Information Theory in Lean Product Development

1. This work is licensed under a Creative Commons Attribution-NoDerivs 3.0 Unported License.
Information Theory
PLAYBOOK LEAN PRODUCT DEVELOPMENT SERIES
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2. PLAYBOOK LEAN PRODUCT DEVELOPMENT SERIES
This series is for anyone interested in Lean, Agile and team principles
and how they can be applied in new product development scenarios
to increase innovation, improve delivery times and create engaged,
happy, high-performing teams.
PLAYBOOKHQ.co
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3. Notes:
1. The product of product development is _______________.
2. Knowledge = _______________ that is understood.
3. The goal of product development is _______________.
4. Therefore, the purpose of product development is to produce more
_______________ information.

4. Notes:
1. Information is worth more when it’s known earlier
2. The cost of uncertainty rises exponentially over time.
3. Late changes cost more than early changes.
Economic effects of late changes:
a. Project expenses _______________
b. _______________ Cost of Delay (schedule)
4. Changes not made, because you don’t have time to make them, cost you, too .
Economic effects of not having the information in time to make the change:
a. _______________ Unit Cost
b. _______________ Sales Volumes or Average Sales Price

5. Notes:
1. Risk is “an _______________ event or condition that, if it occurs, has a positive or
negative effect on a project’s objectives”.
2. The total uncertainty decreases over time as we learn more about our design.
3. Active risk management reduces the uncertainty more quickly.
4. Uncertainty means _______________ is needed.
5. Good Project Risk Management is the management of what information you need and
when you need it to successfully achieve the project’s objectives.

6. Notes:

7. Notes:

8. Learn Faster by…
1. Clearly _______________ the question(s) you really need to answer.
2. Don’t do any more work than _______________ to get the answer (the rest is nonvalue added waste…).
3. Look for partial answers you can get very _______________.
4. Have a useful knowledgebase (knowledge capture system).
5. What would be the fastest way to learn about the following:
a. Size is not too big?
b. Hand piece is ergonomic and balanced?
c. User interface is simple and appealing?
d. Does the functionality meet the customer’s needs?
e. Where are the unknown bugs in our system?

9. Notes:
1. Design learning experiments to provide the most information by targeting a
_______________ success rate.
2. Events that are less probable contain more _______________.
3. If the outcome was expected, you learn _______________.
4. You cannot maximize learning by maximizing the _______________ rate of an
experiment.

10. Notes:
1. Example. You are developing a part that needs to be light and small and you don’t have
much time. The production part is molded with an expensive material and takes 6
weeks to procure. You estimate the part will break under about a 300 lb. load, but
probably somewhere between 200 lb. and 400 lb. Your specification is 200 lb. or
greater. You estimate there’s a 10% chance of it breaking below 200 lb., but you won’t
really know until you test it.
2. Which generates more information (i.e. what % of all possibilities do you eliminate)?
a. Test at 200 lb. & part does not break  _______________.
b. Test at 300 lb. & part does not break  _______________.
c. Test at 400 lb. & part breaks  _______________.
d. Test at 200 lb. & part breaks  _______________.
3. Learning eliminates uncertainty. Therefore, early learning = faster burndown of risk.
The goal is to maximize the rate of information (i.e. uncertainty elimination rate).
4. How do you most quickly find out the part breaks at about 250 lb.? _______________.
a. How long does it take to get 100% of the information? ____________________.
b. How long does it take to get 10% of the information? _____________________.
c. Using a 50% success rate you get 10x the information in 3x the time.

11. Notes:
1. What’s the cost of the information?
a. 3hr * 100/hr (labor) + 3 parts * $200/part (materials) = $900
2. What’s the value of the information?
a. If it will break, but we don’t find out until later:
i.
Cost of late information:
•
If it breaks in Validation, how long does it take to fix and get new
parts? ________________.
•
10% probability * 6 wks (30 day) delay = 3 days
•
3 days * $500,000/mo (Cost of Delay) ~ $68,000
PLUS
a. If it won’t break because its been overdesigned:
i.
Cost of being heavier than necessary
•
X% less sales * Sales Sensitivity
PLUS
i.
Cost of higher than necessary COGs
•
$Y more COGs * COGs Sensitivity
3. What’s the ROI?
a. $68,000+/$900 = 7600+%

12. Notes:
1. The _______________ you learn something, the more it _______________ to
incorporate that knowledge (i.e. information is more valuable earlier).
2. The Total Cost Curve (U-shaped) applies to _______________ batches.
3. Cost of Delay rises with _______________ size.
4. We try to save a little _______________ on testing by batching things, but we lose
_______________ than we save from the delay that the batch causes.

13. Notes:
1. When you are testing and finding problems, you are building a queue of work (i.e.
problems to solve).

14. Notes:
1. Small-batch testing helps keep the Work Queues _______________ .
2. By keeping the Work Queues small….
a. You fix bugs while you _______________ the code.
b. You have less tendency to _______________ .
c. You have more _______________ to adapt to larger problems.
3. Large-batch testing _______________ learning which decrease profit.
4. Quality is increased because we learn from each iteration and the next iteration’s quality
is based on the previous iteration, therefore the Average Error Population is lower.
5. Try it, fix it is generally faster and results in higher quality (i.e. more profitable) than
Get it right the first time.

15. Overview
1. The goal of this game is to reinforce your understanding of a learning fast strategy.
2. There are two ways to learn :
a. Design & Test
Try to get it 100% right, determine what isn’t right as best you can, repeat as
necessary.
•
•
This process is usually slow.
In the game this process takes 1 month for each iteration.
b. Mockup & Test
Eliminate some uncertainty very quickly, repeat as necessary.
•
•
This process is fast, but doesn’t get you all the way to the end. At some
point you need to switch over to the Design & Test type learning method.
In the game this process takes 1 week for each iteration.
How to Play
1. I write down a number 00-99 (100 numbers) and you try to determine what it is.
2. We’ll play three different games each with its own set of rules.
3. Be prepared to compare and contrast each game.

17. Notes:
1. How long did it take to get the right answer, where right means 100% of the
information you need (i.e. 100% of the uncertainty eliminated)?
2. What was the average information generation rate?

18. Notes:
1. How long did it take to get the right answer, where right means 100% of the
information you need and 100% of the uncertainty eliminated?
2. What was the average information generation rate?
3. Was it intuitive that you would get the answer faster this way vs. Design & Test
learning?
4. If so, why?

19. Notes:
1. How long did it take to get the right answer, where right means 100% of the
information you need (i.e. 100% of the uncertainty eliminated)?
2. What was the average information generation rate?
3. Was it intuitive that you would get the answer faster this way rather than Design & Test
type learning?
4. If so, why?
5. How does the information batch size differ from Game 1?
6. What are some examples where mockups give a little information vs. a lot of
information?

20. Group Discussion
• Share an example of an experience you had
when you received information ‘too’ late (e.g.
from a test, another person, a vendor…)
• What was the impact (in economic terms)?
• What could have been done that would have
prevented that from happening?
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21. Key Takeaways
• Information differs in value
– Value depends on its economic impact
– Early learning is more profitable than late learning
– Unexpected outcomes (failures) are not the enemy
• Plan higher risk learning first
– Bigger Risks contains more profitable information
– Decreases the total uncertainty more quickly
• Test (learn) using small batch sizes
– Information arrives earlier
– Creates smaller arrival rate of information
– Increases quality
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22. THANK YOU!
PLAYBOOKHQ.co
@PLAYBOOKHQ
PLAYBOOKHQ.co
@PLAYBOOKHQ