 2011 SolutionsIQ. All rights reserved.
  30. 30. Real Options – decision tree Assumption #3 Yes Assumption #2 No YesAssumption #1 No STOP STOP Copyright © 2011 SolutionsIQ. All rights reserved.
  31. 31. Regressive Life Insurance Situation Some of the Risks• Exclusively work through • No technological expertise broker network • No internet expertise• Target customer 50 to 70 • Flight risk of broker years old network• Losing market share rapidly • Channel confusion – they believe to internet • Solution not accepted in sales the marketplace• Are looking at a 12 month project to have a full service web-based distribution model Copyright © 2011 SolutionsIQ. All rights reserved.
  32. 32. Exploring how to proceed Big Bang Release Real Options Approach• Go/No-go upfront • Incremental investments to• Allocate budget obtain “knowledge bites”• Specify requirements • Based on findings refine• Implement solution and validate further investment • Continue process as long as there is sufficient business value Copyright © 2011 SolutionsIQ. All rights reserved.
  33. 33. Regressive’s Real Options decisiontree Release: 1st tier approval & physical Release: scheduling online application Will brokers support the initiative? Is a 3rd partyplatform viable? Copyright © 2011 SolutionsIQ. All rights reserved.
  34. 34. Isn’t this just good management?The big bang release has problems• Allocation of capital is upfront and based on limited information• Once capital is allocated, the business case decision is incontestable – Governance dictates that program management cannot change project charter – No communication channel to revise executive decision – Project sequestered from changes in the market Copyright © 2011 SolutionsIQ. All rights reserved.
  35. 35. Protecting senior management from themselves• Kneejerk change in corporate vision• Bold CEO proclamation dominates corporate planning• Everyone but senior management knows the outcome will fail Copyright © 2011 SolutionsIQ. All rights reserved.
  36. 36. Real Options summarized• Take steps to increase knowledge and stop early if assumptions are proven false• Invest incrementally as assumptions are confirmed• Reallocate capital based on new knowledge Copyright © 2011 SolutionsIQ. All rights reserved.
  37. 37. Real Options applied to portfolio management Copyright © 2011 SolutionsIQ. All rights reserved.
  38. 38. Traditional Project Portfolio • Fewer Investments • Limited control within period • Can’t offset costs with returns • Can’t measure portfolio return Copyright © 2011 SolutionsIQ. All rights reserved.
  39. 39. Traditional Portfolio Implications Characteristics Results Problems Larger projects Fewer projects Less diversification Longer projects Span annual Reduced portfolio budget cycles options Serial approach Value only at end Few real options and of project limited ability to change Copyright © 2011 SolutionsIQ. All rights reserved.
  40. 40. Applying Real Options to the portfolio • Understand the market • Break projects into a series of options • Reallocate investment • Increase/Delay/Stop Copyright © 2011 SolutionsIQ. All rights reserved.
  41. 41. Capital allocation : past & future Past Future Investment Investment Big Bang Option Based Big Bang Option Based Copyright © 2011 SolutionsIQ. All rights reserved.
  42. 42. Maximize portfolio return Increased diversification Ability to monitor and manage performance within the budget cycle Ability to redirect funds from losers to winners Optimize portfolio within the budget cycle Copyright © 2011 SolutionsIQ. All rights reserved.
  43. 43. Multiple bets and reallocating funds towinners Copyright © 2011 SolutionsIQ. All rights reserved.
  44. 44. Quantifying the Benefits Copyright © 2011 SolutionsIQ. All rights reserved.
  45. 45. Baseline Business Case Regressive Insurance Amount Project ProfileInvestment (budget) $4,800,000Effort Duration (months) 12Operating Cost / Month $400,000% Value at Release 100%Expected Monthly Income $200,000Ongoing Monthly Support $50,000 45 Copyright © 2011 SolutionsIQ. All rights reserved.
  46. 46. Baseline Business Case Regressive Insurance Amount Project ProfileCapital Budget $4,800,000Net Monthly Cash Flow $150,000(after release)IRR (Five Years) 18.5%Internal IRR Threshold 15% 46 Copyright © 2011 SolutionsIQ. All rights reserved.
  47. 47. Baseline monthly cash flow200,000100,000 - 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59(100,000)(200,000)(300,000)(400,000)(500,000)5/20/2011 47 Copyright © 2011 SolutionsIQ. All rights reserved.
