Agile ROI: The Business Case for Agility - … · John Rudd, President and CFO Agile ROI: The...

John Rudd, President and CFO

Agile ROI: The Business Case for Agility

Copyright © 2009 SolutionsIQ. All rights reserved.

John Rudd

• President and CFO of SolutionsIQ

• Formerly a partner in a boutique financial consulting & investment banking firm

• Led the firm’s financial practice specializing in advisory services, mergers & acquisitions, and interim management.

• Filled multiple interim executive roles including CEO, president, CFO, and chief restructuring officer.

• Worked as CFO of a West Coast oil company and a commodity lender for ING.

• Received his B.S. in Economics from the University of Minnesota and his MBA from the University of Southern California.


A financial guy’s intro to Agile…

• Unsuccessful IT projects

• First impressions of Agile

• Positive results with Agile

• Is there a better way?


As financial professionals we seek to improve project and portfolio return by focusing on fundamental elements

WIP +

= Project & Portfolio Return

Risk + Project Investment


As financial professionals, we have taken a rational response to under performing IT projects

• Fixed Scope

• Fixed Schedule

• Fixed Budget

• Monitoring


After years of perfecting process …

• 30 - 40% of systems projects fail prior to completion 1

• Half of all systems projects overrun their budgets and schedules by 200% or more 1

• 64% of features are rarely or never used 2

1 B.P. Lientz and K.P. Rea, Breakthrough Technology Project Management2 Standish Group Study Report, 2002


So, why isn’t our traditional approach working?

• Reduced performance

– Locked in waste

– Increased time to market

– Decreased likelihood of meeting the business or market needs

• Abdicated real project control

• And, minimized options


In fact, through the use of traditional project control methods we have…

WIP +

= Project & Portfolio Return

Risk + Project Investment


Why Agile?

• Squeeze cash out of work-in-process

• Drive risk out of the project

• Increase project and portfolio return


What is work-in-process?

• Work-in-process or in-process inventory consists of the unfinished products in a production process.


Traditional methods lockup capital


Large WIP - Ties up cash

• Allocation upfront

• Harder to get acceptable ROI on dollars invested

• Hampers organizational liquidity


Typical IT project

-150

-100

-50

0

50

100

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15 Q16

Quarterly Cash Flow

-700

-600

-500

-400

-300

-200

-100

0

100

200

Q1 Q2 Q3 Q4 Q5 Q6 Q7 Q8 Q9 Q10 Q11 Q12 Q13 Q14 Q15 Q16

Cumulative Cash Flow


Large WIP - Creates waste

• Early stages require unproven assumptions and unneeded features

• Large cycle times leads to process waste

• Buffering


Much of the total spend is on waste

“20% of features provide 80% of

the value”

“64% of features are rarely or never used”

Standish Report, 2002

Waste

Buffer

Excess Planning &

Process

Wasted Features

Valued Features

and Planning

Value

Excess Planning &

Process

Wasted FeaturesWasted Features

Buffer

Excess Planning

& Process

Wasted Features


How feature “chunks” resolves this


Outcomes: Squeezing cash out of process

• Free up cash

• Invest capital elsewhere

• Reduce waste

• Lower Costs


Why Agile?





Cost & Schedule Risks

• Examples:

– Lack of information

– Inaccurate estimates and schedules

– Unplanned change

– Project off target leading to total Loss/write-off


Benefit Realization Risks

• Examples:

– Market changes

– Changes in overall economy

– Features used

– Competitive responseToday


Problems with Traditional Mitigation

Mitigation Problems

Fixed Scope

Fixed Schedule

Fixed Budget

Monitoring

• Upfront comprehensive requirements

• Cost of change is high

• Limited flexibility

• Require hard dates for phases

• Buffering for unknowns

• High capital allocation

• Budget allocation up front

• Locks in waste

• Reports % not value


Traditional mitigation

• Big and Long

• Less accurate

• Less flexible

• Wasteful

• Increased probability of failure


Loss of Management Control

• What happened to monitoring?

