scrumday chile - value estimation and prioritization using cost of delay

VALUE estimation and prioritization using Cost of Delay (CoD)

Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

http://homebodyandsoulblog.com/wp-content/uploads/2014/05/yashow-4.jpg

Disclaimer! This is an original copy! A LOT of the content comes from Joshua Arnold and César Idrovo’s materials


1

The DON Hello, my name is

If you only quantify one thing, quantify the

cost of delay


2 Value is rare and extreme

$0 $200,000 $400,000 $600,000 $800,000

$1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 $2,000,000 $2,200,000 $2,400,000 $2,600,000 $2,800,000

0 10 20 30 40 50 60 70 80

A small number of features have a very high

Cost of Delay

Cost

of D

elay

/ w

eek

Requirements sorted by Cost of Delay Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

Top vs bottom quartile: 1,000x

$230,000/wk $220/wk

Bottom 25%

Top 25% of RQs

$18,600/wk

Next 25%

$5,200/wk

Next 25%

Average $ Benefits Per Requirement


Without information about

VALUE

the system optimizes for other things

3


4 examples that you will have to be able to explain…


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#1 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

MoSCoW

Must Have

Should Have

Could Have

Won’t Have

ROI

Relative Cost of Delay

Class of Service

Benefit-to-cost ratio

4:1

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Let’s prioritize!

Feature

A

B

C


Let’s prioritize!

Feature MoSCoW

A Must have

B Must have

C Must have

Which one should we do first? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

Let’s prioritize!

Feature MoSCoW ROI

A Must have 10%

B Must have 15%

C Must have 8%

How about now? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

Let’s prioritize!

Feature MoSCoW ROI Relative CoD

A Must have 10% 10

B Must have 15% 4

C Must have 8% 7

And now? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

Let’s prioritize!

Feature MoSCoW ROI Relative CoD

Revenue /week

A Must have 10% 10 $100k

B Must have 15% 4 $15k

C Must have 8% 7 $800k

Are you sure? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

h"p://collegian.tccd.edu/wp-‐content/uploads/2013/10/poli.cal-‐incivility-‐color.jpg Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

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Productivity

-15pp Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

What other key parameters do you need to know?


Help us speed up the purchasing

process!


~$2,330,000

Irrecoverable, lost VALUE:


Time

$ /week

work work work

Total Delay Cost


~$40k/week Benefit

Time

work work work

Total Delay Cost

$ /week


Productivity

-15pp Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

Weekly cost of a developer

$800 + $120 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

Weekly net value delivered per developer

$32,533 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

Cost of Delay per developer

$32,653 /week 5 teams, 6 developers each:

$979,600 /week Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

~$2,330,000

Irrecoverable, lost VALUE:


15,985 monitors

By now we could have bought


<<< 1 day

Time to break even


Put a price-tag on time

$ Business value of the

feature

Cost of Delay

Information Discovery Value How that value

varies over time


A framework for thinking about value

Increase Revenue

Increasing sales to new or existing customers. Delighting or Disrupting to increase market share and size

Protect Revenue

Improvements and incremental innovation to sustain current market share and revenue figures

Reduce Costs

Costs that we are currently incurring, that can be reduced. More efficient, improved margin or contribution

Avoid Costs

Improvements to sustain current cost base. Costs we are not currently incurring but may do in the future


Example: Cost of not having Monitors for Pair Programming

Start generating revenue without

delay

Avoid paying 15% more to achieve the

same outcome

Estimate the value of the effects of the change 1

A couple of tactics for getting to $

Avoid Costs

Reduce Costs

Protect Revenue

Increase Revenue

$120 $32,533 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

Make the value equal to cost of alternatives

Example: Automating a process

Avoid Costs

Reduce Costs

Protect Revenue

Increase Revenue

Cost of human error

Current manual

cost

A couple of tactics for getting to $

2


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Automating a Process Automating a process to satisfy new regulation: •  Reduce the additional manual processing resource which

is estimated to cost about 20 FTEs at $20k (p.a.) per FTE •  Due to the current manual process, there is a 10%

probability of an error •  Once a month there’s an inspection. If an error is found,

the company has to pay a $5,000,000 fine

What is the cost of delaying this automation? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

Reduce Cost: 20 FTEs at $20k each per year = $400,000 /year ~ $8,000 /week

Avoid Cost:

$5,000,000 in fines per month * 10% Probability of finding an error = Expected Value = $500,000 /month ~ $125,000 /week

Cost of Delay: ~ $133,000 /week

Automating a Process




feature

Cost of Delay


varies over time


Willingness to pay for the info?

Quantifying the value of information

Cost to obtain info first-hand?