  48. 48. Project payback period: month 433,000,000.002,000,000.00 Breakeven1,000,000.00 Return - 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59(1,000,000.00)(2,000,000.00) Investment(3,000,000.00)(4,000,000.00)(5,000,000.00) Peak(6,000,000.00) Copyright © 2011 SolutionsIQ. All rights reserved.
  49. 49. Baseline capital budget = cash budget= write off risk$5,000,000$4,500,000$4,000,000$3,500,000$3,000,000$2,500,000$2,000,000$1,500,000$1,000,000 $500,000 $- Capital Expense Budget Allocation Write Off Risk Copyright © 2011 SolutionsIQ. All rights reserved.
  50. 50. The Real Options approach• Break the project into a series of smaller go/no-go decisions (in this case monthly), using the project team’s input and market input• Determine quickest path to market and continue the go/no-go process with subsequent releases• After getting to market with the initial minimum feature set, prioritize subsequent features based on highest business value Copyright © 2011 SolutionsIQ. All rights reserved.
  51. 51. Prioritizing features by value reduces thevalue of the subsequent releases30.0%25.0%20.0%15.0%10.0% 5.0% 0.0% R1 R2 R3 R4 R5 R6 R7 R8 R9 R10 Copyright © 2011 SolutionsIQ. All rights reserved.
  52. 52. After three months, cash receiptsreduce overall cash investment$200,000$100,000 $- 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59$(100,000)$(200,000)$(300,000)$(400,000)$(500,000) Copyright © 2011 SolutionsIQ. All rights reserved.
  53. 53. Cash investment is reduced andbreakeven is reached at month 37$4,000,000$3,000,000$2,000,000 Breakeven$1,000,000 Return $- 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 Agile$(1,000,000) Investment Waterfall$(2,000,000)$(3,000,000)$(4,000,000) Peak$(5,000,000)$(6,000,000) Copyright © 2011 SolutionsIQ. All rights reserved.
  54. 54. Like the baseline project, the capitalexpenditure is $4,800,000$6,000,000$5,000,000$4,000,000$3,000,000$2,000,000$1,000,000 $- Waterfall R1 R2 R3 R4 R5 R6 R7 R8 R9 R10 Copyright © 2011 SolutionsIQ. All rights reserved.
  55. 55. However, the cash investment is offset byincome from early releases$6,000,000$5,000,000$4,000,000$3,000,000$2,000,000$1,000,000 $- Waterfall R1 R2 R3 R4 R5 R6 R7 R8 R9 R10 Copyright © 2011 SolutionsIQ. All rights reserved.
  56. 56. Write-off risk is capped after the firstrelease Write Off Risk$5,000,000$4,500,000$4,000,000$3,500,000$3,000,000$2,500,000$2,000,000$1,500,000$1,000,000 $500,000 $- Waterfall R1 R2 R3 R4 R5 R6 R7 R8 R9 R10 Copyright © 2011 SolutionsIQ. All rights reserved.
  57. 57. The capital expense is the same, but cashrequirements and overall risk are reduced$6,000,000$5,000,000$4,000,000 Captial Budget$3,000,000 Cash Budget Write-Off Risk$2,000,000$1,000,000 $- Waterfall R1 R2 R3 R4 R5 R6 R7 R8 R9 R10 Copyright © 2011 SolutionsIQ. All rights reserved.
  58. 58. Internal rate of return increasesfrom 18.5% to 30.3%35.0%30.0%25.0%20.0%15.0%10.0% 5.0% 0.0% Waterfall Agile5/20/2011 58 Copyright © 2011 SolutionsIQ. All rights reserved.
  59. 59. Prioritizing features by value, reducesthe value of subsequent releases30.0%25.0%20.0%15.0%10.0% 5.0% 0.0% R1 R2 R3 R4 R5 R6 R7 R8 R9 R10 Copyright © 2011 SolutionsIQ. All rights reserved.
  60. 60. The first few releases have impressivereturns…250.0%200.0%150.0%100.0% 50.0% 15% Hurdle Rate 0.0% Waterfall R1 R2 R3 R4 R5 R6 R7 R8 R9 R10-50.0% Copyright © 2011 SolutionsIQ. All rights reserved.
