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Key Note - Stop Starting, Start Finishing 2013 - Aligning Creative Work with Business Risk

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Using qualitative risk assessment frameworks to understand business risk in demand for creative knowledge work, and assessing demand mix against system capability. Or "Why you may be doomed before you start!"

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Key Note - Stop Starting, Start Finishing 2013 - Aligning Creative Work with Business Risk

  1. 1. Aligning Creative Work with Business Risks Or why, …. You may be doomed before you start! Using qualitative risk assessment & kanban systems for better corporate governance Stop Starting, Start Finishing Lean Kanban Nordic, Stockholm, March 2013 dja@djaa.com, @djaa_dja
  2. 2. Ideas and Commitments with Kanban dja@djaa.com, @djaa_dja
  3. 3. Commitment is deferred Backlog Pool of Ideas Engineering Ready 5 Development Test Ready Testing UAT 3 5 3 ∞ Ongoing Done Items in the backlog remain optional……………………….. optional and unprioritized Pull F F F F F F F D G E Wish to avoid discard after commitment I Commitment point dja@djaa.com, @djaa_dja We are committing to getting started. We are certain we want to take delivery. Deployment Ready ∞
  4. 4. Upstream Kanban Prepares Options Pool of Ideas Biz Case Dev Requirements Analysis Ready for Engineering ∞ 24 - 48 12 - 24 4 - 12 K L Min & Max limits insure sufficient options are always available Committed 4 Development Testing 3 3 Ongoing Done Verification J I D F Options $$$ cost of acquiring options Reject Discarded O P Q Commitment point dja@djaa.com, @djaa_dja Committed Work
  5. 5. Simplifying Alignment & Corporate Governance Kanban systems enable a Our business has defined promises to our greatly shareholders in terms of model forservices simplified the products, management and markets we operate within and our of risk & corporate governance tolerance to risk. If we can show that we develop good, innovative ideas within those bounds and that our people are always working on the best of those available choices, we can claim appropriate use of shareholders’ funds dja@djaa.com, @djaa_dja
  6. 6. Risk #1 Are we creating the right ideas? Pool of Ideas Biz Case Dev Requirements Analysis Ready for Engineering ∞ 24 - 48 12 - 24 4 - 12 W Q X ZS R Y T AA U K L Q R S FT J I U1 U Committed 4 Development Testing 3 3 Ongoing K L J F I D Ideas should reflect opportunities to exploit & be classified by the business risks they Commitment point address dja@djaa.com, @djaa_dja Done Verification
  7. 7. Risk #2 What to Pull Next? Pool of Ideas Biz Case Dev Requirements Analysis Ready for Engineering ∞ 24 - 48 12 - 24 4 - 12 Committed 4 Development Testing 3 3 Ongoing Done Verification Acceptance I have 4 options, which one should I Replenishing the system is an act of commitment K choose? J – selecting items for delivery – for conversion L from options into real value. Pull Pull Selection is choosing from immediate Pull I options – ideally dynamic selection of the item with the most immediate risk attached to it by a D suitably skilled F member of the team Replenishment Pull Selection Commitment point dja@djaa.com, @djaa_dja
  8. 8. Risks & Qualitative Assessment dja@djaa.com, @djaa_dja
  9. 9. A Lean approach to alignment with business risks uses Qualitative Assessment But how do we determine the risks in We need a work item that we must manage? a fast, cheap, accurate, consensus forming approach to risk assessment. We need Lean Risk Assessment! The answer is to use a set of qualitative methods to assess different dimensions of risk such as urgency dja@djaa.com, @djaa_dja
  10. 10. Sketch market payoff function Room nights sold per day Cost of delay for an online Easter holiday marketing promotion is difference in integral between the two curves Estimated additional rooms sold Cost of delay Actual rooms sold time When we need it dja@djaa.com, @djaa_dja When it arrived
  11. 11. impact Cost of Delay based on Market Payoff Sketches Treat as a Standard Class item Total cost of delay time Cost of delay function for an online Easter holiday marketing campaign delayed by 1 month from mid-January (based on diff of 2 integrals on previous slide) dja@djaa.com, @djaa_dja
