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Estimating value through the lens of cost of delay

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Estimating value through the lens of cost of delay

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Estimating value through the lens of cost of delay

  1. 1. agilebydesign.com @agile_bydesign Estimating Value through the Lens Of Cost Of Delay
  2. 2. agilebydesign.com @agile_bydesign Before we begin, a shift in mindset around how we think about delivering value
  3. 3. agilebydesign.com @agile_bydesign Think about Organizational Agility as the act of continuously looking for ways to reduce the time between coming up with a hypothesis of value and validating that value by deploying it to the market We want to equip you with practical tools that can enable that shift in mindset needed when it comes to delivering value with Agility • Time is your most precious asset • Value decays over time Time • Delay is your most expensive obstacle • Delay costs you more than inefficiency • Remove sources of delay Delay • Estimate value quickly and collaboratively • Accuracy over Precision Precision
  4. 4. agilebydesign.com @agile_bydesign During this session we want to provide you a chance to analyze real work through the lens of delivering value with increased agility Estimating Lead and Delay Time (15 minutes) Estimating Cost Of Delay (15 minutes) Ranking with CD3 (10 Minutes) CD3 Score Cost of Delay Duration= Review and Next Steps (5 minutes) EXERCISE: Cost of Delay and CD3 (30 minutes) EXERCISE: Lead Time, Value Type & Urgency Profile (30 minutes) Identifying Value and Urgency (15 minutes)
  5. 5. agilebydesign.com @agile_bydesign We will work as a team to estimate the value of at least one feature using the following Feature Value Estimation Canvas FEATURE PROBLEM/IDEA/OPPORTUNITY DESCRIPTION VALUE (t-shirt sizing) Create functionality so that TheBusiness notifies customers when travelling internationally to prevent card getting blocked VALUE TYPE (choose one) URGENCY PROFILE (choose one) Increase Revenue - Protect Revenue - Reduce Cost - Avoid Cost Expedite - Fixed – Standard - Intangible VALUE MODEL Assumption Factor (with unit) Confidence Cost of delay = # customers affected * likelihood of event * call duration * hourly rate * %customers who would use solution COST OF DELAY (per months)= LEAD TIME (months)= DELAY TIME (months)=
  6. 6. agilebydesign.com @agile_bydesign Estimating Lead and Delay Time (15 minutes) Estimating Cost Of Delay (15 minutes) Ranking with CD3 (10 Minutes) CD3 Score Cost of Delay Duration= Review and Next Steps (5 minutes) EXERCISE: Cost of Delay and CD3 (30 minutes) Agenda EXERCISE: Lead Time, Value Type & Urgency Profile (30 minutes) Identifying Value and Urgency (15 minutes)
  7. 7. agilebydesign.com @agile_bydesign For knowledge work, Lead Time can be measured by agreeing on a Commitment Point and Delivery Point within your Porfolio or Team Intake Scoping Options Analysis Build Validate Ready Deployed I1 I2 I3 S1 S2 B1 B2 B3 B4 P2 P3 D2 C2 C1 C3 A1 D2D1 D3 Tech Lead Time Doing Done Doing Done Doing Done D1P1 CT CT CT Cycle TimeCycle TimeDelay Time Delay Time DT DT DT A2 Tech Commitment Point • Work before the commitment point can be considered to be an option • Minimal work to prepare an option • Customers and suppliers negotiate the commitment point based on the improvement they are looking for in the system Tech Delivery Point Market Lead Time Business Commitment Point Business Delivery Point
  8. 8. agilebydesign.com @agile_bydesign An organization is delivering value with agility if it strives to reduce lead time between idea generation to validating it through market feedback Start increase Agility by • Reducing Lead time • Delivering less at a time, more often • A balance of success and failure • Increasing the frequency of customer insights with tight feedback loops Do not try to • Increasing throughput • Maximizing Efficiency • Avoiding Failure
  9. 9. agilebydesign.com @agile_bydesign Why is there a delay? 1 Sample Delay Themes • Different Teams & Porfolios have different priorities on their backlog • Too much Work in Progress • Outcomes are too Big – Need to Thin Slice! • Teams are specialized, lots of hand-offs required • Rework • Over Specified Solve or Reprioritize to Lessen the Delay 2 Delay Time Lead Time Reducing lead time can be accomplished by identifying sources of delay and removing them Plan ImproveLearn