Information Discovery

Value

What is it worth to avoid taking

the wrong path?




feature

Cost of Delay


varies over time


Urgency Profiles Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

For ideas with a very long-life, with peak unaffected by delay

Time

Cost of Delay

$ Be

nefit

s /

wee

k Long-life, unaffected peak 1



Time Late Entry

Cost of Delay

$ Be

nefit

s /

wee

k Long-life, unaffected peak 1



Time Late Entry

Cost of Delay

$ Be

nefit

s /

wee

k

Delay Cost

Long-life, unaffected peak 1


Short benefits horizon, and reduced peak due to late delivery

Time Late Entry

Reduced Peak

Delay Cost

$ Be

nefit

s /

wee

k Short-life, affected peak 2


For ideas with a very long-life, with reduced peak due to later delivery

Time Late Entry

Reduced Peak

Delay Cost

$ Be

nefit

s /

wee

k Long-life, affected peak 3


Time Late Entry

Delay Cost

$ Be

nefit

s /

wee

k Seasonal/date-driven 4

Last Responsible

Moment Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

Automating a Process Automating a process to satisfy new regulation: •  Reduce the additional manual processing resource which is

estimated to cost about 20 FTEs at $20k (p.a.) per FTE •  Due to the current manual process, there is a 10% probability of an

error •  Once a month there’s an inspection. If an error is found then the

company has to pay a $5,000,000 fine •  The new regulation will be effective starting 1st May 2016 •  The duration of the implementation is estimated to be 13 weeks

What is the total delay cost by December 17th? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

Automating a Process Automating a process to satisfy new regulation: •  Reduce the additional manual processing resource which is

estimated to cost about 20 FTEs at $20k (p.a.) per FTE •  Due to the current manual process, there is a 10% probability of an

error •  Once a month there’s an inspection. If an error is found then the

company has to pay a $5,000,000 fine •  The new regulation will be effective starting 1st May 2016 •  The duration of the implementation is estimated to be 13 weeks

What is the total delay cost by December 17th? *Hint: ~19 weeks away Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

Urgency Profiles


https://dereklieu.files.wordpress.com/2011/01/tetris-marathon-tetris.jpg


Feature Cost of Delay X $133,000/week Y $80,000/week Z $1,000,000/week

Which one would you do first?

If these take the same amount of time to deliver:

Scheduling decisions


Cost of Delay Simulation

Feature Duration (weeks)

Cost of Delay (m)

A 5 $1

B 1 $4

C 2 $5

(BlackSwanFarming.com)

Which one should we do first? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015


Time

Valu

e Po

tent

ial



A

Time

Valu

e Po

tent

ial

5 4 3 1 2



$ A

Time

Valu

e Po

tent

ial

5 4 3 1 2 6


B


$ A

Time

Valu

e Po

tent

ial

5 4 3 1 2 6


B


$

$ $ $ $

A

Time

Valu

e Po

tent

ial

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

5 4 3 1 2 6


B


$

$ $ $ $

A

C

Time

Valu

e Po

tent

ial

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

5 4 3 1 2 6


B


$

$ $ $ $

$ $ $ $ $

A

C

Time

Valu

e Po

tent

ial

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $ $

5 4 3 1 2 6


A

Time

Cost

of D

elay

First-In-First-Out

Scheduling


$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

B

A

Time

Cost

of D

elay

First-In-First-Out

Scheduling


$ $

$

$ $ $ $ $

$ $ $ $ $

$ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $

C

B

A

Time

Cost

of D

elay

First-In-First-Out

Scheduling


$ $

$

$ $ $ $ $

$ $ $ $ $

$ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $

C

B

A

Time

Cost

of D

elay

First-In-First-Out

Scheduling

Total Delay Cost = $50

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $

$50


$ $

$

$ $ $ $ $

$ $ $ $ $

$ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $

$50 C

B

A

Time

Cost

of D

elay

First-In-First-Out

Scheduling

Time

Cost

of D

elay

B

A

C

Cost of Delay (CD3) Scheduling

Total Delay Cost = $50


$ $

$ $ $ $ $

$ $ $

$

$ $ $ $ $

$ $ $ $ $

$ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $

C

B

A

Time

Cost

of D

elay

First-In-First-Out

Scheduling

Time

Cost

of D

elay

B

A

C


Total Delay Cost = $8 Total Delay Cost = $50

$50

$8 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

$ $

$

$ $ $ $ $

$ $ $ $ $

$ $ $ $

$ $ $ $ $

$ $ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $ $

$ $ $

$ $

$ $ $ $ $

$

C

B

A

Time

Cost

of D

elay

First-In-First-Out

Scheduling

Time

Cost

of D

elay

B

A

C


84% reduction in delay cost vs FIFO

In this simple example:

Total Delay Cost = $8 Total Delay Cost = $50

$50

$8



When time to deliver varies, use Cost of Delay Divided by Duration

Cost of Delay

Duration CD3

$ Business value of the feature

Information Discovery Value

How that value varies over time



Feature Duration (weeks)

Cost of Delay (m)

CD3

A 5 $1 0.2

B 1 $4 4

C 2 $5 2.5


So again, which one should we do first? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

CD3 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

In CD3, why divide by

Duration…

and not

Cost? Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

Money? You can beg, borrow or steal…


Time? Can’t be replaced. Can’t be reversed!


Knowing how long the pipeline is

blocked is more valuable information


Takeaways


Cost of Delay

Improves prioritisation

Enables better trade-off decisions

Changes the focus of the conversation


#1 #2

#3 #4 Prepared by Carlos Letelier & César Idrovo ScrumDay Chile 2015

People make decisions Not the data, or an algorithm

Organisational strategy

Technology strategy

Start with CD3 ‘initial triage’

Adjust CoD to reflect strategy

State reasons for adjustment

Additional levers? In the real world…


1.  Contact: [email protected]

2.  Thanks [email protected] & emergn.com

3.  Experience report and more detail: BlackSwanFarming.com by Joshua Arnold and Özlem Yüce


scrumday chile - value estimation and prioritization using cost of delay

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