  12. 12. impact impact Establish urgency by qualitative matching of cost of delay sketches time impact impact time time time Intangible – cost of delay may be significant but is not incurred until much later; important but not urgent impact time Fixed date – cost of delay goes up significantly after deadline; Start early enough & dynamically prioritize to insure on-time delivery Standard - cost of delay is shallow but accelerates before leveling out; provide a reasonable lead-time expectation impact impact time Expedite – critical and immediate cost of delay; can exceed kanban limits (bumps other work) time dja@djaa.com, @djaa_dja
  13. 13. impact Cost of Delay has a 2nd Dimension Working capital impact time Working capital impact time Extinction Level Event – a short delay will completely deplete the working capital of the business Major Capital – the cost of delay is such that a major initiative or project will be lost from next year’s portfolio or additional capital will need to be raised to fund it Discretionary Spending – departmental budgets may be cut as a result or our business misses its profit forecasts impact time ? time dja@djaa.com, @djaa_dja Intangible – delay causes embarrassment, loss of political capital, affects brand equity, mindshare, customer confidence, etc
  14. 14. Shelf-Life Risk Short (days, weeks, months) Known Expiry Date, Seasonal (fixed window of opportunity) Medium (months, quarters, 1-2 years) Long (years, decades) dja@djaa.com, @djaa_dja Fashion Craze Fad
  15. 15. Shelf-Life Risk Many High High Schedule Risk (days, weeks, months) Innovation Number of Options Short Known Expiry Date, Seasonal (fixed window of opportunity) Medium (months, quarters, 1-2 years) Long (years, decades) Few Low Low dja@djaa.com, @djaa_dja Fashion Craze Fad
  16. 16. Shelf-Life Risk Schedule Risk Low High High Many (months, quarters, 1-2 years) Number of Options (window of opportunity) Medium Fashion Craze Fad Innovation Known Expiry Date, Seasonal Differentiator (days, weeks, months) Spoiler/Follower Short Low Low Few Long (years, decades) dja@djaa.com, @djaa_dja Low If we are market leading our innovations are less time critical
  17. 17. Risk is a multi-dimensional problem So understanding cost of delay Yes, however, it isn’t always relevant! Cost of enables us to know what to pull delay attaches to a deliverable item. What if next? that item is large? Whole projects, minimum marketable features (MMFs) or minimum viable products (MVPs) consist of many smaller items. We need to understand the risks in those smaller items too, if we are to know how to schedule work, replenish our system and make pull decisions wisely dja@djaa.com, @djaa_dja
  18. 18. Market Risk of Change Profits Market Share etc Start Late Differentiators Spoilers Regulatory Changes Cost Reducers Scheduling Potentia l Value Highly likely to change Market Risk Build (as rapidly as possible) Table Stakes Buy (COTS) Rent (SaaS) dja@djaa.com, @djaa_dja Highly unlikely to change Start Early
  19. 19. Product Lifecycle Risk High Not well understood High demand for innovation & experimentation Low Major Growth Market Investment Growth Potentia l Product Risk Innovative/New Cash Cow Low dja@djaa.com, @djaa_dja Well understood Low demand for innovation Low High
  20. 20. Risk is a multi-dimensional contextual problem These are just useful examples! We must develop a set of We can easily envisage other risk dimensions risk such as technical risk,that work in context for taxonomies vendor dependency risk, organizational maturity riskbusiness. a specific and so forth. It may be necessary to run a workshop with stakeholders to explore and expose the real business risks requiring management dja@djaa.com, @djaa_dja
  21. 21. A middle-ground in effective Risk Management Qualitative Taxonomies 2 -> 6 categories Cheap Fast We can easily envisage other risk dimensions Accurate such as technical risk, vendor dependency risk, Consensus organizational maturity risk and so forth. Managed Risk It may be necessary to run a workshop with stakeholders to explore and expose the real business risks requiring management Homogenous Cheap Fast High Risk dja@djaa.com, @djaa_dja Heterogeneous Expensive Time Consuming Fake Precision? May still be High Risk
