Slides from my presentation at London Lean Kanban Day 16th March 2013. I'll link to the video once its available.

1. Lean/Agile/Kanban
–
the
Economics
of
Speed
Colm
O’hEocha
AgileInnova>on
London
Lean
Kanban
Day
16th
March
2013
Slow
Down
to
Speed
Up
1
Copyright
©
2012
AgileInnova>on

2. What
is
said…
…What
is
heard
Hey
Boss
–
this
Lean
stuff
sounds
great!
Lean
–
sounds
like
it
could
help
cut
costs
Its
all
about
‘Con>nuous
Improvement’
Oh-­‐Oh
–
I
think
he
means
‘don’t
expect
any
improvements
soon’…
…and
Respect
for
People
…code
for
‘team
want
to
get
paid
more’…
Limi>ng
WIP
and
U>lisa>on…
..and
they
want
to
do
less
work…
…visualizing
the
work,…
…now
that
could
be
embarrassing…
…and
itera>ons
of
learning
…they
want
permission
to
mess
up!
Copyright
©
2012
AgileInnova>on
2

3. Two
Ways
to
Reduce
Waste
Batch
Up
Speed
Up
(Economies
of
Scale)
(Economies
of
Speed)
• Big
• Small
• Features
• Features
• Releases
• Releases
• Projects
• Investments
• Commitments
• Risks
• Efficiency
• Efficacy
• Maximise
U>lisa>on
• Maximise
Feedback
• Increase
Produc>vity
• Improve
Outcomes
• Reduce
Costs
• Reduce
Cycle
Time
• Local
Op>misa>on
• Global
Op>misa>on
3
Copyright
©
2012
AgileInnova>on

4. Sample
Project
Airline
Mobile
Site
Travel
Vendor
Booking
Airline
Booking
Supplied
UI
API
Partners
Backend
System
Airline
Internal
Systems
Commercial
So`ware
Product
–
API
Access
Module
for
Travel
Booking
System
8
people
@
€110K
per
year,
6
months
development
Return
of
€210K
Immediately
on
Delivery
(month
6)
Monthly
Transac>on
Revenue
builds
from
€5K
to€31K
–
growth
ends
month
14
Maintenance
&
Support:
20%
of
transac>on
revenue
Cash
Discount
Rate:
6%
p.a.
4
Copyright
©
2012
AgileInnova>on

5. Investment
Curve
Investment
Payback
Profit
Period
Period
Period
Cumulated
Profits
Cash
Max.
Cash
Consumed
Break-­‐Even
Time
Point
NPV:
Net
Present
Value
–
Self-­‐Funding
amount
we
would
gain/loose
Point
(in
todays
money)
by
inves?ng
in
the
project
5
Copyright
©
2012
AgileInnova>on

