This document discusses how organizations can improve productivity and profitability through agile practices. It advocates measuring multiple variables like cycle time, velocity and value delivered to optimize the whole process rather than individual parts. An economic model is presented to evaluate decisions based on value added, risks, delays and total product life cycle profit. Key points are that productivity metrics alone do not capture profitability, the system needs to be viewed holistically, and we should avoid doing things that do not add value.

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From Productivity to Profitability
Saket Bansal

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From Productivity to Profitability
By Saket Bansal, SPC

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About Me

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The Goal
We want to ……… products faster
build
/ sell
Image Source : Diego Barbieri / Shutterstock.com

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Why Agile?
•Increase Productivity
•Improved Project Visibility
•Ability to manage changing priorities
•Improve team morale
•Enhance Software Quality

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Metric we care the most
Velocity

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Focus Remains
Productivity
Utilization

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Queue Size Vs. Capacity Utilization
Source : The Principles of Product Development Flow , By Donald G. Reinertsen

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Productivity and Work In Progress

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Kent Beck's value stream map
Lean Software Development: An Agile Toolkit By: Mary Poppendieck; Tom Poppendieck

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Optimize as Whole
…getting each machine to work as efficiently as possible does not work as well as maximizing efficiency of the production flow in its entirety. Focus on the whole process – from the beginning (concept) to the end (consumption).
Lean-Agile Software Development: Achieving Enterprise Agility
Alan Shalloway, Guy Beaver, James R. Trott

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Easy … so where is the problem?

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Value Stream Management
A company that maintains a single management system throughout the value stream will see a 25 percent to 30 percent cost advantage over competitors
Peter Drucker, Management Challenges for the 21st Century, Harper Business, 1999, p. 33.

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Watch the Work Product
“Watch the work product, not the worker.
In product development our greatest waste is not unproductive engineers, but the work products sitting ideal in process queues. “
The Principles of Product Development Flow , Donald G. Reinertsen

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Metrics
Process
Output
Outcome
Process
Process

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What to Measure?
Cycle Time
Velocity
Velocity / Capacity
……
Value Point Delivered
……

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Beyond Proxy Variables
•Should we delay the release by one month to fix the defects ?
•Should we reduce the cycle time by adding one more team?
•Should we delay the release to add functionality?
•Should we delay the project by one month to get more innovative ?

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The Economic View
Value added
Risk
Cycle Time / Delays
Product Life Cycle Profit

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Five Economic Objectives
Source : The Principles of Product Development Flow , Donald G. Reinertsen

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Sample Economic Framework
0
200
400
600
800
1000
1200
1
2
3
4
Product Life Cycle Profit
Life Cycle Profit
Product Value
Development Expense
EMV of Risks
Cost of Delay
=
-
-
-

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“There is nothing so useless as doing efficiently that which should not be done at all.” —Peter F. Drucker

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Summary
•Organization should focus more on profitability
•Productivity variables should be measured with care.
•Optimize the whole
•Project situation affects multiple variables , so do not just measure one
•Create Economic model for project
•Economic View helps in better decision making

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References
•The Principles of Product Development Flow , Donald G. Reinertsen
•Lean Software Development: An Agile Toolkit , Mary Poppendieck; Tom Poppendieck
•Lean-Agile Software Development: Achieving Enterprise Agility :Alan Shalloway, Guy Beaver, James R. Trott
Twitter : @saket_tg
Email : saket.bansal@iZenBridge.com
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