Product Owner Support<br />Financial Prioritization<br />Pierre E. NEIS<br />
Agenda<br />Objectives<br />Reminder<br />Sources of Return<br />Prioritization<br />Examples<br />PO Training - Financial...
Objectives<br />Get enough financial information to help prioritization<br />Financial information are:<br />Wins<br />Los...
Reminder<br />the Product Iceberg<br />Stories, Epics & Themes<br />PO Training - Financial Prioritization<br />4<br />
 the Product Iceberg<br />5<br />Priority<br />Sprint<br />Release<br />Future Releases<br />PO Workshop - The Product Bac...
Stories, Epics & Themes<br />6<br />Theme<br />User Story<br />A collection of related User stories<br />A description of ...
Sources of Return<br />Objective is to assess each themes to make prioritization decisions<br />Outputs: Discounted Paybac...
Sources of Return<br />New Revenue<br />Incremental revenue<br />Retained revenue<br />Operational Efficiencies<br />Devel...
New Revenue<br />The Product Owner works closely with Sales & Marketing:<br /><ul><li>Get sales estimations
Evaluate the average purchase time scope (when you get the new client)
Estimate revenue (consider average revenue of Buyer’s Persona)</li></ul>PO Training - Financial Prioritization<br />9<br />
Incremental revenue<br />PO Training - Financial Prioritization<br />10<br />
Retained revenue<br />PO Training - Financial Prioritization<br />11<br />
Operational Efficiencies<br />Growth anticipation<br />Waste elimination<br />Automation of time-lost necessarily activiti...
Development Costs<br />PO Training - Financial Prioritization<br />13<br />example<br />Source: Mike Cohn ,Agile Estimatin...
Costs<br />PO Training - Financial Prioritization<br />14<br />example<br />Using the last example<br />Cost per story poi...
Net Present Value (NPV)<br />NPV = sum of the present values of each item in a stream of future values<br />NPV(i) = ΣFt (...
Present Value<br />NET PRESENT VALUE = ΣPresent Value of all themes<br />Advantage: easy to calculate, easy to understand<...
Internal Rate of Return (ROI)<br />Internal Rate of Return (IRR) is defined as the interest rate at witch the NPV is equal...
Payback Period<br />NPV gives a Present Value amount<br />IRR gives an Interest Rate<br />Payback Period is the amount of ...
Discounted Payback Period (DPP)<br />PO Training - Financial Prioritization<br />19<br />Discounted Cash Flow (DCF) = Pres...
Comparing Returns<br />PO Training - Financial Prioritization<br />20<br />Taking Mike Cohn’s example<br />Financial analy...
A simpler way to Prioritization<br />The Metrics within Scrum<br />What we want?<br />Using the AgileEVM approach<br />We ...
A simpler way to Prioritization <br />Objectives:<br />We want to mesure the Outcome not the Ouputs<br />Business Value<br...
The Metrics within Scrum<br />PO Training - Financial Prioritization<br />23<br />The Product Owner is concerned with two ...
The Metrics within Scrum<br />PO Training - Financial Prioritization<br />24<br />
What we want?<br />Integrating Cost and Schedule Performance<br />Financial forecasts based on actual cost :<br />Consumed...
Using the AgileEVM approach<br />PO Training - Financial Prioritization<br />26<br />Release dates are based on average ve...
We want to measure<br />AC –Actual Cost<br />PV –Planned Value<br />EV –Earned Value<br />BAC –Budget at Complete<br />EAC...
Calculation (example)<br />PO Training - Financial Prioritization<br />28<br />
Calculation<br />PO Training - Financial Prioritization<br />29<br />
Calculation<br />PO Training - Financial Prioritization<br />30<br />
Inputs <br />Start Date<br />Budget At Complete<br />Planned Sprints<br />Sprint Lengths<br />Planned Release Story Points...
Calculation (example)<br />PO Training - Financial Prioritization<br />32<br />Total Project Budget =  175.000<br />EPC= 2...
New Metrics: CPI<br />Cost Performance Index (CPI) gives measure of efficiency: <br />CPI = EV/AC<br />In the example, CPI...
New Metrics: SPI<br />Sheduled Performance Index (SPI), compares EV with PV: <br />SPI = EV/PV<br />In the example, CPI = ...
AgileEVM: Summary<br />35<br />PO Training - Financial Prioritization<br />
Conclusion<br />Using simple Agile Metrics provides objective analysis to share with teams, management and customers.<br /...
Examples<br />Scoreboard<br />Velocity<br />Release Burndown<br />SPI (schedule performance index) & CPI (cost performance...
Scoreboard<br />PI: Planned iteration<br />IL: iteration length<br />PRSP: initial Story Points<br />BAC: budget as comple...
Velocity<br />39<br />PO Training - Financial Prioritization<br />
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Financial Proritization