6. Sample
Project
Max
Pay-­‐ RoI
NPV
Cash
back
3
yrs
Invest Month
ed
Single
Release
Team%Size 9
Average%Fully%Loaded%Salary 110000
Annual%Cost%of%Capital 6%
Monthly%rate%of%transaction%growth%(8%months) 30%
Maintenance%Costs%%%of%Transaction%Revenue 10%
Year 1
Month 1 2 3 4 5 6 7 8 9 10 11 12
Costs
Development%Costs €82,500 €82,500 €82,500 €82,500 €82,500 €82,500
Maintenance/Support%Costs €0 €0 €0 €500 €650 €1,245 €1,719 €2,234 €2,904 €3,776 €4,908 €6,381
Adjustment%for%Reduced%Variability%T%50%%Less%Change%Mgt
Adjt%for%Reduced%Demand%T%30%%Dev%and%Maintenance%Costs T€24,750 T€24,750 T€24,750 T€24,900 T€24,945 T€25,124 T€516 T€670 T€871 T€1,133 T€1,472 T€1,914
Adjustment%for%Reduced%Risk%T%50%%Chance%Technology%Failure €0
Adjustment%for%Better%Quality%T%10%%less%development%cost T€8,250 T€8,250 T€8,250 T€8,250 T€8,250 T€8,250
Adjustment%for%Less%Overhead%T%5%%Development%Costs%Saved
Costs%Incurred €49,500 €49,500 €49,500 €49,850 €49,955 €50,372 €1,203 €1,564 €2,033 €2,643 €3,436 €4,466
Not%Discounted
Cumulative,Costs,Incurred €49,500 €99,000 €148,500 €198,350 €248,305 €298,677 €299,879 €301,443 €303,476 €306,119 €309,555 €314,021
Costs%Incurred €49,254 €49,009 €48,765 €48,865 €48,725 €48,886 €1,162 €1,503 €1,944 €2,514 €3,252 €4,207
Discounted
Cumulative,Costs,Incurred €49,254 €98,262 €147,027 €195,893 €244,617 €293,504 €294,665 €296,168 €298,112 €300,626 €303,878 €308,085
Benefits
Revenue%on%Feature%Delivery €100,000 €80,000 €30,000
Revenue%on%Transaction%fees €5,000 €6,500 €12,450 €17,185 €22,341 €29,043 €37,755 €49,082 €63,807
Adjustment%for%Prioritised%Delivery
Adjustment%for%Innovation%10%%more%Benefit
Adjustment%for%Motivation%T%10%%more%Value%by%the%Team
Benefits%Realised €0 €0 €0 €105,000 €6,500 €92,450 €47,185 €22,341 €29,043 €37,755 €49,082 €63,807
Not%Discounted
Cumulative,Benefits,Realised €0 €0 €0 €105,000 €111,500 €203,950 €251,135 €273,476 €302,518 €340,274 €389,356 €453,162
Benefits%Realised €0 €0 €0 €102,926 €6,340 €89,724 €45,566 €21,467 €27,768 €35,919 €46,462 €60,100
Discounted
Cumulative,Benefits,Realised €0 €0 €0 €102,926 €109,266 €198,990 €244,556 €266,023 €293,791 €329,709 €376,171 €436,271
Net%Benefit%Flow T€49,500 T€49,500 T€49,500 €55,150 T€43,455 €42,079 €45,982 €20,777 €27,010 €35,113 €45,646 €59,340
Not%Discounted
Cumulative%Net%Benefit%Flow T€49,500 T€99,000 T€148,500 T€93,350 T€136,805 T€94,727 T€48,744 T€27,968 T€958 €34,154 €79,801 €139,141
Net%Benefit%Flow%(Discounted%Cash%Flow) T€49,254 T€49,009 T€48,765 €54,061 T€42,385 €40,838 €44,404 €19,964 €25,824 €33,404 €43,209 €55,893
%Discounted
Cumulative%Net%Benefit%Flow%(Rolling%NPV) T€49,254 T€98,262 T€147,027 T€92,967 T€135,351 T€94,513 T€50,109 T€30,145 T€4,321 €29,083 €72,293 €128,186
Max%Invested T€148,500
Rolling%RoI T100% T100% T100% T63% T92% T64% T33% T19% T1% 23% 54% 94%
10 11 12
Payback%Month 10
3%Year%RoI 0%
NPV €0
6
Copyright
©
2012
AgileInnova>on

7. Sample
Project
-­‐
the
Business
Case
FP/FS
Single
Delivery
a`er
6
months
Max
Pay-­‐ RoI
NPV
Cash
back
3
yrs
Invest Month
ed
Single
Release
Plan-­‐Driven
440K
20
95%
347K
€1,200,000
€1,000,000
€800,000
€600,000
€400,000
Max
Cash
€200,000
Invested
€0
1
7
13
19
25
31
-­‐€200,000
-­‐€400,000
-­‐€600,000
Self-­‐Funding
Break-­‐Even
Point
Point
7
Copyright
©
2012
AgileInnova>on

8. ECONOMIES
OF SPEED
€
Earlier
Benefit
Accumula>on
€
Earlier
€
Less
‘Just
In
Case’
Demand
€
Less
€
Improved
Quality
€
Improved
Reduced
Risk
REDUCE
INCREASE
COST
BENEFIT
More
Innova>on
Less
Management
Overhead
More
Mo>va>on
Improved
Business
Agility
8
Copyright
©
2012
AgileInnova>on

9. Advantage
of
Early
Delivery
14
month
Product
Growth
Phase
€
Earlier
Benefit
Accumula>on
€
GeQng
to
Market
2
months
Extra
Sales
Original
Xac>on
Revenue
Earlier
≈
+€0.7M
(87%)
€60,000
€50,000
€40,000
€30,000
€20,000
€10,000
€0
1
7
13
19
25
31
Copyright
©
2012
AgileInnova>on

10. Sample
Project
Earlier
Delivery
to
Market
–
Months
4,
5
and
6;
Stage
€
Earlier
Benefit
Accumula>on
€
Payments
&
Max
Pay-­‐ RoI
NPV
Increased
Transac>on
Revenue
Cash
back
3
yrs
Invest Month
Single
Delivery
Extra
Sales
ed
€1,200,000
Plan-­‐Driven
440K
20
95%
347K
€1,000,000
Increased
307K
17
286%
753K
Sales
€800,000
€600,000
€400,000
€200,000
€0
1
7
13
19
25
31
-­‐€200,000
-­‐€400,000
-­‐€600,000
10
Copyright
©
2012
AgileInnova>on

