prioritizing your product backlog
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© 2009 Mountain Goat Software© Copyright Mountain Goat Software®
Prioritizing Your
Product Backlog
Mike Cohn
June 8, 2010
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Mike CohnFounding member and director of Agile Alliance and Scrum Alliance
Founder of Mountain Goat Software
Doing Scrum since 1995
Started my career as a programmer
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Combine formal & informal
Formal prioritization approaches forChoosing among projects
Choosing between “epics” or “big features”
An informal approach (expert opinion)Once you’ve selected the epics / big features
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Why?
Features that are too small cannot be effectively prioritized against each other
What’s more important in a word processor?The A key or the E key?
Tables or undo?
What’s more important on a car?The left front wheel or the right front wheel?
Increased leg room or a larger engine?
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Prioritize epics then open them up to optimize release contents
The release
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Approaches to prioritizing
Kano analysis
Expert opinion
Theme screening
Theme scoring
Relative weighting
Financial analysis
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Non-financialprioritization
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Kano analysis1
Must be present in order for users to be
Mandatory / Baseline
The more of it, the better
Linear
Features a user doesn’t know she wants, until she sees it
Exciters / Delighters
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Impact on user satisfaction
FeaturePresence
Satis
fact
ion
Low
Hig
h
Low High
Exciters/Delighters
MandatoryLinear
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Surveying users
To assess whether a feature is baseline, linear, or exciting we can:
Sometimes guess
Or survey a small set of users (20-30)
We ask two questionsA functional question
How do you feel if a feature is present?
And a dysfunctional questionHow do you feel if that feature is absent?
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Functional and dysfunctional forms
If your hotel room includes a free
bottle of water, how do you feel?
I expect it to be that way.I like it that way.
I am neutral.I can live with it that way.
I dislike it that way.
✔
If your hotel room does not include a
free bottle of water, how do you
feel?
I expect it to be that way.I like it that way.
I am neutral.I can live with it that way.
I dislike it that way.
✔
Functionalform ofquestion
Dysfunctionalform ofquestion
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Categorizing an answer pair
Dysfunc ctional Qu uestion
Like Expect Neutral Live with Dislike
Like
Expect
Neutral
Live with
Dislike
Q E E E L
R I I I M
R I I I M
R I I I M
R R R R Q
Func
tiona
lQ
uest
ion
MandatoryLinearExciter
QuestionableReverseIndifferent
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Aggregating results
Apply stylesheets
Automate report execution
Export reports to PowerPoint
3 11 31 1 3 2
4 22 20 4 1 0
21 9 14 5 1 1
Que
stio
nabl
e
Rev
erse
Indi
ffere
nt
Man
dato
ry
Line
ar
Exci
ter
The
mes
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What to include
All of the baseline features
Some amount of linear features
But leaving room for at least a few exciters
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You are thinking about buying a new eco-friendly car. Identify examples of:
Mandatory featuresLinear featuresExciters
Your new car
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Relative weighting
Assess the impact of having a story/theme from 1-9
Assess impact of NOT having it from 1-9
Calculate the value of each story or theme relative to the entire product backlog
This gives you the relative value of that story or theme
Estimate the cost of each story theme
Calculate the cost of each story or theme relative to the entire product backlog
This gives the relative cost of that story or theme
Priority is given by (Relative Value ÷ Relative Cost)
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Relative weighting: an example
More investment choices
Portfolio rebalancing
Comply with new law
Total: R
elat
ive
Pena
lty
Tota
l Val
ue
Valu
e Pe
rcen
t
Estim
ate
Cos
t Pe
rcen
t
Prio
rity
8
9
1
6
2
9
14
11
10
35
40
31
29
100
64
40
42
146
44
27
29
100
91
115
100
Value Percent = Total Value / ∑ (Total Value)Cost Percent = Estimate / ∑ (Estimate)
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You are the VP of Product Development at MyCookSpace.com, a social networking siteYou have a minimally functional site up with 4,000 registered cooksYou are trying to grow that to 400,000 as quickly as possible before you run out of moneyYou are also interested in other features that result in revenueIdentify 4-5 epics or big features to developComplete a relative weighting worksheet
Make reasonable but wild guesses at development effort estimates
Prioritizing MyCookSpace.com
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Expert opinion
Focus needs to be on delivering value to the customer
But consider these four factors1. Delivery of new capabilities
2. Development of new knowledge
3. Mitigation of risk
4. Changes in relative cost
3
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Theme screening
Identify around 5-9 selection criteria for what is important in the next release
Select a baseline themeLikely to be included in the next release
Understood by most team members
Assess each candidate theme relative to the baseline theme
4
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Theme screening: an example
Continue?