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A part of my Product Owner Training Program covering to different approaches on Financial Prioritization:
1- Agile Estimating and Planning by Mike Conh (Ch. 10)
2.- AgileEVM

Take that presentation as just a information material.

In real life, this has to be adapted to customer's/business needs.

Cheers

Pierre

Published in: Economy & Finance, Business
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Financial Proritization

  1. 1. Product Owner Support<br />Financial Prioritization<br />Pierre E. NEIS<br />
  2. 2. Agenda<br />Objectives<br />Reminder<br />Sources of Return<br />Prioritization<br />Examples<br />PO Training - Financial Prioritization<br />2<br />
  3. 3. Objectives<br />Get enough financial information to help prioritization<br />Financial information are:<br />Wins<br />Losts<br />Return of Investment<br />Focus to value creation and waste elimination<br />PO Training - Financial Prioritization<br />3<br />
  4. 4. Reminder<br />the Product Iceberg<br />Stories, Epics & Themes<br />PO Training - Financial Prioritization<br />4<br />
  5. 5. the Product Iceberg<br />5<br />Priority<br />Sprint<br />Release<br />Future Releases<br />PO Workshop - The Product Backlog<br />
  6. 6. Stories, Epics & Themes<br />6<br />Theme<br />User Story<br />A collection of related User stories<br />A description of desired functionality told from the perspective of the user or customer.<br />Epic<br />A large user story<br />PO Training - Financial Prioritization<br />
  7. 7. Sources of Return<br />Objective is to assess each themes to make prioritization decisions<br />Outputs: Discounted Payback, Return of Investment (ROI), Net Present Value (NPV), Costs<br />Inputs: Sources of Return<br />PO Training - Financial Prioritization<br />7<br />
  8. 8. Sources of Return<br />New Revenue<br />Incremental revenue<br />Retained revenue<br />Operational Efficiencies<br />Development Costs<br />Costs<br />Net Present Value (NPV)<br />Present Value<br />Internal Rate of Return (ROI)<br />Payback Period<br />Discounted Payback Period (DPP)<br />Comparing Returns<br />PO Training - Financial Prioritization<br />8<br />
  9. 9. New Revenue<br />The Product Owner works closely with Sales & Marketing:<br /><ul><li>Get sales estimations
  10. 10. Evaluate the average purchase time scope (when you get the new client)
  11. 11. Estimate revenue (consider average revenue of Buyer’s Persona)</li></ul>PO Training - Financial Prioritization<br />9<br />
  12. 12. Incremental revenue<br />PO Training - Financial Prioritization<br />10<br />
  13. 13. Retained revenue<br />PO Training - Financial Prioritization<br />11<br />
  14. 14. Operational Efficiencies<br />Growth anticipation<br />Waste elimination<br />Automation of time-lost necessarily activities<br />Communication enforcement between Services<br />Reduced employee turnover<br />New comers training<br />Any time sensitive process<br />Multiple processes alignment<br />Accuracy improvement<br />Rework reduction<br />PO Training - Financial Prioritization<br />12<br />
  15. 15. Development Costs<br />PO Training - Financial Prioritization<br />13<br />example<br />Source: Mike Cohn ,Agile Estimating and Planning (p.100)<br />
  16. 16. Costs<br />PO Training - Financial Prioritization<br />14<br />example<br />Using the last example<br />Cost per story point (or ideal day) = Adjusted Cost per Iteration / expected Velocity<br />In the example, average velocity is 20: CPSP = 13.500/20 = 675<br />Source: Mike Cohn ,Agile Estimating and Planning (p.100)<br />