  22. 22. Visualize Risks to provide Scheduling Information Outside: Start Early Market Risk Items with the same shape carry the same risks and should be scheduled into the kanban system TS at approximately the same time. CR It is also wise to hedge risk by Do not Tech Risk Lifecycle New allocating prioritize items. From a whichever ones capacityprofile pick group for in the system of items Spoilrisk with the same items of differentMidprefer most Start Late risk profiles.Inside: you like or Unknown Soln Diff Cow Known but not us Done it before Commodity Intangible Disc Std Maj. Cap. ELE Delay Impact dja@djaa.com, @djaa_dja FD Expedite Risk profile for a work item or deliverable Cost of Delay
  23. 23. Risk Management dja@djaa.com, @djaa_dja
  24. 24. Understanding our tolerance to different risks We need to decide what we value as a business, our strategic What are our expectations for position & our predictability, business agility, profitability? go-to-market strategies Are our current capabilities aligned with our expectations? Have we a clearly stated strategic position and set of go-to-market strategies? dja@djaa.com, @djaa_dja
  25. 25. Matching Shelf-Life Risk to Capability Business Agility Where does our High business currently Short (days, weeks, rank on these sliders? Frequent Short Frequent Lead Time Replenishment Predictability Are our business strategy and expectations aligned with our currently observed capabilities? If we plan to Medium pursue short shelf-life opportunities, do we have the agility and (months, predictability to pull it off? quarters, 1-2 years) Delivery months) Long Low (years, decades) Seldom Long Kanban system dynamics dja@djaa.com, @djaa_dja Seldom
  26. 26. Matching Cost of Delay Risk to Capability Business Agility If we have many fixed date requirements we need a reasonably strong business agility capability and a lot of predictability Standard Delivery Predictability Replenishment High for predictability will work. However, our business will be constantly in a reactive mode Fixed Date Lead Time Where does our Frequent Short Frequent Predictability business currently Not Applicable Expedite If we suffer a lot of expedite demand, strong rank on with business agility without a need these sliders? capability Intangible Low dja@djaa.com, @djaa_dja Seldom Long Seldom
  27. 27. Matching Market Risk of Change to Capability Business Agility Where does our Less Highly regulated industries requireFrequent Short Frequent predictability in delivery business currently capability Differentiators Lead Time Predictability Replenishment To pursue a strategy of innovation or fast market following we need a high level of business agility – fast, frequent Spoilers delivery Regulatory To be innovative or Changes fast following in a highly More regulated industry requires us to be both predictable and exhibit a high level of business Cost Reducers agility Delivery rank on these sliders? Table Stakes Less dja@djaa.com, @djaa_dja Seldom Long Seldom
  28. 28. Understanding capability is critical to our risk management strategy If you cannot assess your current delivery capability and align your strategy and marketing plans accordingly, then … You are doomed before you start! dja@djaa.com, @djaa_dja
  29. 29. How much risk do you want to take? Given our current capabilities, our desired strategic position and goWe only have capacity to do so much work. How we allocate that capacity across different risk to-market strategies, how much risk dimensions will determine how aggressive we do you want to take? are being from a risk management perspective. The more aggressive we are in allocating capacity to riskier work items the less likely it is that the outcome will match our expectations dja@djaa.com, @djaa_dja
  30. 30. Hedge Delivery Risk by allocating capacity in the kanban system DeployEngineering Ready 2 Expedite Development Ongoing 3 Testing 3 Done Verification Acceptance 1 P1 AB Fixed Date 2 E D MN PB Standard 3 F G GY Intangible 3 I dja@djaa.com, @djaa_dja DE ment Ready ∞ Done
