Session Title: Risky Business: Real Options for Business Agility Abstract: Enterprise projects are known to have challenges with uncertainty, risk, forecasting and commitment - and the most valuable projects often carry the most risk. Other industries also encounter risk and generate value by understanding and managing that risk effectively. Todd Little explores techniques used in a number of risky businesses - product development, oil and gas exploration, investment banking, medicine, weather forecasting, and gambling - and shares what those industries have done to manage uncertainty.

1. Risky Business: Real Options for Business Agility
1
Todd Little, CEO Kanban University @toddelittle

2. Managing Enterprise Agility
When will we get the requirements?
All in good time, my little pretty, all in good time
But I guess it doesn't matter anyway
Doesn't anybody believe me?
You're a very bad man!
Just give me your estimates by this afternoon
No, we need something today!
I already promised the customer it will be out in 6 months
No, we need it sooner.
Not so fast! Not so fast! ... I'll have to give the matter a little
thought. Go away and come back tomorrow
Ok then, it will take 2 years.
Team Unity
Project Kickoff

3. We’re not in Kansas Anymore
My! People come and go so quickly here!
I may not come out alive, but I'm goin' in there!
The Great and Powerful Oz has got matters well in hand.
"Hee hee hee ha ha! Going so soon? I wouldn't
hear of it! Why, my little party's just beginning!
Developer Hero
Reorg
Testing

4. How do businesses deal with
risk and uncertainty?

5. Weather
Forecasting:
Hurricane Rita

6. The Cone of Uncertainty
We expect uncertainty and manage for it through iterations,
anticipation, and adaptation.

7. Getting Better

8. Movies

9. Oil & Gas Exploration

10. Oil & Gas Exploration

11. Poker

12. Poker
Metric:
Percent of
Hands Won

13. The Context of Feedback

14. Gordon the Guided Missile

15. Cynefin Framework
(Snowden)

16. Obvious
Input Output
Cause and Effect Obvious to all
Known - Knowns
Sense - Categorize - Respond
apply best practice
Distribution
Example: Manufacturing

17. Complicated
Input Output
Cause and Effect Requires Analysis
Known - Unknowns
Sense - Analyze – Respond
apply good practice
Distribution
Example: Incremental Product Development
Analysis

18. Complex
Input
Cause and Effect perceived in retrospect
Unknown - Unknowns
Probe - Sense – Respond
sense emergent practice
Distribution
Output
Example: New Product Development

19. Chaotic
Input Output
No Relationship between Cause and Effect
Unknowables
Act - Sense - Respond
discover novel practice.
Distribution
Example: Medical Emergency

20. Risk management tools
Types of Risk

21. Categories of risk
Delivery Failure
Business Case
Failure
Collateral Damage
Quality and Market
Acceptance

22. Two Risk Perspectives
Individual
Perspective
Business
Perspective

23. Business Case Failure

24. Powerful Questions are:
What are we building?
What Business are we in?
What
Building are
we in?

25. Is your Strategy a Bucket or a Filter?

26. Bad Strategies (Rumelt)
Fluff
Failure to face the problem
Mistaking goals for strategy
Fuzzy or overly complex strategic objectives
 “increase market share”
 "our fundamental strategy is one of customer-centric intermediation."
 “reaching for the impossible to do the impossible"
 47 strategies and 178 action items.
 Action item number 122 was 'create a strategic plan.’

28. Purpose Alignment Model
CAN WE
CREATE A
DIFFERENTIATED
PARTNERSHIP?
INNOVATE,
CREATE
MINIMIZE /
ELIMINATE
ACHIEVE AND
MAINTAIN
PARITY,
MIMIC,
SIMPLIFY

29. Applicable at all Levels
• Corporate Strategy
• Product Strategy
• Feature

30. 32
A View of Strategy - Apple
ATT
NEW PRODUCT
DESIGN
USER EXPERIENCE
CONTENT
DISTRIBUTION
MS OFFICE
INTEL
HARDWARE
OTHER
SOFTWARE
PERIPHERALS

31. Fit for Purpose
• Who are your
Customers?
• What is their
purpose(s)?
• What Problem(s) do
they want solved

32. Business Case
Business
Perspective
Individual
Perspective
Sustainable competitive advantage How can I sell this so that I can get more
budget?

