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ScrumDay Chile - Value Estimation and Prioritization using Cost of Delay

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This is the presentation used during my lecture on the ScrumDay Chile 2015.

How can we prioritize better and improve our trade-off decisions? Use Cost of Delay!

4 topics covered:

1.- Why other methods fail
2.- How to determine the Cost of Delay
3.- How value changes over time (Urgency Profiles)
4.- Use CD3 to improve your prioritization

Published in: Software

ScrumDay Chile - Value Estimation and Prioritization using Cost of Delay

  1. 1. VALUE estimation and prioritization using Cost of Delay (CoD) Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  2. 2. 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
  3. 3. Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  4. 4. 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
  5. 5. 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 CostofDelay/week Requirements sorted by Cost of Delay Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  6. 6. 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
  7. 7. Without information about VALUEthe system optimizes for other things 3 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  8. 8. 4 examples that you will have to be able to explain… Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  9. 9. h"ps://leopardsolu.ons.files.wordpress.com/2015/04/group-­‐decision-­‐making-­‐in-­‐communi.es-­‐peytonbolin5.jpg   #1Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  10. 10. MoSCoW Must Have Should Have Could Have Won’t Have ROI Relative Cost of Delay Class of Service Benefit-to-cost ratio 4:1 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  11. 11. Let’s prioritize! Feature A B C Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  12. 12. 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
  13. 13. 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
  14. 14. 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
  15. 15. 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
  16. 16. h"p://collegian.tccd.edu/wp-­‐content/uploads/2013/10/poli.cal-­‐incivility-­‐color.jpg  Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  17. 17. Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  18. 18. h"p://vehicletrackingscotland.co.uk/wp-­‐content/uploads/2015/01/laptop_PNG5893.png   #2Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  19. 19. Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  20. 20. Productivity -15pp Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  21. 21. What other key parameters do you need to know? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  22. 22. Help us speed up the purchasing process! Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  23. 23. ~$2,330,000 Irrecoverable, lost VALUE: Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  24. 24. Time $ /week work work work Total Delay Cost Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  25. 25. ~$40k/week Benefit Time work work work Total Delay Cost $ /week Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  26. 26. ~$40k/week Benefit Time work work work Total Delay Cost $ /week Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  27. 27. Productivity -15pp Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  28. 28. Weekly cost of a developer $800 + $120 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  29. 29. Weekly net value delivered per developer $32,533 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  30. 30. Cost of Delay per developer $32,653 /week 5 teams, 6 developers each: $979,600 /weekPrepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  31. 31. ~$2,330,000 Irrecoverable, lost VALUE: Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  32. 32. 15,985 monitors By now we could have bought Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  33. 33. <<< 1 day Time to break even Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  34. 34. 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
  35. 35. 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
  36. 36. 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 change1 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
  37. 37. 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
  38. 38. h"p://.p.gatech.edu/sites/default/files/Resolución%20en%20cajas%20(Medium).JPG   #3Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  39. 39. 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
  40. 40. 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
  41. 41. 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
  42. 42. 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
  43. 43. 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
  44. 44. Urgency Profiles Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  45. 45. For ideas with a very long-life, with peak unaffected by delay Time Cost of Delay $Benefits/week Long-life, unaffected peak1 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  46. 46. For ideas with a very long-life, with peak unaffected by delay TimeLate Entry Cost of Delay $Benefits/week Long-life, unaffected peak1 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  47. 47. For ideas with a very long-life, with peak unaffected by delay TimeLate Entry Cost of Delay $Benefits/week Delay Cost Long-life, unaffected peak1 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  48. 48. For ideas with a very long-life, with peak unaffected by delay TimeLate Entry Cost of Delay $Benefits/week Delay Cost Long-life, unaffected peak1 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  49. 49. Short benefits horizon, and reduced peak due to late delivery TimeLate Entry Reduced Peak Delay Cost $Benefits/week Short-life, affected peak2 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  50. 50. For ideas with a very long-life, with reduced peak due to later delivery TimeLate Entry Reduced Peak Delay Cost $Benefits/week Long-life, affected peak3 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  51. 51. TimeLate Entry Delay Cost $Benefits/week Seasonal/date-driven4 Last Responsible MomentPrepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  52. 52. 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
  53. 53. 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
  54. 54. Urgency Profiles Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  55. 55. https://dereklieu.files.wordpress.com/2011/01/tetris-marathon-tetris.jpg #4Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  56. 56. 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
  57. 57. 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
  58. 58. Cost of Delay Simulation Time ValuePotential Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  59. 59. Cost of Delay Simulation A Time ValuePotential 5431 2 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  60. 60. Cost of Delay Simulation $A Time ValuePotential 5431 2 6 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  61. 61. B Cost of Delay Simulation $A Time ValuePotential 5431 2 6 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  62. 62. B Cost of Delay Simulation $ $ $ $ $ A Time ValuePotential $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 5431 2 6 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  63. 63. B Cost of Delay Simulation $ $ $ $ $ A C Time ValuePotential $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 5431 2 6 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  64. 64. B Cost of Delay Simulation $ $ $ $ $ $ $ $ $ $ A C Time ValuePotential $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 5431 2 6 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  65. 65. A Time CostofDelay First-In-First-Out Scheduling Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  66. 66. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ B A Time CostofDelay First-In-First-Out Scheduling Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  67. 67. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ C B A Time CostofDelay First-In-First-Out Scheduling Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  68. 68. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ C B A Time CostofDelay First-In-First-Out Scheduling Total Delay Cost = $50 $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $50 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  69. 69. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $50 C B A Time CostofDelay First-In-First-Out Scheduling Time CostofDelay B A C Cost of Delay (CD3) Scheduling Total Delay Cost = $50 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  70. 70. $$ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ C B A Time CostofDelay First-In-First-Out Scheduling Time CostofDelay B A C Cost of Delay (CD3) Scheduling Total Delay Cost = $8Total Delay Cost = $50 $50 $8 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  71. 71. $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $$ $ $ $ $ $ $ C B A Time CostofDelay First-In-First-Out Scheduling Time CostofDelay B A C Cost of Delay (CD3) Scheduling 84% reduction in delay cost vs FIFO In this simple example: Total Delay Cost = $8Total Delay Cost = $50 $50 $8 (BlackSwanFarming.com) Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  72. 72. 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
  73. 73. 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
  74. 74. CD3Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  75. 75. In CD3, why divide by Duration… and not Cost? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  76. 76. Money? You can beg, borrow or steal… Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  77. 77. Time? Can’t be replaced. Can’t be reversed! Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  78. 78. Knowing how long the pipeline is blocked is more valuable information Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  79. 79. Takeaways Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  80. 80. 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
  81. 81. #1 #2 #3 #4 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015
  82. 82. 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
  83. 83. 1.  Contact: cletelier@gmail.com 2.  Thanks cesar@labzero.com & 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

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