  10. 10. agilebydesign.com @agile_bydesign Simple Lead Time and Delay Time for our example FEATURE PROBLEM/IDEA/OPPORTUNITY DESCRIPTION VALUE (t-shirt sizing) Create functionality so that TheBusiness notifies customers when travelling internationally to prevent card getting blocked VALUE TYPE (choose one) URGENCY PROFILE (choose one) Increase Revenue - Protect Revenue - Reduce Cost - Avoid Cost Expedite - Fixed – Standard - Intangible VALUE MODEL Assumption Factor (with unit) Confidence Cost of delay = # customers affected * likelihood of event * call duration * hourly rate * %customers who would use solution COST OF DELAY (per months)= LEAD TIME (months)= 3 DELAY TIME (months)= 2
  11. 11. agilebydesign.com @agile_bydesign Estimating Lead and Delay Time (15 minutes) Estimating Cost Of Delay (15 minutes) Ranking with CD3 (10 Minutes) CD3 Score Cost of Delay Duration= Review and Next Steps (5 minutes) Identifying Value and Urgency (15 minutes) Agenda EXERCISE: Cost of Delay and CD3 (30 minutes) EXERCISE: Lead Time, Value Type & Urgency Profile (30 minutes)
  12. 12. agilebydesign.com @agile_bydesign
  13. 13. agilebydesign.com @agile_bydesign First steps to improvements are: • high quality conversations • smaller increments • estimate your assumptions • manage the impact of delay Cross Functional group estimates value Key to estimating value is being able to shift to a mindset of making decisions based on imperfect information and assumptions Not estimating value Precise measurement of value
  14. 14. agilebydesign.com @agile_bydesign Source: http://blackswanfarming.com/value-a-framework-for-thinking/ Begin by selecting a Value Type - a simple framework for assessing the economic impact of the investment decisions we are making
  15. 15. agilebydesign.com @agile_bydesign • High and immediate impact to business • Major lost opportunity if not immediately addressed Our customers privacy is exposed until we make this fix • Shallow but immediate impact to business • Incremental revenue or Cost avoidance We will get more paying customers if they can subscribe online • No / low immediate impact to business • New / improved capability Once we have the ability to deliver application features using local people, we will have the autonomy we need to deliver at market speed • Medium or High impact to business • Of no value past a certain date Our Christmas Marketing Campaign had better be done before Christmas Expedite Class Standard Class Intangible Class Fixed Date Class Allocating work across Urgency Profiles clarifies the risk inherent in not doing the work
  16. 16. agilebydesign.com @agile_bydesign Our example continued by showing Value Type and Urgency Profile FEATURE PROBLEM/IDEA/OPPORTUNITY DESCRIPTION VALUE (t-shirt sizing) Create functionality so that TheBusiness notifies customers when travelling internationally to prevent card getting blocked VALUE TYPE (choose one) URGENCY PROFILE (choose one) Increase Revenue - Protect Revenue - Reduce Cost - Avoid Cost Expedite - Fixed – Standard - Intangible VALUE MODEL Assumption Factor (with unit) Confidence Cost of delay = # customers affected * likelihood of event * call duration * hourly rate * %customers who would use solution COST OF DELAY (per months)= LEAD TIME (months)= 3 DELAY TIME (months)= 2
  17. 17. agilebydesign.com @agile_bydesign Exercise (30 minutes) • Choose sample work in your backlog o Represent ideas at whatever granularity you are managing them (eg: Sagas, Epics, Features) o Features tend to be the easiest to work with going forward • Estimate Lead Time & Delay Time: o Starting with the highest priority item, estimate the time it will take to deliver the work to market in people months o Now estimate the time it would take if there was no delay in getting the work done, in people months o Identify sources of delay to get a better handle on total delay time o Write down Lead time and Delay Time for each item • Evaluate Idea and assign Value Type and Urgency Profile
  18. 18. agilebydesign.com @agile_bydesign Estimating Lead and Delay Time (15 minutes) Ranking with CD3 (10 Minutes) CD3 Score Cost of Delay Duration= Review and Next Steps (5 minutes) Cost of Delay and CD 3 Exercise (30 minutes) Estimating Cost Of Delay (15 minutes) Lead Time, Value Type & Urgency Profile Exercise (30 minutes) Identifying Value and Urgency (15 minutes)