  61. 61. …but as lower value items are released, returndiminishes below the hurdle rate250.0%200.0%150.0%100.0% 50.0% 15% Hurdle Rate 0.0% Waterfall R1 R2 R3 R4 R5 R6 R7 R8 R9 R10-50.0% Copyright © 2011 SolutionsIQ. All rights reserved.
  62. 62. By dropping the last three iterations,project return and risk profile improves$6,000,000$5,000,000$4,000,000 Capital$3,000,000 Cash Write-Off$2,000,000$1,000,000 $- Waterfall R1 R2 R3 R4 R5 R6 R7 R8 R9 R10 Copyright © 2011 SolutionsIQ. All rights reserved.
  63. 63. Investment is reduced and dollarreturn increases $4,000,000 $3,000,000 $2,000,000 Breakeven $1,000,000 Return $- 1 3 5 7 9 11 13 15 17 19 21 23 25 27 29 31 33 35 37 39 41 43 45 47 49 51 53 55 57 59 Waterfall$(1,000,000) Agile Investment Agile Modified$(2,000,000)$(3,000,000)$(4,000,000) Peak$(5,000,000)$(6,000,000)5/20/2011 63 Copyright © 2011 SolutionsIQ. All rights reserved.
  64. 64. By removing lower value features,IRR is further improved60.0%50.0%40.0%30.0%20.0%10.0% 0.0% Waterfall Agile Agile Reduced Scope5/20/2011 64 Copyright © 2011 SolutionsIQ. All rights reserved.
  65. 65. How much more financial value can Agileand Real Options deliver?• Capital expense was reduced by 33%• Cash budget was reduced by 41%• Dollar risk was reduced by 75%• Overall return increased by 274% Project Comparison Waterfall Agile Delta % Delta Capital Expense $4,800,000 $3,200,000 ($1,600,000) -33% Cash Budget $4,800,000 $2,811,500 ($1,988,500) -41% Write-Off Risk $4,800,000 $1,200,000 ($3,600,000) -75% Project Length (months) 12 8 (4) -33% Expected Project IRR 18.5% 50.5% 32.5% 274% Copyright © 2011 SolutionsIQ. All rights reserved.
  66. 66. How is the portfolio improved?• Less capital tied up means more investments and increased diversification• Early release improves corporate profits and allows for increased capital expenditure• By committing capital incrementally, multiple projects can be taken on simultaneously• The go/no-go decision now includes: could capital be better deployed in the portfolio? Copyright © 2011 SolutionsIQ. All rights reserved.
  67. 67. All this before we consider the value oflean waste reduction Some Types of Waste Examples Inventory •Fully completed functional spec ages •Much not used until late or not at all Process Waste •Big, complicated project plan to update •Building a phonebook-sized functional spec •Upfront estimates on detailed task work breakdowns that will be updated or ignored •Bugs not found in timely fashion increases cost Estimation Buffers •Margin of error buffers added by each function Waiting •Testers waiting for developers to complete their tasks & vice versa Gold Plating •Overbuilding specifications Copyright © 2011 SolutionsIQ. All rights reserved.
  68. 68. Putting it all together Copyright © 2011 SolutionsIQ. All rights reserved.
  69. 69. Range of uncertaintyUnknowable Irrational Zone of Available competition Information RationalWell Known Copyright © 2010 SolutionsIQ. All rights reserved.
  70. 70. Traditional business case Executive Biz case? Yes $$$$$$$ $$$$$$$ No Assumption: black or white decision to allocate capital Copyright © 2010 SolutionsIQ. All rights reserved.
  71. 71. Traditional approachExecutive $$$$$$ $$$$$$ Business case is a go Copyright © 2010 SolutionsIQ. All rights reserved.
  72. 72. Traditional approachExecutive PMO $$$$$$ $$$$$$ $$$$$$ $$$$$$ • Capital is allocated • PMO enforces charter • No power to change it Copyright © 2010 SolutionsIQ. All rights reserved.
  73. 73. Traditional approachExecutive PMO Project $$$$$$ $$$$$$ $$$$$$ $$$$$$ Project expense budget is approved Copyright © 2010 SolutionsIQ. All rights reserved.
  74. 74. Traditional approachExecutive PMO Project $$$$$$ $$ $$$$$$ $$ $$$$$$ $$ $$$$$$ $$ PMO makes sure the money is properly spent Copyright © 2010 SolutionsIQ. All rights reserved.
