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Using Cost of Delay to de-scale your organisation through decentralised decision making

It isn’t enough to break down our portfolio into small pieces and execute them in isolation from one another. We must acknowledge that variance in knowledge work is a fact of life, specialists are scarce, people find new jobs, life happens. Rather than think of an organisation as individual parts to be managed, think of it as a living organism which adapts and responds as a whole.

By empowering people to take decisions based on objective data linked to a shared vision people are not simply playing a game according to a set of rules, they are responsible for the game.

Don Reinertsen in his seminal book "The Principles of Product Development Flow" states:

"If you only quantify one thing, quantify the Cost of Delay. "

In this talk I will present how the Cost of Delay can be derived from data your organisation has lying around how you can super charge decision making speed and consequently the flow of value.

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Using Cost of Delay to de-scale your organisation through decentralised decision making

  1. 1. Using Cost of Delay to de-scale your organisation through decentralised decision making How Cost of Delay can be used from portfolio planning all the way down to minute by minute decision making to vastly increase the flow of value. @mick_fagan @InnodevPtyLtd #RethinkEverything
  2. 2. Central Premise By quantifying the cost of delay (CoD) and creating transparency to this across all initiatives, the people doing the work can make decisions faster and overall, more economically sound for the organisation. We achieve this by: - Quantification of all benefits including intangibles expressed in currency. - Shifting the focus away from full utilisation and towards value. - Decentralising decision making assisted by providing access to CoD data and informal authority - Creating easy to use, logical CoD models - Visualising and instituting data driven continuous improvement.
  3. 3. Some Anticipated Results Shorter payback period through early incremental delivery A strong bias towards reducing number of Work in Progress (WIP) initiatives, leading to… Reduced management overheads as a result of self organisation Objective decision making based on facts rather than just intuition, opinion or ‘politicking’
  4. 4. SAPN: Do More with Less In SAPNs 2020-2025 regulatory proposal we are committed to: • Reduce cost of supply from low base • The network remains Safe, reliable and fit for the future • Incorporating new technology into Australia’s oldest network. • Renewables • Storage Ref: SAPN - Electricity Distribution Proposal 2020- 2025 -Overview - January 2019_0.pdf
  5. 5. Call to Arms: “Create a customer driven single-line, whole of life view of core IT work. The focus is on new work demand with the objective of creating transparency of workflow and clear expectations of timing and delivery” Chris Ford, CIO, SA Power Networks
  6. 6. Understanding the Frustrations
  7. 7. The Cost of Queues: Yikes
  8. 8. “Small changes can produce big results – but the areas of highest leverage are often the least obvious. “– Peter M. Senge What we want Success is non linear and emergent
  9. 9. If you only quantify one thing, quantify the Cost of Delay. —Don Reinertsen
  10. 10. How to think about Cost of Delay: Small change with a huge impact • What is the penalty of lost value if we delay the availability of our product by 1 week? • What is the value to the organisation of early availability of our product of 1 week?
  11. 11. Value Flow in an Enterprise Portfolio https://elabor8.com.au/measuring-flow-efficiency/ http://www.agilecoach.ca/wp-content/uploads/2013/03/wsib-ekb-version1-1024.png • We shift our focus towards optimising our system for value flow by reducing time spent waiting in queues. • The longer the queue the longer the wait and waiting has a huge negative economic impact which is mostly opportunity cost. • In an enterprise there are queues throughout a value chain
  12. 12. You are what you measure • ‘Managers who don’t know how to measure what they want settle for wanting what they can measure’ – Russel Ackoff • If managers want to measure value and don’t know how they’ll end up basing judgments on things like: • Cost • Scope • Utilisation • Velocity • Schedule • What do you get if you reward based on these things?
  13. 13. We end up with… • When will it be done? • That’s too long, it needs to be sooner • We’re too slow, we need to work back tonight • We’re still too slow, we need to work this weekend • It’ll be faster if I don’t explain and you just do as I ask • How can we squeeze more from our resources? • That’s not my problem. • While I’m waiting, I’ll just start working on something else.