  19. 19. agilebydesign.com @agile_bydesign Cost of Delay puts a price tag on time, making it explicit how delaying a release interferes with the realization of value • Feature or Epic level • Decay of Value / Time • Opportunity Cost / Month (often in $$$) • Slope can be used to display varying COD over time • Different Slopes -> Different Urgency Profile • Achieve resiliency by balancing work across Urgency Profiles $10,000 / Month Expedite Class Standard Class Intangible Class Fixed Date Class
  20. 20. agilebydesign.com @agile_bydesign Looking at Cost Of Delay helps us understand how to make decisions based on value, rather than effort Week 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 Value Add Risk Reduction Waiting Opportunity 10 Weeks waiting 3 Weeks waiting Design (24 hrs) Dev & Test (160 hrs) Go-Live We have identified the Customer Travel Abroad Feature with the cost of delay being $187,500 per week ($750,000 per month). The value stream below illustrates the progression of the Epic through an organization’s system of work: How much did queuing, or waiting time cost this organization? The 10 weeks that this opportunity spent waiting in various queues cost the organization $1,875,000 in lost revenues 5 Weeks waiting 2 Weeks waiting Inspired by http://blackswanfarming.com
  21. 21. agilebydesign.com @agile_bydesign • High and immediate impact to business • Major lost opportunity if not immediately addressed Our customers privacy is exposed until we make this fix • Shallow but immediate impact to business • Incremental revenue or Cost avoidance We will get more paying customers if they can subscribe online • No / low immediate impact to business • New / improved capability Once we have the ability to deliver application features using local people, we will have the autonomy we need to deliver at market speed • Medium or High impact to business • Of no value past a certain date Our Christmas Marketing Campaign had better be done before Christmas Expedite Class Standard Class Intangible Class Fixed Date Class Allocating work across Urgency Profiles clarifies the risk inherent in not doing the work
  22. 22. agilebydesign.com @agile_bydesign Expediters have high and immediate impact to business Typical Lead Time Expedite Class High and immediate impact to business Break-fix type of work that needs immediate attention Avoiding making the News Extreme political fall out
  23. 23. agilebydesign.com @agile_bydesign Typical Lead Time Fixed Date Class Fixed Date items drop dramatically in value after a certain date High and immediate impact to business Break-fix type of work that needs immediate attention Avoiding making the News Extreme political fall out
  24. 24. agilebydesign.com @agile_bydesign Standard Class Typical Lead Time Standard Class items provide incrementally more value over time Shallow but immediate impact to business Incremental revenue Cost avoidance Risk Reduction
  25. 25. agilebydesign.com @agile_bydesign Typical Lead Time Intangible Items do not have a cost of delay directly associated with them, delivery allow the business to offer new capabilities and services No / low immediate impact to business Investment required to build new capability and services New or enhanced ways to deliver value Intangible Class
  26. 26. agilebydesign.com @agile_bydesign Input Queue (8) Test (3) Done Development (4) Analysis (3) Delivery (2) Dev Ready (3)IP Done IP Done Test Ready (3) IP Done Delivery Ready (3) IP Done (1) (4) (10) (2) Classes of Service can be modeled on the Kanban board using different colored post- it notes
  27. 27. agilebydesign.com @agile_bydesign Turn estimating value into a safe team exercise by making assumptions explicit • Convert your uncertainties into questions • Do some quick research, and document your assumptions • Try to invalidate those assumptions quickly, include the entire Team, members from the Porfolio, across The Business • Encourage dialogue and dissent, but time-box it! The process of surfacing our assumptions about value are more useful than the numbers we come up with! Build a Model of value based on your assumptions SAMPLE MODELS: • Increase Revenue Market Size X Transaction Value X % Likelihood X Transaction volume • Protect Revenue Likelihood of threat X * # events per month X # cost of events • Reduce Cost Cost reduction / event X #events X %likelihood of benefit • Avoid Cost Cost avoidance / event X #events Reach Frequency Likelihood Unit Value Inspired by http://blackswanfarming.com
