Gauging the roi of your agile organization 5

Gauging the ROI of Your Agile Organization Lee Cunningham Director, Enterprise Agile Enablement VersionOne

June 2014

Understanding Improving

© 2014 VersionOne 2

About me…

•  Lee Cunningham •  Lean-agile practitioner, coach,

advisor •  Some traditional hats along the way:

Software Engineer, Development Manager, QA Manager, Release Manager, Project/Program Manager

•  USAF •  SPC, PMP, PMI-ACP, CSM •  [email protected]


14% ROI standards “well defined”

ROI? Compared to what?

33% ROI standards “not defined” or “poorly-defined”

Standish Group, DARTS 2007


Is ROI even being measured?

64% “rarely” or “never” perform post-project value evaluation

Standish Group, DARTS 01-2013


…yet

72% report that their project evaluations are “somewhat accurate”

Standish Group, DARTS 01-2013


So, what they have told us is…

I HARDLY EVER EVALUATE MY PROJECTS --

BUT WHEN I DO, MY EVALUATIONS ARE SOMEWHAT

ACCURATE.

STAY CLUELESS, MY FRIENDS…


A word about statistics

http://tylervigen.com/


The Product Owner?


Takeaways

•  Agile is about business -- not software.

•  We need to be able to talk about agile practices in terms that senior organizational leadership would appreciate.


“Agile Organization”?

For our discussion, we’re defining “Agile Organization” as a system formed around an agile value stream, whether a portfolio, program, or a team.


Cycle Time & Lead Time


ROI =

Revenue – [Operating Expense + Total Variable Expenses] Investment

How much we are paid for it How much we are paid for it – How much it cost to make it How much we are paid for it – How much it cost to make it What it cost for the raw materials used to make it


Why projecting ROI is hard to do



Challenges to calculating Revenue

•  New Revenue: new revenue from new customers

•  Incremental Revenue: new revenue from existing customers

•  Retained Revenue: revenue from existing customers we would have lost had we not undertaken this

•  Operational Efficiencies: reduced costs resulting from having undertaken this


Basic “Concept to Cash” Value Stream

Idea Design & Code Test

Deliver/ Deploy

Valuable, Working, Delivered Features


The essence of throughput economics


Deliver/ Deploy


-$ -$ -$ -$ +$

Until we’ve gotten paid, all we’ve done is spend money.

Frequency and Value


And we can’t forget….


Deliver/ Deploy


-$ -$ -$ -$ +$

rework -$

Defects -$


Mapping to ROI components


Deliver/ Deploy


-$ -$ -$ -$ +$

rework -$

Defects -$

Investment Revenue Operating and Variable Expenses


If we want to increase ROI…


Increase the Numerator

…and/or Decrease the Denominator


If we want to increase ROI…


Focus here

…and/or Decrease the Denominator

Expenses and Investment can only be reduced so far until Revenue is no longer possible.

Increase the Numerator

Revenue, at least hypothetically, has no ceiling.


“Revenue? But we don’t sell our software – it’s for

an internal customer…”


Factors affecting ROI components


Deliver/ Deploy


-$ -$ -$ -$ +$

rework -$

Defects -$

Investment Revenue Operating and Variable Expenses

•  Effort expended in ideation •  Effort expended in developing Epics, Stories •  Quality of Epics, Stories

•  Effort expended in analysis & design •  Quality of Epics, Stories •  Degree of team empowerment •  Maturity of engineering practices & discipline •  Delivery/deployment capability •  Volume of escaped defects •  Quality of support process*

•  Release frequency •  Customer-perceived value •  Quality of Epics, Stories •  Volume of escaped defects


What to measure and

where


What to Measure What that indicates

“Concept to team-ready” cycle time •  How much the development, grooming, and maintenance of features and stories is costing us

•  How long we’re allowing the value of the features and stories to decay

Story/Feature acceptance rate The effectiveness of the backlog generation and grooming process

What to measure: Investment



“Team-ready-to-Deployed” cycle time •  How much the process of taking a team-ready story or feature to the customer is costing us

•  How long we’re allowing the value of the features and stories to decay

Escaped Defect rate •  How much it is directly costing us to fix the defects

•  The opportunity cost of fixing those defects

What to measure: Expenses



“Concept to cash” cycle time (total lead time)

How much the complete ideation-to-payment value stream is costing us

Cycle-time by story/feature value How long the more valuable stories & features are being allowed to decay in value

Release frequency •  How long revenue-generating opportunities are being deferred

•  How long direct customer feedback is being deferred

Escaped defect rate Risk exposure to retained, incremental, and new revenue

What to measure: Revenue


Cycle time shows up a lot as something to measure. Why?

Key: Cycle Time

•  Revenue

•  Inventory (epics, stories in the backlog)

•  Feedback

The value of all of these decays with time:


The best single indicator of system ROI is the trend in lead time

associated with that value stream…

…because all of the lower-level things we measure (e.g., defect

rate, internal cycle times) directly affect lead time.

Key: Cycle Time


No matter what we might wish, the capability of the system today is what it is.

Key: Measure trends, not snapshots in time

Instead of just asking “Why is it taking us x days to deliver a feature?”

ask “Are we delivering things that are truly valuable to our customers faster now than we were 3 months ago?”


So how can we improve ROI?


Deliver/ Deploy


Decrease Investment

Increase Revenue

Decrease Operating and Variable Expenses

•  Competent and committed Product Ownership •  Effective and efficient backlog development and grooming skills

•  Trained and Empowered teams •  Mature and disciplined agile engineering practices •  Robust delivery/deployment capability •  Solid definition of “Done” •  Robust support process*

•  Value focus •  Frequent Releases to customer

Decrease Lead Time!


Suggested reading for thought leadership aggregation


Q&A


On Behalf of Everyone at VersionOne…

Thanks!

Gauging the roi of your agile organization 5

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