The Economics of Product Development v0.8

@KarimHarbott

TheEconomicsofProductDevelopment

KarimHarbott-Mar2016

• EnterpriseAgileCoachandTrainer

• The5thLeSSTrainergloballyand1stintheUK

• FormerHeadofScaledAgileatMcKinsey&Co.

• Formerdeveloper,ScrumMaster&ProjectManager

• TrainedTeamandExecutiveCoach

• YearsofexperienceinscalingScruminlargeproduct

groups

KarimHarbott

ALittleAboutMe

[email protected]@KarimHarbott

www.guidingagile.com

1. ACommonLanguage2. Queues3. BatchSize4. Prioritisation

ACommonLanguage“Youmayignoreeconomics,buteconomicswon’tignoreyou.”

DonaldG.Reinertsen

Shouldwerunourtestdepartmentat80%capacitywitha2weekqueueor90%capacitywitha4weekqueue?

Shouldwedelaydeliveryby4weekstoincludeanextrafeature?Whatabout8

weeks?Or12?

Wecanonlymaketrade-offseffectivelyifwehaveaneconomicframework.

“Ifyouonlyquantifyonething,quantifycostofdelay.”

DonaldG.Reinertsen

Benefit

Cost

BenefitCost

ProductDevelopment BusinessFunction

Queues“InProductdevelopment,ourgreatestwasteisnotunproductive

engineers,butworkitemssittingidleinpricesqueues.”

DonaldG.Reinertsen

Whataresomeexamplesofqueuesinproductdevelopment?

HowMuchdoYourQueuesCostYou?

CapacityUtilisation

Que

ueingTime

x2

x10

M/M/1/∞queue

50% 90% 100%0%

0

5

10

15

20x20

Capacityutilisation=%ofcycletimewaitinginaqueue!!

CapacityUtilisation&Queuesize

ResourceCost

ExcessCapacity

Cost

TotalCost

DelayCost

CapacityUtilisation&Cost

Selectivelyaddcapacityinareasofhighvariability.

GrowT-ShapedPeople

Queuelengthdependsonvariabilityandcapacityutilisation.

Watchthebaton,nottherunners.

BatchSize“Don’ttestthewaterwithbothfeet.”

CharlesdeGaul

Whataresomeexamplesoflargebatchesinproduct

development?

10Weeks10Weeks

SmallBatchesHaveManybenefits

Prob

abilityofo

ccurrence

£1

100% Spend = £1

£2

10%

Saving=£0.90

£3

Saving=£0.99

1%

67%lessinvestmentforthesamepayoff

Cumulativeinvestment

TheValueofFastFeedback

HoldingCost

BatchSize

Cost

TotalCost

TransactionCost

YourOptimalBatchSize

HoldingCost

BatchSize

Cost

TotalCost

TransactionCost

EnablingSmallBatches

Project funding

Large projects

‘Phased’ projects

Detailed project

planningManual

regression testing

Complex architecture

Reviews / sign-offs Manual

deployment processes

SomeInhibiterstoSmallBatches

Prioritisation“Thekeyisnottoprioritisewhat'sonyourschedule,buttoschedule

yourpriorities”

StephenCovey

Whichjobshouldwedofirst?The2-weekjobwitha£10kperweekCoD?

Orthe3-weekjobwitha£12kperweekCoD?

Schedulingisadecisiontodelayonejoboveranother.

Ifdurationsandcostsofdelayareequal,usefirstinfirstoutscheduling(FIFO)scheduling.

Ifalldurationsareequal,useschedulehighestcostofdelayjobsfirst(HCDF)

scheduling.

Ifallcostsofdelayareequal,usescheduleshortestjobsfirst(SJF)scheduling.

Ifdurationsandcostsofdelayarealldifferent,useschedule

weightedshortestjobsfirst(WSJF)scheduling.

Project Duration (weeks)

Cost of Delay (£k)

Weight = CoD / duration

1 1 10 10

2 3 3 1

3 10 1 0.1

Weightedshortestjobfirst

Weightedshortestjoblast

CostofD

elay

CostofD

elay

Delaycost£

1

2

£1k 3£3k

£3k

Delaycost=£7k

3

£100k

£30k 2

£30k 1 Delaycost=£160k

WeightedShortestJobFirst(WSJF)

9 68

7 34

5 12

ShortMediumLong

Low

Medium

High

Duration

Costo

fDelay

Quick-&-EasyEstimation

InSummary

1. Measurecostofdelay,evenifitisnotperfect.2. Payattentiontoqueuesandtheircost.3. Preventqueuesfrombuildingupbybuildingin

excesscapacity.4. Drivedowntransactioncoststoenablesmall

batches.5. Limityourwork-in-progress(WiP).6. Prioritiseusingweightedshortestjobfirst(WSJF).

Summary

6MythsofProductDevelopment

FindOutMore

“Whenhigh-qualitydecentralisedeconomicinformationisabsent,itistoooftenreplacedbythemind-numbingbureaucracyof

centralisedcontrol“

DonaldG.Reinertsen

KarimHarbott

[email protected]@KarimHarbott

www.guidingagile.com

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