  75. 75. Traditional approachExecutive PMO Project $$$$$$ $$$ $$$$$$ $$$ $$$$$$ $$$ $$$$$$ $$$ All of it Copyright © 2010 SolutionsIQ. All rights reserved.
  76. 76. Traditional approachExecutive PMO Project $$$$$$ $$$$$ $$$$$$ $$$$$ $$$$$$ $$$$$ $$$$$$ $$$$$ All of it Copyright © 2010 SolutionsIQ. All rights reserved.
  77. 77. Traditional approachExecutive PMO Project $$$$$$ $$$$$$ $$$$$$ $$$$$$ All of it Copyright © 2010 SolutionsIQ. All rights reserved.
  78. 78. Traditional approachExecutive PMO Project $$$$$$ $$$$$$ $$$$$$ $$$$$$ Year 1 $$$$$$ $$Partial recovery $$$$$$ $$after first year Copyright © 2010 SolutionsIQ. All rights reserved.
  79. 79. Traditional approachExecutive PMO Project $$$$$$ $$$$$$ $$$$$$ $$$$$$ Year 2 Year 1 $$$$$$ $$$ $$$$$$ $$ $$$$$$ $$$ $$$$$$ $$ Copyright © 2010 SolutionsIQ. All rights reserved.
  80. 80. Traditional approachExecutive PMO Project $$$$$$ $$$$$$ $$$$$$ $$$$$$ Breakeven Year 2 Year 1 $$$$$$ $$$$$$ $$$ $$$$$$ $$ $$$$$$ $$$$$$ $$$ $$$$$$ $$ Copyright © 2010 SolutionsIQ. All rights reserved.
  81. 81. New plant installation: 1965Highly certainbusiness case Low Risk Profiledecision Good Idea Scope = Time Budget Black & white decision Copyright © 2010 SolutionsIQ. All rights reserved.
  82. 82. ERP installation 1998Less certainbusiness case Riskier Profiledecision Good Scope = Idea Time Budget Uncertain software scope Copyright © 2010 SolutionsIQ. All rights reserved.
  83. 83. ERP installation 1998Less certainbusiness case Riskier Profiledecision Good Idea Scope = Time Budget Jeopardizes entire project Copyright © 2010 SolutionsIQ. All rights reserved.
  84. 84. ERP installation 1998Less certainbusiness case Riskier Profiledecision Good Idea Scope = Time Budget Agile to the rescue Copyright © 2010 SolutionsIQ. All rights reserved.
  85. 85. Agile project managementExecutive $$$$$$ $$$$$$ Business case is a go Copyright © 2010 SolutionsIQ. All rights reserved.
  86. 86. Agile project managementExecutive PMO $$$$$$ $$$$$$ $$$$$$ $$$$$$ • Capital is allocated • PMO enforces charter • No power to change it Copyright © 2010 SolutionsIQ. All rights reserved.
  87. 87. Agile project managementExecutive PMO Agile Proj $$$$$$ $$$$$$ $$$$$$ $$$$$$ • Project expense budget is approved • Up to this point no change Copyright © 2010 SolutionsIQ. All rights reserved.
  88. 88. Agile project managementExecutive PMO Agile $$$$$ $$ $$$$$ $$ Sprint 6 $$$$$ $$ $$$$$ $$ $$$$$$ $ $$$$$$ $BusinessProductOwner Release 1What’s wrong with this $$$$$$ $$ $$$$$$ $$picture? Copyright © 2010 SolutionsIQ. All rights reserved.
  89. 89. Agile project managementExecutive PMO Agile $$$ $$$$$ $$$$$ $$$ Sprint 12 $$ $$$$$ $$$$$ $$ $$$$$$$ $$$$$$$BusinessProductOwner Release 2 Release 1 $$$ $$$$ $$ $$ $$$$ $$ Copyright © 2010 SolutionsIQ. All rights reserved.
  90. 90. Agile project managementExecutive PMO Agile $$$$$ $$$$$ Sprint 12 $$$$$ $$$$$ $$$$$$$ $$$$$$$BusinessProductOwner Release N Release 2 Release 1 $$$$ $$$ $$$$ $$ $$$$ $$ $$$$ $$ Copyright © 2010 SolutionsIQ. All rights reserved.
  91. 91. Agile project management scorecard Copyright © 2010 SolutionsIQ. All rights reserved.
