portfolio management: balancing irrefutable demand with cost of delay #agilecitylon
TRANSCRIPT
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
1
Portfolio Management:Balancing Irrefutable Demand with Cost of Delay
Dr Andy Carmichael
Sponsored presentation:
Twitter: @andycarmich@AgileCityLon
#agilecitylonSlides: goo.gl/k399tT
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
2
Physical book available from Amazon and other booksellers. PDF can be downloaded from leankanban.com/guide
Template can be downloaded from goo.gl/Ho5nz8!
Slides: goo.gl/k399tT
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
3
Agenda: Portfolio Management as Value-Flow
Some themes:• Project paradigm versus value-flow paradigm• What are kanban systems?• How kanban systems scale? (Whole Organisation Kanban – WOK?)
• What’s the problem with “irrefutable demand”? • Managing systems for flow rather than utilisation• The primacy of time in investment decision-making:
• Focus on reducing “Lead Time” to reduce risk• Understand “cost of delay” as an economic basis for rational work management
• Portfolio management is investment management• Yield• Duration• Risk• Complexity
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
4
The project paradigm vs value-flow paradigm• Project paradigm is ubiquitous from team to portfolio levels
• Define scope and time horizon (introduce constraints)
• Estimate schedule, budget and risk
• Manage slack to ensure on-time-on scope-on-budget
“In complex domains (e.g. multiple overlapping products in competitive markets), a project-centric model of the world is profoundly unhelpful!”
• Value-flow paradigm• Manage investments to maximise probability of value realisation
• Reduce size and risk of individual changes
• Reduce Lead Times
• Minimise cost of delay
https://en.wikipedia.org/wiki/Cynefin_framework#/media/File:Cynefin_as_of_1st_June_2014.pn
Requests Selected Development Acceptance Complete
Discarded
Commitment
Ongoing Ready
4 6 4
Delivery
System Lead Time
Kanban systems balance accepted demand
with capacity/capability
Re
lea
sed
Receipt
Customer Lead Time
Request
Requests Selected Development Acceptance Complete
Item per
time period
Discarded
Commitment
Ongoing Ready
4 6 4
System Lead Time
Re
lea
sed
Receipt
Customer Lead Time
Accepted
Request Delivery
Regular cadence
Sync’ing System and Customer Lead Time
Time in Dev Time in Route to Live
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
7
The 3 Dimensions of Scaling Kanban
Chains: expand the
scope (before / after)
Portfolio
Product
Service
Personal
Products - GoalsStrategic Direction
Features - ValueProduct Management
Stories - DeliveryDay to day Leadership
Tasks - FocusIndividual Professionalism
WEEKS/DAYS
DAYS/HOURS
MONTHS/WEEKS
YEARS/QUARTERS
Hierarchies: related work
items with different sizes,timescales and levels of decision-making (scale-free Kanban)
Networks: management
of interdependent servicesat the same level
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
8
Good kanban systems support good decision-making at every level
• Personal/team: focus / professionalism / quality• Service: deciding on timely delivery of value• Product: deciding where the value is• Portfolio: deciding the balance of investments
that will fulfill strategy, while hedging known and unknown risks
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
9
What is “irrefutable” demand? Request for services that cannot be denied or refused
“we’ve already committed to do it”
“the boss wants it”
“there’s no one else that knows how to do it”
“it’s a legal requirement”
“the customer needs it”
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
10
Irrefutable demand…
isn’t!
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
11
Demand and capability must balance… eventually
• Ignoring imbalance will turn a “flow” system into a “blocked” system
• Several important concepts in Kanban address the issue:• Deferred Commitment• Limiting WiP• Managing Flow
• Elevating the constraint• Classes of Service – Cost of Delay.
• Feedback loops – Cadences• Resource Management – Staff Liquidity
The goal of a balanced system is to maximise the flow of value
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
12
Manage Flow:Utilisation (WiP), Delivery Rate and Lead Time• Capacity is finite (and lower than you
think!
• Increasing utilisation increases LT (not much at first)
• Increasing utilisation increases DR (at first)
• At a certain point flow is destroyed. DR collapses. LT tends to infinity!
• Near the critical point, flow is fragile. Perturbations have severe, unpredictable and long-lasting effects.
• The critical point depends on variability
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
13
Resource Efficiency or Flow Efficiency
First focus on flow…then efficiency
“What is Lean” – NiklasModig and Par Ahlstrom
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
14
Flow systems can create delays and inefficiencies as they scale
Systems Thinking
Service
Service
• optimise the whole not the parts• plan as a whole, balance demand• make queues visible• flexible resources
Internal (invisible?) queues. Optimise the whole
Commitment at higher level creates “irrefutable demand” at lower level or downstream. Reserve capacity / classes of service
Blockers and dependencies hamper flow. Blocker analysis may reveal service imbalance
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
15
The primacy of time in investment decision-making:
• Focus on reducing “Lead Time” to reduce risk and improve feedback
• Understand “cost of delay” as an economic basis for rational work scheduling
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
16
ValueLead Time
Minimising Lead Time
The new iron triangle?
• Fit for purpose quality (non-negotiable)
• Maximum value (visible only in retrospect)
• Minimum lead time (the immediate imperative)
Quality
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
17
Understanding Cost of Delay as a driver for better Portfolio Management decisions
• Cadence versus deadline
• Effect of artificial deadlines
• Discovering the real deadlines (where Cost of Delay changes abruptly)
From Alexei Zheglov @az1 - https://twitter.com/az1/status/862052219226664961
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
18Time “is” Money?