  31. 31. Aligning with Strategic Position or Go-to-Market Strategy DeployEngineering Ready Cost Reducer s 3 2 3 Testing 3 Ongoing Done Verification Acceptance niche! Enabling early delivery for narrower P1 markets but potentially including value AB DA generating differentiating features E D MN PB Spoilers 1 F GY Differenti ators Done The concept of a minimum viable ∞ product (MVP) will contain the table Market segmentation can be used to narrow the stakes for at least given market necessary table stakes for any 1 market niche G 2 Table Stakes Development ment Ready 1 dja@djaa.com, @djaa_dja I DE
  32. 32. Trade off growing market reach against growing share & profit within Deploya niche EnginCapacity allocated to Table Stakes will ment eering determine how fast new niches can be Ready Development Testing Ready Cost Reducer s 3 developed. 3 It is important to define a MVP in ∞ Allocate more to Table Stakes to speed market terms of table stakes and reach/breadth. differentiators required to enter a G specific market segment Allocate more to differentiators to grow P1 2 Table Stakes 3 Ongoing Done Verification Acceptance market share or AB profit margins DA 2 E Allocate D more to spoilers to defend market share MN PB Spoilers 1 F GY Differenti ators Done 1 dja@djaa.com, @djaa_dja I DE
  33. 33. Hedging Investment Risk against Product Lifecycle in a Portfolio Kanban Horizontal position shows percentage complete Allocation of personnel Total = 100% Complete 0% Cash Cows 10% budget D C K E G F dja@djaa.com, @djaa_dja Complete 100% B A Growth Markets 60% budget Innovative/New 30% budget Projects-in-progress Color may indicate cost of delay (or other risk) H
  34. 34. impact The Optimal Exercise Point If we start too early, we forgo the option and opportunity to do something else that may provide value. If we start too late we risk Ideal Start incurring the cost of delay When we need it Here With a 6 in 7 chance of on-time delivery, we can always expedite to insure on-time delivery 85th percentile Commitment point dja@djaa.com, @djaa_dja
  35. 35. An underlying philosophy for risk management dja@djaa.com, @djaa_dja
  36. 36. Some simple rules to improve risk management 1. Establish a list of risks that are applicable in your business domain 2. Create a qualitative taxonomy of 2 to 6 categories for each dimension of Cost of delay, shelf-life, product adoption risk lifecycle, market risk of change 3. Work with things that can be All can be established as (soft*) facts. Risks established by consensus as (soft) associated with different classifications within facts.risk dimensions are understood and the these Do not speculate about the dynamics future! of how they might affect an outcome are business 4. Use meaningful predictablelanguage * Where hard facts cannot be established by measurement or market research, a strong consensus opinion is achieved dja@djaa.com, @djaa_dja
  37. 37. Prediction based on qualitative risk assessment For example, if we load our entire capacity with fixed delivery date demand then it is highly likely that some items will be delivered late and we will incur a (significant) cost of delay dja@djaa.com, @djaa_dja
  38. 38. Allocate capacity to hedge risks 5. Our key strategy to manage risk is to allocate capacity in accordance with our capability, risk tolerance and business risks under management 6. Set kanban limits across risk categories 7. Allow the kanban to signal what type of risk item to pull next dja@djaa.com, @djaa_dja
  39. 39. Defer Commitment. Banish Backlogs 8. Defer Commitment to manage uncertainty When developing options upstream of the commitment point, classify the item for each 9. The Lean concept of “Last dimension of risk under management. at the Responsible Moment” is A good mixpoint of commitment –withinpoint of options, providing choices the each risk category is required. The more risks of replenishment under10. “Backlog” more options will be management the implies committed. required. The greater the min-max upstream Uncommitted items are options. kanban limits will need to be Develop a “pool of ideas” dja@djaa.com, @djaa_dja
  40. 40. Abandon Prioritization. Banish Priority 11. Prioritization is waste! Prioritization is an exercise to schedule variable for real business Priority is a proxya sequence of items at a risk information. specific point in time. Only at the Do not point ofbehind a proxy. Enable better mask risk commitment can a proper assessment be made making by governance and better decision of what to exposing the business risks under management on pull next. Filter options based throughout the workflow kanban signals. Select from filtered subset dja@djaa.com, @djaa_dja