The
me
ARank
Net Score
Generates revenue in Q2
Starts us integrating product lines
Competitiveness with ABC Corp.
Importance to existing customers
0
The
me
B
−
0
0
Epic
C
Base
line
The
me
The
me
D
Epic
E
Epic
F
0
−
0
0
0
−1
0
0
0
0
0
−
0 0
−
0
0
0
0
1 7 34 4 4 2
N N NY Y Y Y
Sele
ctio
n cr
iteri
aThemes
= better than0 = same as− = worse than
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Theme scoring
Like theme screening but selection criteria are weighted
Need to select a baseline theme for each criteriaAvoids category compression
Each theme is assessed against the baseline for each selection criteria
5
Much worse than reference 1Worse than reference 2
Same as reference 3Better than reference 4
Much better than reference 5
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3.90
1 3 2
Yes No Yes
Theme scoring: an example
Continue?
Rank
Net Score
Generates revenue in Q2
Starts us integrating product lines
Competitiveness with ABC Corp.
Importance to existing customers
Wei
ght
Rat
ing
Theme A
Wei
ghte
d Sc
ore
3
2
3
5
0.75
0.20
0.45
2.50
Rat
ing
Epic B
Wei
ghte
d Sc
ore
1
3
4
2
2.15
0.25
0.30
0.60
1.00
Rat
ing
Theme C
Wei
ghte
d Sc
ore
4
3
4
3
3.40
1.00
0.30
0.60
1.50
25%
10%
15%
50%
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the relative weighting exercise, completea theme screening or theme scoring worksheet for MyCookSpace.com
Theme screening or scoring
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Financialprioritization
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How much?
How long?
At what interest rate?
If you’re buying a house:It’s a $220,000 loan
For 30 years
At 7% per year
Three factors to consider
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Technique #1
Net Present Value (NPV)
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Which project would you prefer?
Year
Proje ect A Proje ect B
Investment Return Investment Return
0
1
2
3
4
5
$1,000 $1,000
$200 $3,000
$300 $500
$500 $300
$3,000 $200
$0 $0
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A dollar today is worth more than a dollar a year from now
The time-value of money
I’ll gladly pay you on Tuesday for a hamburger
today.
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Calculating the value of future dollars
To buy a $5 hamburger next Tuesday…
To buy a $5 hamburgerin a year, how much doI put in the bank today?
I would put around $4.99 in the bank today
$5.00 $5.001.10
$4.54==
Assumes 10% interest rate
The present value of $5.00 a year from now
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Present value of one future amount
Future ValuePresentValue =
$5.00= $4.54An example:
GeneralizingFV
tPV =
Simplifying
-t
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Measures the return on a theme or project as an amount of money
Net present value (NPV)
Ft -tNPV(i) = ∑ t=0
n
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NPV example
Quarter Cash Flow
-t Discounted Cash Flow
Running Total
0
1
2
3
4
-200 1.000 -200 -200
-600 0.971 -583 -783
100 0.943 94 -689
300 0.915 275 -414
500 0.888 444 30
Assuming 12% annual discount rate (3% / quarter)
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Discount rate sensitivity
Quarter Cash FlowDiscounted Cash
Flow (3%)Discounted
Cash Flow (6%)01234
Total
–200 –200 –200–600 –583 –783100 94 –689300 275 –414500 444 30100 30 –29
NPV is highly sensitive to the chosen discount rate
Do the project under these circumstances
But not under these
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Comparing NPVs
Highest NPV brings the most present-value dollars to the company
Theme NPV
Scalability
Gift registry
Ad hoc reporting
Pay by invoice
$2,100$1,253
$784$385
Comparing NPVs can be misleading. What if:•“Pay by invoice” requires
a $5 investment•“Scalability” requires
$50,000?
