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The Value Impact

The impact of value is difficult to quantify, and putting a currency number is not as simple as it is with cost. The challenge is even greater for organisations which are not selling products, such as governments or charities. However, there are a number of approaches which can be used to help understand the value that is being delivered such that we can maximise across the whole system. Some of these I have already covered when I wrote about the science of kanban from an economic point of view, but it is worth including them again.

Customer Delight

Steve Denning suggests that ultimately value is in delighting customers. I agree with this, using a broad definition of customer which is not limited to the end user, but can be anyone with an interest in the outcome. That could include people interested in the user experience, architecture or operational aspects, for example. Having said that, the end user is generally the customer who ultimately determines success.

Value Horizons

In his recent book Escape Velocity, Geoffrey Moore draws heavily on the The Horizons Model developed at McKinsey and published in The Alchemy of Growth. Using this model, Horizon 1 features are intended to have an immediate impact in the current financial year. Horizon 2 features are considered to be investments which are intended to have an impact in the medium term, probably the next financial year. Horizon 3 features are options which have the potential to have an impact in the long term, and not until subsequent financial years. It is very easy to be drawn into focussing on Horizon 1 features due to the anticipated immediate return. However, when that wave peaks and crashes, it is important to be ready for the next wave. Therefore, explicitly spreading the allocation of investment in features across the horizons can mitigate this short term thinking and lead to longer term success.
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Life Cycle Profits

Looking at value over the longer term is a form of considering total life cycle profits. Investing in Horizon 2 and Horizon 3 features is a way of looking at overall life cycle of a product, and of prolonging the profit period.
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Revenue and Expenditure

Another way of looking at value is something I picked up off Chris Matts. He suggests that there are 4 types of value based on revenue and expenditure. The first is in increasing revenue, for example by adding functionality which attract more customers. The second is in protecting revenue, for example by adding functionality which keeps existing customers. The third is in reducing expenditure, for example by adding functionality which improves development efficiencies. Finally, the fourth is in avoiding expenditure, for example by adding functionality which is required to avoid regulatory fines.

Competitive Landscape

The perspective of the competitive landscape is also a way of classifying features, this time as either MVP (Minimal Viable Product), neutralising, differentiating or optimising. MVP features are those which have to be completed to even enter the market. Neutralising features are those which attack a competitors dominance by eliminating any advantage they have with unique capability.  Differentiating features are those which create market dominance by providing new unique capability which the market demands and no competitor can provide. Finally, optimising features are those which don’t add any new capability, but improve the performance if existing functionality in some way. While MVP features are clearly essential, only working on those can be a high risk strategy, and a portfolio of features which includes a mix of all four types can be lower risk.

Cost of Delay

The value of a feature is often dependant on when it is delivered. Using cost of delay as a model can help understand when to schedule features in order to maximise value. Four common patterns are Expedite, Standard, Fixed Date and Intangible. Expedited features are ones where the cost of delay is high and immediate. These items are genuinely urgent and should be scheduled immediately. Standard features are ones where the cost of delay rises linearly. Examples are items with an opportunity cost, where the later the delivery, the more opportunity for gain is lost. Fixed Date features are ones where the cost of delay rises sharply at a specific date. Examples are regulatory dates at which fines may be imposed, or seasonal dates such as Christmas or trade-shows. Delivering these features early creates little or no extra value. Intangible features are ones where the cost of delay is likely to happen in future, but the exact nature is unpredictable. Examples are technical debt or infrastructure work.

Scheduling

Cost of Delay helps with making effective scheduling decisions by prioritising features against each other. Don Reinertsen describes a number of algorithms in his book Principles of Product Development Flow. Principles F15, F16, and F17, can be summarised as follows. When two features have an equivalent cost of delay, schedule the shortest one first. When two features require equivalent time, schedule the one with the highest cost of delay first. When two features require different times and have different costs of delay, then schedule the one with the weighted shortest time first, where the weighting is calculated by dividing the cost of delay by the time. Dean Leffingwell has a great blog post about prioritising features describing this in more detail.

Feature Injection

Having these models is all very well, but how do we know what to actually build? Feature Injection can provide some guidance. With Feature Injection, we start with a vision, decide what goals meet that vision, what capabilities enable those goals, what features deliver those capabilities, what scenarios exemplify those features and finally, what stories make up those scenarios. Thus by starting with the vision, the details can be ‘injected’ just-in-time, incrementing and iterating based on feedback. Liz Keogh describes this well in a recent blog post about BDD in the large.

Experimentation

Feature Injection is designed to deal with the fact that even when we have some idea of the capabilities we want to create, we still have little idea about the precise functionality to build. In these cases experimentation is important. Lean Startup, with its Build, Measure, Learn cycle is a great means of achieving this. It is also a good example of running safe-to-fail probes within the probe-sense-respond approach the Cynefin recommends in the complex domain. I’m also curious about how the software community can apply set-based design ideas such as trade-off curves to better learn and create knowledge about what to build. When running these sorts of experiments, the value is more in the information generated, and the learning experienced, than in any financial return or saving.

And More

There are many more ideas which can be used to help us understand value. These are the ones I use most. For example, I know Tom Gilb has done a lot of thinking on the subject, which I have yet to explore. Eli Goldratt’s work with theory of constraints is another area of potential, which Bob Marshall explored recently in a post asking what is value.

What else is missing? Let me know in the comments.

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2 comments on “The Value Impact

  1. I found Pascal and Portia’s take on the use of explicit Business Models to determine value to be useful: http://www.agilecoach.net/coach-tools/business-value-modeling/

    It means that you must understand how the organisation makes money (the business model) to understand how the feature is likely to contribute.

    I recently came into contact with Tom Gilb’s work (and I’m still chewing on it) but what I really like about is that it is much more explicit about tie-ing in with the goals of the organisation/product (in Tom’s terms these are the stakeholder values and the product qualities) to determine the value impact of a feature. What is particularly interesting is how it abstracts out the feature’s implementation and speaks only about the goals, and then does so very explicitly.

  2. Hey Karl, interesting overview of many of the used methods to determine value of a feature or product increment.

    I would also mention:

    1) Business Simulation scenarios, something in the direction of the “Business Innovation Game” http://www.bigthinkresults.com/solutions/the-business-innovation-game/ that challenges the business model pushing people to think out of the box on how to tackle variations and eventually find more benefit for a product (or increment); and

    2) Relative Business value estimation, that would allow – with some assumptions – to the people involved in the evaluation of the value delivered to share different perspective. In particular I am referring to games such as the “Business Value Game” http://www.agile42.com/en/agile-coaching-company/agile-scrum-tools/business-value-game/ that allow stakeholders to have a facilitated conversation around the relative value weight of different backlog items. The conversation can be facilitated by a Product Manager/Owner by allowing the stakeholders to justify their value attribution against the 4 major value streams: “new business”, “up selling”, “retainment” and “operational efficiency”.

    I used both techniques many times with very interesting results :-)

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