11. €
Less
‘Just
In
Case’
Demand
€
Standish
Group
CHAOS
Study
Never
used
45%
Generate
Value
Rarely
used
36%
19%
11
Copyright
©
2012
AgileInnova>on

12. €
Less
‘Just
In
Case’
Demand
€
Just
In
Time
Just
In
Case
“Build
an
API
that
exposes
the
booking
engine
func>onality
to
other
Applica>ons”
12
Copyright
©
2012
AgileInnova>on

13. Sample
Project
Fewer
API
Features
than
Planned
were
built
as
they
weren’t
really
€
Less
‘Just
In
Case’
Demand
€
necessary
-­‐
saves
Dev
Team
30%
Max
Pay-­‐ RoI
NPV
costs
Cash
back
3
yrs
Invest Month
ed
Single
Delivery
Less
Demand
Previous
Plan-­‐Driven
440K
20
95%
347K
€1,200,000
Increased
307K
17
286%
753K
€1,000,000
Sales
€800,000
Less
Demand
182K
13
609%
977K
€600,000
€400,000
€200,000
€0
1
7
13
19
25
31
-­‐€200,000
-­‐€400,000
-­‐€600,000
13
Copyright
©
2012
AgileInnova>on

14. €
Improved
Quality
€
Design
Development
Integra>on
Deployment
Produc>on
• Conanuous
Tesang
• Fast
Break-­‐Fix
Cycle
• No
building
on
Bad
Code
Debug
Complexity
70
System
Interac>ons
60
50
40
30
20
10
0
1
2
3
4
5
6
No
of
Code
Changes
14
Copyright
©
2012
AgileInnova>on

15. Sample
Project
10% Less Development & 50%
Less Support Costs finding/
€
Improved
Quality
€
tracking/fixing bugs and
Max
Pay-­‐ RoI
NPV
reworking features
Cash
back
3
yrs
Invest Month
ed
Single
Delivery
Improved
Quality
Previous
Plan-­‐Driven
440K
20
95%
347K
€1,200,000
€1,000,000
Increased
307K
17
286%
753K
Sales
€800,000
Less
Demand
182K
13
609%
977K
€600,000
Improved
148K
12
851%
1.1M
€400,000
Quality
€200,000
€0
1
7
13
19
25
31
-­‐€200,000
-­‐€400,000
-­‐€600,000
15
Copyright
©
2012
AgileInnova>on

16. Sample
Project
Additional Benefits hard to
Summary
quantify…
Max
Pay-­‐ RoI
NPV
Cash
back
3
yrs
Invest Month
ed
Single
Delivery
Improved
Quality
Plan-­‐Driven
440K
20
95%
347K
€1,200,000
€1,000,000
Increased
307K
17
286%
753K
Sales
€800,000
Less
Demand
182K
13
609%
977K
€600,000
Improved
148K
12
851%
1.1M
€400,000
Quality
Increased
-­‐
-­‐
-­‐
-­‐
€200,000
Innovaaon
• Payback
Period
reduces
from
20
to
12
€0
Improved
-­‐
-­‐
-­‐
-­‐
1
months
13
7
19
25
31
Moavaaon
-­‐€200,000
• Max
Cash
Funding
from
404K
to
148K
Less
Risk
-­‐
-­‐
-­‐
-­‐
-­‐€400,000
• Year
3
RoI
improves
from
95%
to
851%
….
-­‐
-­‐
-­‐
-­‐
-­‐€600,000
• è
NPV
from
347K
to
1118K§
§(Assumed
Discount
Rate
6%)
16
Copyright
©
2012
AgileInnova>on

17. ECONOMIES
OF SPEED
€
Stage
Payments
€
€
Increased
Xac>ons
Fees
€
€
Fewer
APIs
Developed
€
€
Fewer
Bugs,
Faster
Debug
€
Reduced
Risk
REDUCE
INCREASE
COST
More
Innova>on
BENEFIT
Less
Overhead
More
Mo>va>on
Improved
Business
Agility
17
Copyright
©
2012
AgileInnova>on

18. Q&A
Colm
O’hEocha
AgileInnova>on
-­‐
Agile
&
Kanban
Training
&
Coaching
www.agileinnova>on.eu
colm@agileinnova>on.eu
18