  17. 17. Net Present Value (NPV)<br />NPV = sum of the present values of each item in a stream of future values<br />NPV(i) = ΣFt (1+i)-t<br /> i = interest rate<br />Ft = net cash flow in period t<br />(1+i)-t = Present Value Factor = amount of future discounted cash flow<br />PO Training - Financial Prioritization<br />15<br />n<br />t=0<br />
  18. 18. Present Value<br />NET PRESENT VALUE = ΣPresent Value of all themes<br />Advantage: easy to calculate, easy to understand<br />Disadvantage: misleading by comparing different cash flow streams<br />PO Training - Financial Prioritization<br />16<br />
  19. 19. Internal Rate of Return (ROI)<br />Internal Rate of Return (IRR) is defined as the interest rate at witch the NPV is equal to 0<br />PV(i*) = ΣFt (1+i)-t = 0<br />PO Training - Financial Prioritization<br />17<br />n<br />t=0<br />
  20. 20. Payback Period<br />NPV gives a Present Value amount<br />IRR gives an Interest Rate<br />Payback Period is the amount of time required to earn back the initial investment: <br />Σ (all Net cash flowssincestart)<br />PO Training - Financial Prioritization<br />18<br />
  21. 21. Discounted Payback Period (DPP)<br />PO Training - Financial Prioritization<br />19<br />Discounted Cash Flow (DCF) = Present Value<br />DPP = Σ (DCFssincestart)<br />
  22. 22. Comparing Returns<br />PO Training - Financial Prioritization<br />20<br />Taking Mike Cohn’s example<br />Financial analysis of themes helps in prioritization… but here another approach<br />
  23. 23. A simpler way to Prioritization<br />The Metrics within Scrum<br />What we want?<br />Using the AgileEVM approach<br />We want mesure<br />Calculation (example)<br />Inputs<br />Calculation (example)<br />New Metrics: CPI<br />New Metrics: SPI<br />AgileEVM: Summary<br />Conclusion<br />AgileEVM<br />PO Training - Financial Prioritization<br />21<br />
  24. 24. A simpler way to Prioritization <br />Objectives:<br />We want to mesure the Outcome not the Ouputs<br />Business Value<br />Process<br />Prioritization to maximize Business Value<br />Efficient shipping to minimize costs<br />Redistribution of resources when costs are too high or profits too low.<br />PO Training - Financial Prioritization<br />22<br />
  25. 25. The Metrics within Scrum<br />PO Training - Financial Prioritization<br />23<br />The Product Owner is concerned with two key performance indicators :<br />Backlog Size<br />Velocity<br />Product Backlog <br />= <br />list of project requirements<br />Velocity <br />= <br />amount of backlog that the team can deliver in a Sprint / Iteration<br />
  26. 26. The Metrics within Scrum<br />PO Training - Financial Prioritization<br />24<br />
  27. 27. What we want?<br />Integrating Cost and Schedule Performance<br />Financial forecasts based on actual cost :<br />Consumed Costs, Consuming Rate, Time Allocation, etc.<br />Unlike the velocity, the Actual Cost is the cumulative Team Costs <br />PO Training - Financial Prioritization<br />25<br />
  28. 28. Using the AgileEVM approach<br />PO Training - Financial Prioritization<br />26<br />Release dates are based on average velocity (storypoints)= estimate at complete (euros)<br />Assumption: the ratio(story points completed)/(total story points in a release) is a good mesure for Actual Percent Complete<br />