Time (t) influences Value (V)
𝐷𝑒𝑙𝑎𝑦 𝐶𝑜𝑠𝑡 = −𝜕𝑉
𝜕𝑡Δ𝑡
“Cost of Delay” (CoD)
Make visible at Portfolio level (involve the accountants!)
A rate of change in valuee.g. measured in dollars per week
or “Urgency”?
A Cost –e.g. measured in dollars
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
19
Value flow from a new development (Benefit Profile)with no delay, 10-week, and 20-weeks delay
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
20
Delay Cost Profile and Urgency/CoD Profile
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
21
Value isn’t just increased profit…
• Protecting loss of profits• Increased turnover• Protecting brand loyalty• Increased learning• Reduced risk• Cost saving• New market option• Cover competitors’ moves• Staff retention• Process improvement• etc…
How would you put a monetary value on each of these?
Source: David J Anderson http://www.slideshare.net/ScrumTrek/david-anderson-enterprise-service-planning-kanban
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
22
Probabilistic Forecasting
• How urgent is it to start this item?
• Pay attention to the “last responsible moment” for starting a work item (say, 85% probability point)
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
23
Probabilistic decision making.
• The likelihood of event X occurring
• The effect of event X occurring – f(X)
• The number of times you get to make similar decisions
• Optimising at subsystem level is dramatically less effective• Entrepreneurial organisation
• The right level of exposure to risk (survivable risk)
• Avoidance of deadly risk (non-survivable risk)
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
24
Portfolio management is investmentmanagement
• Yield / ROI (% average annual rate of return for initial investment)
• Duration (weighted average of the times until those cash flows are received)
• Risk (the potential of gaining or losing something of value)
• Options• Hedging• Payback functions
• Complexity (wicked problems)• There are no good answers• The path will be created with every step• The art of learning how to play• Emergent practice
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
25
Conclusions
Chains Hie
rarc
hie
s
• Kanban systems mitigate the issue of “irrefutable demand” balancing demand with capability
• Kanban systems can be connected into scaled systems – Chains, Hierarchies, Networks
• Minimising Lead Time – by committing to smaller items in WiP limited systems – is key to limiting risk
• Cost of Delay is a key component of value-based decision making
• Portfolio management is investment management (Yield, Duration, Risk-hedging)
• Handle complexity:• Governing constraints (Good Practice) or• Enabling constraints (Emerging Practice)
Slides: goo.gl/k399tT
© 2
01
6 -
20
17
A
ND
YC
AR
MIC
HA
ELA
LLR
IGH
TSR
ESER
VED
AG
ILE
INTH
EC
ITY
20
17
26
References and BibliographyAnderson, David J. 2010. Kanban: Successful Evolutionary Change for Your Technology Business. United States: Blue Hole Press.
Anderson, David J. 2012. "Thoughts on the value of liquidity as a metric." November 27. http://www.djaa.com/thoughts-value-liquidity-metric
Anderson, David J. 2015. Enterprise services planning scaling the benefits of Kanban. http://2015.agileworld.de/system/files/vortrag/15-06-29%20EnterpriseServicesPlanning_david%20 anderson_0.pdf
Anderson, David J., and Andy Carmichael. 2016. Essential Kanban Condensed. United States: Lean Kanban University. http://leankanban.com/guide
Berger, Jennifer Garvey; Johnston, Keith (2015). Simple Habits for Complex Times. Stanford, CA: Stanford University Press, 237, n. 7.
Brodzinski, P. 2015. Portfolio Kanban Board. [Blog] Software Project Management: Lean, Agile and Kanban. Available at: http://brodzinski.com/2015/04/portfolio-kanban-board.html
Brougham, Greg. 2015. The Cynefin Mini-Book: An Introduction to Complexity and the Cynefin Framework. United States: C4Media for InfoQ.
Maccherone, Larry. 2015. "Probabilistic Decision Making." November 6. http://www.slideshare.net/.../larry-maccherone-probabilistic-decision-making
Matts, Chris. 2013. "Introducing staff liquidity (1 of n)." https://theitriskmanager.wordpress.com/ 2013/11/24/introducing-staff-liquidity-1-of-n/
Matts, C. 2015. Weighted lead time. https://theitriskmanager. wordpress.com/2015/07/22/weighted-lead-time/
Modig, Niklas and Pär Åhlström. 2012. This Is Lean: Resolving the Efficiency Paradox. 1st ed. Stockholm: Rheologica Publishing.
Morris , Ben, Simon Notley, Katharine Boddington, and Tim Reesa. 2001. “External Factors Affecting Motorway Capacity”, 6th International Symposium on Highway Capacity and Quality of Service, pp 69–7. Stockholm, Sweden June 28 – July 1.
Reinertsen, Donald G. 2009. The principles of product development flow: second generation lean product development. Redondo Beach, CA: Celeritas Publishing.
Stoop, Edwin, 2016. A sketch of the Cynefin framework, a decision-making tool used in management consultancy, Sketching Maniacs, https://commons.wikimedia.org/wiki/File:Cynefin_framework_by_Edwin_Stoop.jpg
Slides: goo.gl/k399tT