33. Delivery Failure
Late
Over Budget

34. Understand Bias
"What gets us into trouble is not what we don't
know. It's what we know for sure that just ain't
so.“
»Mark Twain

35. Negotiation Bias
"It is difficult to get a man to understand something
when his salary depends upon his not understanding
it.“
»Upton Sinclair:

36. Software Projects: Actual vs. Original Estimate
10-20% 50% 80-90%
1X
2X
4X
P90/P10 = 4

37. In God we trust, all others must bring data
Fat tail vs. Thin tail
Data over Estimation

38. Kanban Impact at Accenture Brazil

39. Delivery Risk
Business
Perspective
Individual
Perspective
Cost of Delay
Business Credibility
Personal Credibility

40. Wrong Priorities?

41. Market Acceptance
Features and Quality

42. Market Acceptance

43. “I skate to
where the
puck is going
to be, not
where it has
been.”

44. Lean Startup Feedback Loops

45. Fit for Purpose
• Feedback from the
front line
• Fit for Purpose Box
Score

46. Market Acceptance
Business
Perspective
Individual
Perspective
Impact to revenue
Impact to credibility
Cost of rework
Priorities are often guided by other
perceived constraints

47. Collateral Damage

48. Delivery Failure results in Collateral Damage

49. I’m beginning to
think it wasn’t such a
good idea to turn off
those unit tests

50. Collateral Damage
Business
Perspective
Individual
Perspective
Could be catastrophic
Some individuals may be willing to take
on more risk than desired

51. Risk management tools
Risk Management Tools

52. Value of InformationValue of Uncertainty
Tornado ChartReal Options
Value of Flexibility

53. Real Options
The right — but not the obligation — to undertake certain actions prior to an expiry date

54. Airline Tickets
The right — but not the obligation — to
undertake certain actions prior to an expiry date

56. Real Options
The right, but not the obligation to take some action prior to an expiry
date

57. Do you have a choice?
Option
Commitment
Decision

59. Which risks are
important?

60. Tornado Chart: Which Uncertainties Are Important?

61. Value of Uncertainty
Efficient
Frontier
Eliminating Risk/Uncertainty is not the Goal!

62. Product Delivery Tornado Example
Item
-15M 0M 15M 30M 45M
Product Acceptance
Uncertainty ████████████████████
Schedule Uncertainty █████████
General Market Uncertainty ████
Cost Uncertainty ███

63. Product Delivery Tornado Example
Item
-15M 0M 15M 30M 45M
Product Acceptance
Uncertainty ██████████████████
Schedule Uncertainty ████████
General Market Uncertainty ████
Cost Uncertainty ███

64. Product Delivery Tornado Example
Item
-15M 0M 15M 30M 45M
Product Acceptance
Uncertainty ██████
Schedule Uncertainty █████
General Market Uncertainty ████
Cost Uncertainty ███

65. Value of Information

66. Value of Information

67. Value of Flexibility

68. Value of Flexibility from Loose Coupling

70. Risk
Management
is NOT Risk
Aversion

71. Summary
1. Know what business you are in
2. Discover the risks and uncertainties
that dominate your business
3. Get very good at managing for those
uncertainties

72. Enterprise Services
Planning (ESP)

73. ESP 5 Day Training
Executive Track
(Days 1 and 2)
Product Manager Track
(Exit: middle of day 4)
Expert Track
(Whole week)
• Overview of strategy
• Organizational risk
• Fitness for purpose
• Custom risk assessment
frameworks
• Alignment of strategy and
capability
• Survivability assessment
Executive Track material plus:
• Cost of delay
• Real options
• Demand shaping
• Capacity allocation
• Risk hedging
• Portfolio Kanban
Executive Track and Product
Manager’s Track material plus:
• Delivery and project forecasting
• Liquidity and volatility
• Scaling
• Working with irrefutable demand
• Managing dependencies
• Dynamic capacity reservation
systems

74. Agile Pain Point Solutions (APPS) 1-day classes
Better KPIs:
Metrics for
Meaningful
Organizational
Behavior
Clear Product
Requirements
Managing Large
Backlogs
Managing
Dependencies for
Enterprise Agility
Forecasting
Projects and
Customer
Deliveries

75. Fit for Purpose (2-day class)

76. Contact
Todd Little
 todd@mauvius.com
 @toddelittle