  14. 14. A tie back to agile • Our highest priority is to satisfy the customer through early and continuous delivery of valuable software. • Build projects around motivated individuals. Give them the environment and support they need, and trust them to get the job done.
  15. 15. Formal vs Informal Authority • Traditional leadership which relies on “formal authority” is up to 1000x too slow • To increase the rate of value flow, driven by true employee engagement arising from their ability to make better, faster decisions. • Agile Transformation isn’t only about making a bunch of Scrum teams, it is about applying the agile principles at every level.
  16. 16. Decisions at the source • Rather than think of an organisation as individual parts to be managed, think of it as a living organism which adapts and responds as a whole. • By empowering people to take decisions based on objective data linked to a shared vision people are not simply playing a game according to a set of rules, they are responsible for the game - Senge https://corporate-rebels.com/iceberg-of-ignorance/
  17. 17. Quick Poll • The intuition of members of the same team typically differs by 50 to 1, so the real estimate surprises most team members – Don Reinertsen. How many of you believe your organisation understands the economic impact of a 1 month delay in schedule over the most strategically important initiatives in your roadmap?
  18. 18. Because we know the economic impact of queues • Speed of decision making • Co-location • Cross-skilling • Adding an expensive specialist • Limit WiP • Cross functional teams • Mob Programming and Pair Programming • Embedded Customer Expert • Perfect vs Good Enough • Minimum Marketable Feature set vs Big Bang • What’s the common thread?
  19. 19. Diving into Cost of Delay Always measured in currency per unit time eg AUD/week Puts a price (penalty) on schedule delays and to clearly quantify the trade-off between time and lost benefits. Aims to answer these questions simultaneously: Are we working on the right things? (value) Are we working on them at the right time? (urgency)
  20. 20. Calculating the Cost of Delay • Choose units for delay: week, month, quarter, year. I’ve chosen week. • Build cashflow model in weeks, model what would happen if we delayed product availability by 1 week only • When we delay by 1 week, we in effect lose 1 week of peak benefits + incur 1 week more of costs. http://blackswanfarming.com/urgency-profiles/
  21. 21. Example: Real Project • Model Assumptions: • Lifespan of software asset is 5 years • Begins at commencement of development/customisation • Simple Cashflow model (non discounted) • 2 teams for 52 weeks • Then 1 team remaining 72 week incremental rollout • $10,000 avg daily cost Self-funding Break-even
  22. 22. Example: Real Project • 1 week delay cost: ~206k • Repeat for 2…n weeks (make a formula) • Can also depict urgency i.e. the rate at which the initiative is shedding value • Cost of Delay (green) is the Derivative of ‘Delay Cost’ (blue line)
  23. 23. A Portfolio View of Prioritisation with CoD • Cost of delay has many advantages, particularly when it comes to prioritisation and optimising for flow of value. • A common way to prioritise a backlog of initiatives is using the ‘CD3’ method which is: • Cost of Delay ÷ Duration • By clearing the way for high Cost of Delay initiatives we achieve far better economic outcomes. Ref: Donald Reinertsen: Principles of Product Development Flow
  24. 24. Trade-offs and 5 Key Economic Objectives • By quantifying the cost of delay we can objectively know the cost of making a trade-off decision and do so rationally. We can make good economic choices if when we understand the overall economic consequences of our decisions. Ref: Donald Reinertsen: Principles of Product Development Flow
  25. 25. Other Prioritisation Schemes • Voting • Theme weighting with a scale • Stack ranking based on intuition • HiPPO / LVDD There’s no better way to shock by quantifying the economic impact of queues other than real currency. WTF $206k p/w !! You’re nuts!
  26. 26. Other Cost of Delay Models • Risk • Compliance with Penalty • First Mover Advantage in Competitive market • Monopoly with unaffected peak earnings • Date Driven
  27. 27. Summary • What should you do? • Remember my first slide? • Transparency and openness • Visualisation • Continuous Improvement mindset • Focus on flow of value not being busy • Furnish the right information like Cost of Delay to EVERYBODY and give them the freedom to think…for themselves. • Melt the Iceberg!
  28. 28. Thanks! @mick_fagan @InnodevPtyLtd #RethinkEverything

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