  28. 28. agilebydesign.com @agile_bydesign Showing our example, with COD and underlying assumptions FEATURE PROBLEM/IDEA/OPPORTUNITY DESCRIPTION VALUE (t-shirt sizing) Create functionality so that we notifies customers when travelling internationally to prevent card getting blocked • Customers travel outside of Canada and use our branded card while travelling. • We flag it as suspicious behavior and block the card. • The customer calls in to reactivate the card, which is frustrating for customers and adds to our call volume. • If customers could tell us about travel plans via the website, we could reduce call volume and have happier customers. VALUE TYPE (choose one) URGENCY PROFILE (choose one) Increase Revenue - Protect Revenue - Reduce Cost - Avoid Cost Expedite - Fixed – Standard - Intangible VALUE MODEL Assumption Factor (with unit) Confidence # of customers travelling abroad each month (based on 2.5 M overnight trips per year (Stats Can 2010) x 20% are Cap One users) 500,000 People/month Strong Likelihood that card is flagged/blocked (based on ?) 30% Strong Average time wasted when customers calls in to get card reactivated (15min) 0.25 hour Reasonable Hourly rate for call center rep $50 $/hour Strong Percentage of customers we think will use web travel notification system (SWAG) 40% Uncertain Cost of delay = # customers affected * likelihood of event * call duration * hourly rate * %customers who would use solution COST OF DELAY (per months)= $750 000 CD3 = LEAD TIME (months)= 3 DELAY TIME (months)= 2
  29. 29. agilebydesign.com @agile_bydesign Estimating Lead and Delay Time (15 minutes) Review and Next Steps (5 minutes) Estimating Cost Of Delay (15 minutes) Ranking with CD3 (10 Minutes) CD3 Score Cost of Delay Duration= Agenda EXERCISE: Cost of Delay and CD3 (30 minutes) EXERCISE: Lead Time, Value Type & Urgency Profile (30 minutes) Identifying Value and Urgency (15 minutes)
  30. 30. agilebydesign.com @agile_bydesign Estimating the Economic Impact of Delay for scheduling decisions using CD3 Cost of Delay Divided by Duration Business value of the feature or Epic Value lost over time • maximise the value delivered in a given time period • relatively fixed or “scarce” resources (people!) • Max total ROI by minimising the total Delay Cost for a set of options • encouraging the breakdown of work into smaller batches! Cost of Delay Duration How value decays over time The lead time to deliver to market Inspired by http://blackswanfarming.com
  31. 31. agilebydesign.com @agile_bydesign With FIFO we work on items for customers in the order we receive the features Week A B C Opportunity Cost Revenue 1 $0 $0 $0 $10 $0 2 $0 $0 $0 $10 $0 3 $0 $0 $0 $10 $0 4 $0 $0 $0 $10 $0 5 $0 $0 $0 $10 $0 6 $1 $0 $0 $9 $1 7 $1 $4 $0 $5 $5 8 $1 $4 $0 $5 $5 9 $1 $4 $2 $0 $10 Total $69 $21 Feature Lead Time Cost Of Delay CD3 A 5 $1 0.2 B 1 $4 4 C 2 $5 2.5
  32. 32. agilebydesign.com @agile_bydesign CD3 provides focus on getting to value earlier Week A B C Opportunity Cost Revenue 1 $0 $0 $0 $10 $0 2 $0 $4 $0 $6 $4 3 $0 $4 $0 $6 $4 4 $0 $4 $5 $1 $9 5 $0 $4 $5 $1 $9 6 $0 $4 $5 $1 $9 7 $0 $4 $5 $1 $9 8 $0 $4 $5 $1 $9 9 $1 $4 $5 $0 $10 Total $27 $63 Feature Lead Time Cost Of Delay CD3 A 5 $1 0.2 B 1 $4 4 C 2 $5 2.5
  33. 33. agilebydesign.com @agile_bydesign CD3 provides focus on getting to value earlier 0 10 20 30 40 50 60 70 1 2 3 4 5 6 7 8 9 FIFO CD3 Value
  34. 34. agilebydesign.com @agile_bydesign CD3 provides focus on getting to value earlier & reducing opportunity costs 0 10 20 30 40 50 60 70 80 1 2 3 4 5 6 7 8 9 FIFO CD3 Opportunity Cost
  35. 35. agilebydesign.com @agile_bydesign CD3 provides an economic incentive to increase organizational agility • Rank order a backlog by the highest COD and lowest CD3 score • Analyze the items with largest discrepancies where a lack of agility is interfering with delivering the most value • Perform root cause analysis across the Team and Porfolio boundaries to improve the CD3 score where we believe it matters most! Epic Lead Time Cost of Delay CD3 Epic 1 10 months $120,000 / month 12,000 Epic 2 2 months $50,000 / month 25,000 Epic 3 5 months $110,000 / month 22,000 When we have a Variance between CD3 and COD… We should ask WHY Sample Delay Themes: • Different Teams & Porfolios have different priorities on their backlog • Too much Work in Progress • Outcomes are too Big – Need to Thin Slice! • Teams are specialized, lots of hand-offs required • Rework • Over Specified Plan ImproveLearn