– Information is suspect

– Measuring progress not value

– Mid-stream changes difficult

• When things go wrong

– Spend more, or

– Kill the project


Evaluate project more frequently

• Every 2-4 weeks

• Meaningful evaluation

– Measure delivered value

– Examine working product

• Prioritize actively

– Clean breaks

• Make the right decisions


Inject Market and Customer Feedback


This allows us to manage investment

• Fail fast or stop early

• Succeed early and double down

• Invest money from one and move to another


Expand Options

• Maintain scope

• Expand/Accelerate scope

• Reduce scope

• Reprioritize

• Shut project down


Feature chunks - Measure return

• Transparency to Manage on value

• Market and customer feedback

• Management Influence


Outcomes: Drive risk out of the project

• Enable rapid course correction

• Fail fast and stop early

• Succeed early and double down

• Real management control – created options

• Management influence


Why Agile?





We have made progress toward our fundamental goals

WIP + Risk + Project Investment

= Project and Portfolio Return


Portfolio Implications

Characteristics Results Problems

Larger projects

Longer projects

Serial approach

Fewer projects

Span annual budget cycles

Value only at end of project

Less diversification

Reduced portfolio options

Few real options or ability to change


The traditional portfolio approach

• Fewer Investments

• Limited control within period

• Can’t offset costs with returns

• Can’t measure portfolio return


An Agile portfolio approach

• Feature Chunks

• Quicker to Market

• Reallocate investment

• Increase/Delay/Stop


Maximize portfolio return through

Increased diversification

Ability to monitor and manage performance within the budget cycle

Ability to redirect funds from losers to winners

Optimize portfolio within the budget cycle


Reallocate funds to strong performers let’s change the game


Actively Manage Portfolio

• Reevaluate priorities constantly

• Reshuffle portfolio continuously

• Start/Stop projects

• Recognize increments of value


Outcomes: Increase project and portfolio return

• Increase portfolio diversification which helps reduce risk

• Continually redirect from losers to winners

• Reclaim control of the portfolio management


Why Agile?





Traditional vs. Agile Approach

• Big and Long

• Less Accurate

• Less Flexible

• Increases risk of failure

• Less management control

• Wasteful

• Small and short

• More predictable

• Iterate every 2-4 weeks

• Increases probability of success

• Active management control and influence

• Eliminate overhead and unnecessary features


Agile Benefits

• Free up capital

• Reduce unnecessary cost

• Recognize return earlier

• Zero in on current market and customer needs



How is this done?

• Break big projects into smaller chunks

• Evaluate projects more frequently

• Inject market and customer feedback

• Actively reprioritize project portfolio

• Reallocate funds to strong performers


Not unchartered territory

• Agile practices are not new – since mid 90’s

• Collection of proven practices proven

– Scrum

– Extreme Programming (XP)

• No longer a grassroots movement:

– Wider adoption among Fortune 1000 companies

– 75-80% of IT organizations have some Agile practices*

– 15-25% have established a repeatable Agile process*

“Current State of Agile Methods Adoption”, Gartner, December 2008


Why Now?

• Reduce risk inherent in large IT investments

• Improve organizational liquidity

• Get more from shrinking capital budgets

• Maintain flexibility to quickly take advantage of emerging market opportunities

• Provide a game changing impact to your organization during troubling times


• Founded: 1979

• Employees: 250+

• Headquarters: Redmond, WA

• Full range of services—from training and consulting to software development and talent acquisition

• Leading provider of Scrum

Certification Training


Agile Services at Every Stage


Enterprise Agile Adoption Program


Question & Answer


Upcoming SolutionsIQ Webinars from VersionOne

Apr 29 Building your Business Case for Agile

Methods for calculating the value of implementing Agile within your organization

May 13 Tracking Agile Progress: Is it working?

Soon Agile Portfolio Metrics: A Dashboard for Executives

Soon Strategies for Maximizing Agile Portfolio Value


Thank You

• Following this presentation, participants will receive an email with links to a recording and copies of today’s slides

• For more on SolutionsIQ:

www.SolutionsIQ.com

[email protected]

+1(800)235-4091

http://www.solutionsiq.com/

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