  92. 92. Agile project management scorecard• Scope risk reduced Copyright © 2010 SolutionsIQ. All rights reserved.
  93. 93. Agile project management scorecard• Scope risk reduced• Schedule risk reduced Copyright © 2010 SolutionsIQ. All rights reserved.
  94. 94. Agile project management scorecard• Scope risk reduced• Schedule risk reduced• Expense budget risk reduced Copyright © 2010 SolutionsIQ. All rights reserved.
  95. 95. Agile project management scorecard• Scope risk reduced• Schedule risk reduced• Expense budget reduced What about business concept? Copyright © 2010 SolutionsIQ. All rights reserved.
  96. 96. Agile project management scorecard• If software is not released early, business concept remains untested Copyright © 2010 SolutionsIQ. All rights reserved.
  97. 97. Agile project management scorecard• If software is released early, Agile project management still may not help, if it’s a bad idea… Copyright © 2010 SolutionsIQ. All rights reserved.
  98. 98. Agile project management scorecard• If software is released early, Agile project management still may not help, if it’s a bad idea… Copyright © 2010 SolutionsIQ. All rights reserved.
  99. 99. Agile project management scorecard• If software is released early, Agile project management still may not help, if it’s a bad idea… …and there is no way to stop or slow investment Copyright © 2010 SolutionsIQ. All rights reserved.
  100. 100. Capital project 2012Inescapable uncertaintyin business case Risky Profiledecision Good Scope Idea = Time BudgetAgile project management is not enough Copyright © 2010 SolutionsIQ. All rights reserved.
  101. 101. Traditional investmentExecutive PMO Agile $$$$$ $$$$$ Sprint 3 $$$$$ $$$$$ $$$$$$$ $$$$$$$BusinessProductOwner Release 1 $$ $$ One way communication Copyright © 2010 SolutionsIQ. All rights reserved.
  102. 102. Agile investmentExecutive PMO Agile $$$$$ $$$$$ Sprint 3 $$$$$ $$$$$ $$$$$$$ $$$$$$$BusinessProductOwner Release 1 $$ $$ Feedback to control investment Copyright © 2010 SolutionsIQ. All rights reserved.
  103. 103. Traditional business case Executive Biz case? Yes $$$$$$$ $$$$$$$ No Assumption: black or white decision to allocate capital Copyright © 2010 SolutionsIQ. All rights reserved.
  104. 104. Agile Real Options business case Uncertainty threshold Opt 1Executive $$$$$$ $$$$$$ Copyright © 2010 SolutionsIQ. All rights reserved.
  105. 105. Agile Real Options business case Uncertainty threshold Opt 1Executive $ $$$$$$ $ $$$$$$ Copyright © 2010 SolutionsIQ. All rights reserved.
  106. 106. Agile Real Options business case Uncertainty threshold Opt 2 Opt 1Executive $ $ $ $$$$$$ $ $$$$$$ $ Copyright © 2010 SolutionsIQ. All rights reserved.
  107. 107. Agile Real Options business case Uncertainty threshold Opt 3 Opt 2 $$ Opt 1 $Executive $ $ $ $$$$$$ $$ $$$$$$ $ Copyright © 2010 SolutionsIQ. All rights reserved.
  108. 108. Agile Real Options business case Bingo! Opt 3 Opt 2 $$ Opt 1 $Executive $ $ $ $$$$$$ $$ $$$$$$ $ Copyright © 2010 SolutionsIQ. All rights reserved.
  109. 109. Business case for each releaseExecutive PMO Agile $$$$$ $$$$$ Sprint 12 $$$$$ $$$$$ $$$$$$$ $$$$$$$Business Market feedback Release 1Case for $$Release 2 $$ No Copyright © 2010 SolutionsIQ. All rights reserved.
  110. 110. Agile Real Options Summary• We have reached an inflection point: business case assumptions are not knowable prior to beginning a traditional investment• Agile Real Options helps us navigate the unknown through incremental investments that increase our knowledge over the life of the investment• Applying Agile Real Options to the portfolio, diversifies risk and enhances return• To fully exploit the Agile opportunity, executives should make incremental business cases validated by market & program management feedback Copyright © 2010 SolutionsIQ. All rights reserved.
  111. 111. Questions? Copyright © 2010 SolutionsIQ. All rights reserved.

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