  29. 29. We want to measure<br />AC –Actual Cost<br />PV –Planned Value<br />EV –Earned Value<br />BAC –Budget at Complete<br />EAC –Estimate at Complete<br />CPI –Cost Performance Index<br />SPI –Schedule Performance Index<br />PO Training - Financial Prioritization<br />27<br />
  30. 30. Calculation (example)<br />PO Training - Financial Prioritization<br />28<br />
  31. 31. Calculation<br />PO Training - Financial Prioritization<br />29<br />
  32. 32. Calculation<br />PO Training - Financial Prioritization<br />30<br />
  33. 33. Inputs <br />Start Date<br />Budget At Complete<br />Planned Sprints<br />Sprint Lengths<br />Planned Release Story Points <br />+ Variables<br />Story Points Completed<br />Story Points Added<br />Actual Cost<br />Current Sprint<br />PO Training - Financial Prioritization<br />31<br />
  34. 34. Calculation (example)<br />PO Training - Financial Prioritization<br />32<br />Total Project Budget = 175.000<br />EPC= 25%<br />PV = 175.000 x 25% = 43.750<br />APC = 40/200 = 20% completed<br />EV = 175.000 x 20% = 35.000<br />EV = 35.000 ; PV = 43.750<br />EV &lt; PV  Project in trouble<br />
  35. 35. New Metrics: CPI<br />Cost Performance Index (CPI) gives measure of efficiency: <br />CPI = EV/AC<br />In the example, CPI = 35.000/65.000 = 0.53<br />Estimate at completed = Total Budget / CPI<br />Here, EAC = 175.000 / 0.53 = 330.188  we predict to be 47% over budget<br />PO Training - Financial Prioritization<br />33<br />
  36. 36. New Metrics: SPI<br />Sheduled Performance Index (SPI), compares EV with PV: <br />SPI = EV/PV<br />In the example, CPI = 35.000/43.750 = 0.80<br />Estimate Completion = Planned Iteration/ SPI<br />Here, planned Iteration is 4<br />Est. Compl. = 4 / 0.80 = 5 iterations<br />PO Training - Financial Prioritization<br />34<br />
  37. 37. AgileEVM: Summary<br />35<br />PO Training - Financial Prioritization<br />
  38. 38. Conclusion<br />Using simple Agile Metrics provides objective analysis to share with teams, management and customers.<br />The early warnings of AgileEVM validates changes to release plans and provides business with the opportunity to make priority trade-off decisions early in the project lifecycle.<br />Source: Tamara Sulaiman (InfoQ), Hubert Smits (rally SW)<br />PO Training - Financial Prioritization<br />36<br />
  39. 39. Examples<br />Scoreboard<br />Velocity<br />Release Burndown<br />SPI (schedule performance index) & CPI (cost performance index)<br />37<br />PO Training - Financial Prioritization<br />
  40. 40. Scoreboard<br />PI: Planned iteration<br />IL: iteration length<br />PRSP: initial Story Points<br />BAC: budget as completed<br />Average velocity from start<br />Actual % completed<br />Cumulative story points<br />n/PI<br />SPA: Story Points added<br />This gives us the ability to give a complex burndown chart that shows scope growth and velocty<br />BAC - cumEV<br />n: iteration Number<br />(BAC - cumEV)/cumCPI<br />cumulative story point completed for n sprints<br />SPC: Story Points completed<br />38<br />PO Training - Financial Prioritization<br />
  41. 41. Velocity<br />39<br />PO Training - Financial Prioritization<br />
  42. 42. Release Burndown<br />40<br />PO Training - Financial Prioritization<br />
  43. 43. SPI (schedule performance index) & CPI (cost performance index)<br />41<br />PO Training - Financial Prioritization<br />

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