  41. 41. Abandon Formulas & Calculations 12. Do not try to give relative weight to risk categories or calculate a risk number using a Without a formula calculating a priority should be impossible! formula Embrace the idea that formulas and proxy Weightings and formulas mask variables such as “priority” have no place in real sound risk management decisionmay lead us risk information and making to unbalanced, misallocated Transparently expose business risks throughout capacity the system risk management and poor decisions dja@djaa.com, @djaa_dja
  42. 42. Visualize Risks on the Ticket Decorators Title Typically used to indicated technical or skillset risks H Checkboxes… risk 1 risk 2 risk 3 risk 4 SLA or Target Date dja@djaa.com, @djaa_dja Letter req complete Color of the ticket Business risk visualizatio n highlighted in green
  43. 43. Visualize Risks on the Board Engineering Ready 2 Expedite Development Ongoing 3 Testing 3 Done Verification Acceptance 1 P1 AB Fixed Date 2 E D MN PB Standard 3 F G GY Intangible 3 I dja@djaa.com, @djaa_dja DE Deployment Ready ∞ Done
  44. 44. Conclusions dja@djaa.com, @djaa_dja
  45. 45. Make Business Objectives Explicit The credo, values, purpose or mission of the business entity must be defined Kanban enables strategic Clearly communicate the strategic position positions & go-to-market & go-to-market strategies strategies to be transparently implemented dja@djaa.com, @djaa_dja
  46. 46. Qualitative Approaches are Lean Qualitative approaches to risk assessment are fast, cheap and drive Stop speculating about consensus business value and ROI. There is no crystal ball gazing! Riskrisks Instead assess real analysis is not speculative! and design kanban systems to manage them! dja@djaa.com, @djaa_dja
  47. 47. Don’t Set Yourself Up for Failure Know your your strategic plan If current capabilities! & marketing objectives are Lead time distributions & not aligned with your replenishment and delivery cadence define business agility! current capabilities, you many be doomed before you start! dja@djaa.com, @djaa_dja
  48. 48. Kanban & Qualitative Risk Assessment are powerful in combination Kanban systems address variability Fully exploit Kanbanin, and focus attention on improving, flow! enabled business agility to delivery better business Improved business agility from Kanban is onlyoutcomesexploited valuable if through qualitative risk management dja@djaa.com, @djaa_dja
  49. 49. Thank you! dja@djaa.com, @djaa_dja
  50. 50. About David Anderson is a thought leader in managing effective software teams. He leads a consulting, training and publishing and event planning business dedicated to developing, promoting and implementing sustainable evolutionary approaches for management of knowledge workers. He has 30 years experience in the high technology industry starting with computer games in the early 1980’s. He has led software teams delivering superior productivity and quality using innovative agile methods at large companies such as Sprint and Motorola. David is the pioneer of the Kanban Method an agile and evolutionary approach to change. His latest book is published in June 2012, Lessons in Agile Management – On the Road to Kanban. David is a founder of the Lean Kanban University, a business dedicated to assuring quality of training in Lean and Kanban for knowledge workers throughout the world. dja@djaa.com, @djaa_dja
  51. 51. Acknowledgements Donald Reinertsen directly influenced the adoption of virtual kanban systems and the assessment of cost of delay & shelf-life as criteria for scheduling work into a kanban system. Chris Matts & Olav Maassen strongly influenced the concept of options & commitments and the upstream min-max limits is based on an example first presented by Patrick Steyaert. I’d like to thank Mike Burrows & Janice Linden-Reed for review comments and inputs on the content presented here. dja@djaa.com, @djaa_dja
  52. 52. David J Anderson & Associates, Inc. dja@djaa.com, @djaa_dja
  53. 53. Appendix dja@djaa.com, @djaa_dja
  54. 54. dja@djaa.com, @djaa_dja Fixed Date Intangible Standard Expedite Example Distributions
  55. 55. dja@djaa.com, @djaa_dja

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