  36. 36. agilebydesign.com @agile_bydesign Showing our example, with COD and underlying assumptions FEATURE PROBLEM/IDEA/OPPORTUNITY DESCRIPTION VALUE (t-shirt sizing) Create functionality so that TheBusiness notifies customers when travelling internationally to prevent card getting blocked • Customers travel outside of Canada and use our branded card while travelling. • We flag it as suspicious behavior and block the card. • The customer calls in to reactivate the card, which is frustrating for customers and adds to our call volume. • If customers could tell us about travel plans via the website, we could reduce call volume and have happier customers. VALUE TYPE (choose one) URGENCY PROFILE (choose one) Increase Revenue - Protect Revenue - Reduce Cost - Avoid Cost Expedite - Fixed – Standard - Intangible VALUE MODEL Assumption Factor (with unit) Confidence # of customers travelling abroad each month (based on 2.5 M overnight trips per year (Stats Can 2010) x 20% are Cap One users) 500,000 People/month Strong Likelihood that card is flagged/blocked (based on ?) 30% Strong Average time wasted when customers calls in to get card reactivated (15min) 0.25 hour Reasonable Hourly rate for call center rep $50 $/hour Strong Percentage of customers we think will use web travel notification system (SWAG) 40% Uncertain Cost of delay = # customers affected * likelihood of event * call duration * hourly rate * %customers who would use solution COST OF DELAY (per months)= $750 000 CD3 = $250,000 LEAD TIME (months)= 3 DELAY TIME (months)= 2
  37. 37. agilebydesign.com @agile_bydesign Estimating Lead and Delay Time (15 minutes) Review and Next Steps (5 minutes) Estimating Cost Of Delay (15 minutes) Ranking with CD3 (10 Minutes) CD3 Score Cost of Delay Duration= Agenda EXERCISE: Cost of Delay and CD3 (30 minutes) EXERCISE: Lead Time, Value Type & Urgency Profile (30 minutes) Identifying Value and Urgency (15 minutes)
  38. 38. agilebydesign.com @agile_bydesign Exercise (30 Mins) Select the highest valued item through quick, but thoughtful dialogue that make assumptions behind value explicit Describe the opportunity statement and review the value type and urgency profile of a feature in your backlog (break an Epic into Features if necessary) 1 Break the group into teams of two to three and spend 15-20 minutes creating a quick value model based on quick research and existing knowledge. • Express your estimate in $ per month (Cost of Delay) • Make assumptions explicit! 2 Select a COD estimate, and prioritize next to other items in that have been estimated, rank by the highest valued, smallest lead time job 4 3 • Creates focus on value for money • Enables better trade-off decisions • Changes the focus of the conversation • Revenue > Market Size x Transaction Value x % Likelihood x % Cost • Risk > Likelihood of event x # events x # cost of events • Investment > Incremental revenue / cost avoidance per activity * likelihood * #events Place all estimates beside each other side by side, and have the group discuss, starting with the highest and lowest. Group discusses and comes to a consensus Inspired by http://blackswanfarming.com
  39. 39. agilebydesign.com @agile_bydesign Estimating Lead and Delay Time (15 minutes) Review and Next Steps (5 minutes) Estimating Cost Of Delay (15 minutes) Ranking with CD3 (10 Minutes) CD3 Score Cost of Delay Duration= Agenda EXERCISE: Cost of Delay and CD3 (30 minutes) EXERCISE: Lead Time, Value Type & Urgency Profile (30 minutes) Identifying Value and Urgency (15 minutes)
  40. 40. agilebydesign.com @agile_bydesign What’s Next? Working at the Team and Portfolio level… • Examine the backlog and break up into features • Put a cadence in place to estimate lead time, delay time, COD, and CD3 for each item at both the Team and Porfolio level that are in progress or will be started within the next 1–2 months • Align on what a healthy mix of urgency profiles and value type looks like for your Porfolio • Work with Teams to prioritize Intent using the COD approach • Identify where sources of delay are having the biggest impact • Prioritize Improvement work and place on Team, Portfolio, or Executive Improvement backlogs

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