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Technique #2
Internal RateofReturn (IRR)
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Rather than expressing returns in dollars, we’d like to express return as a percentage
Allows for direct comparisons
NPV = how much money a project will return
ROI = how quickly an investment will grow
Return as a percentage
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Internal rate of return (IRR) and ROI
IRR = Internal Rate of ReturnOften called Return On Investment (ROI)
The interest rate at which NPV is 0
0 = PV (i*) = Ft 1+ i( )− tt= 0
n
∑
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IRR gives us the discount rate at which we don’t care whether or not we do the project
We don’t make $30; we don’t lose $29; we break even
Remember this table?
Quarter Cash Flow Discounted Cash Flow (3%)
Discounted Cash Flow (6%)
01234
Total
–200 –200 –200–600 –583 –783100 94 –689300 275 –414500 444 30100 30 –29
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Use Excel’s irr function
How to calculate ROI or IRR
−200, −600, 100, 300, 500})
An investment
day of the projectremainder of
project(4 quarters)
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Advantages and disadvantages
AdvantagesYou don’t need to guess at a discount rate like with NPV
Can be used to directly compare projects
DisadvantagesCalculation is hard to do by hand (but easy in Excel); may lead to numbers being distrusted
Cannot use in all circumstances
positive
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Technique #3
Payback period
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Payback periodThe amount of time before an initial investment is paid back
I loan you $5. You pay me back $1/week. The payback period is 5 weeks.
Quarter Cash Flow Running Total
01234
-200 -200-200 -400100 -300300 0500 500
Payback period is 3 quarters.
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AdvantagesCalculation is very easy
Longer payback period = greater risk
DisadvantagesDoesn’t consider the time-value of money
Advantages and disadvantages
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Discounted payback period
Quarter Cash Flow
-t
i=3%Discounted Cash Flow
Running Total
01234
-200 1.000 -200 -200-200 0.971 -194 -394100 0.943 94 -300300 0.915 275 -25500 0.888 444 419
investment is paid back
Discounted payback period = 4 quarters
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Net Present Value (NPV)
Expresses return as an amount of money
Return on Investment (ROI) / Internal Rate of ReturnThe interest rate at which NPV = 0
That is, at which you’d be indifferent to the investment
Expresses return as a percentage
Discounted payback periodAmount of time before discounted returns equal the investment
Expresses return as an amount of time
Financial analysis recap
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Person Weeks Cost 3-Year
Return NPV IRR D. Payback(Quarters)
Feature A
Feature B
Feature C
Feature D
Feature E
Feature F
Feature G
Feature H
Feature I
Feature J
Feature K
Feature L
Feature M
Feature N
Feature O
25 $150 $1,085 $448 133% 2
32 192 $2,109 $940 172% 4
90 $540 $2,537 $883 89% 2
48 $288 $1,360 $443 76% 4
55 $330 $900 $191 48% 2
79 $474 $1,365 $331 56% 4
90 $540 $5,964 $2,519 139% 5
50 $300 $2,415 $1,023 146% 2
15 90 $1,600 $747 221% 1
30 $180 $640 $182 65% 2
75 $450 $516 ($104) 5% NA
40 $240 $171 ($110) (12%) NA
80 $480 $1,025 $142 36% 3
18 $108 $185 $7 24% 2
12 $72 $1,505 $748 355% 1
Comparison matrix
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