Key Note - Stop Starting, Start Finishing 2013 - Aligning Creative Work with Business Risk

Aligning Creative Work
with Business Risks
Or why, ….
You may be
doomed before you
start!
Using qualitative risk
assessment & kanban
systems for better
corporate governance
Stop Starting, Start Finishing
Lean Kanban Nordic,
Stockholm, March 2013

dja@djaa.com, @djaa_dja

Ideas and Commitments
with Kanban


Commitment is deferred
Backlog
Pool
of
Ideas

Engineering
Ready

5

Development

Test
Ready

Testing

UAT

3

5

3

∞

Ongoing

Done

Items in the backlog remain
optional………………………..
optional and unprioritized

Pull

F F
F
F F
F
F

D
G

E

Wish to avoid discard after commitment

I

Commitment point


We are committing to getting
started. We are certain we want
to take delivery.

Deployment
Ready
∞

Upstream Kanban Prepares Options
Pool
of
Ideas

Biz
Case
Dev

Requirements
Analysis

Ready
for
Engineering

∞

24 - 48

12 - 24

4 - 12

K
L

Min & Max limits
insure sufficient
options are always
available

Committed

4

Development

Testing

3

3

Ongoing

Done

Verification

J
I

D

F
Options
$$$ cost of acquiring options
Reject

Discarded

O

P

Q
Commitment point


Committed Work

Simplifying Alignment & Corporate
Governance
Kanban systems enable a
Our business has defined promises to our greatly
shareholders in terms of model forservices
simplified the products, management
and markets we operate within and our
of risk & corporate governance
tolerance to risk.
If we can show that we develop good, innovative
ideas within those bounds and that our people
are always working on the best of those
available choices, we can claim appropriate use
of shareholders’ funds


Risk #1 Are we creating the right ideas?
Pool
of
Ideas

Biz
Case
Dev

Requirements
Analysis

Ready
for
Engineering

∞

24 - 48

12 - 24

4 - 12

W

Q

X

ZS

R

Y

T
AA
U

K

L

Q
R
S

FT

J

I
U1 U

Committed

4

Development

Testing

3

3

Ongoing

K
L
J
F
I
D

Ideas should reflect
opportunities to
exploit
& be classified by the
business risks they
Commitment point
address

Done

Verification

Risk #2 What to Pull Next?
Pool
of
Ideas

Biz
Case
Dev

Requirements
Analysis

Ready
for
Engineering

∞

24 - 48

12 - 24

4 - 12

Committed

4

Development

Testing

3

3

Ongoing

Done

Verification Acceptance
I have 4

options, which
one should I
Replenishing the system is an act of commitment
K
choose?
J
– selecting items for delivery – for conversion
L
from options into real value.
Pull
Pull Selection is choosing from immediate
Pull
I
options – ideally dynamic selection of the item
with the most immediate risk attached to it by a
D
suitably skilled F
member of the team
Replenishment

Pull
Selection

Commitment point

Risks & Qualitative Assessment


A Lean approach to alignment with business
risks uses Qualitative Assessment
But how do we determine the risks in
We need a work item that we must manage?
a fast, cheap, accurate, consensus

forming approach to risk assessment. We need
Lean Risk Assessment!

The answer is to use a set of qualitative
methods to assess different dimensions of risk
such as urgency


Sketch market payoff function
Room nights
sold per day

Cost of delay for an online Easter holiday marketing
promotion is difference in integral between the two curves

Estimated additional
rooms sold
Cost of delay
Actual rooms sold

time
When we need it


When it arrived

impact

Cost of Delay based on Market Payoff
Sketches
Treat as a Standard Class item
Total cost
of delay

time
Cost of delay function for an online Easter holiday
marketing campaign delayed by 1 month from mid-January
(based on diff of 2 integrals on previous slide)

impact

impact

Establish urgency by qualitative
matching of cost of delay sketches

time

impact

impact

time

time

time

Intangible – cost of delay may be
significant but is not incurred until much
later; important but not urgent

impact

time

Fixed date – cost of delay goes up
significantly after deadline; Start early
enough & dynamically prioritize to insure
on-time delivery
Standard - cost of delay is shallow but
accelerates before leveling out; provide a
reasonable lead-time expectation

impact

impact

time

Expedite – critical and immediate cost of
delay; can exceed kanban limits (bumps
other work)

time

impact

Cost of Delay has a 2nd Dimension
Working capital

impact

time
Working capital

impact

time

Extinction Level Event – a short delay will
completely deplete the working capital of
the business

Major Capital – the cost of delay is such
that a major initiative or project will be
lost from next year’s portfolio or
additional capital will need to be raised
to fund it
Discretionary Spending – departmental
budgets may be cut as a result or our
business misses its profit forecasts

impact

time

?
time


Intangible – delay causes
embarrassment, loss of political
capital, affects brand
equity, mindshare, customer confidence, etc

Shelf-Life Risk
Short
(days, weeks,
months)

Known
Expiry
Date,
Seasonal
(fixed window
of
opportunity)

Medium
(months, quarters,
1-2 years)

Long
(years, decades)


Fashion
Craze
Fad

Shelf-Life Risk
Many

High

High

Schedule Risk

(days, weeks,
months)

Innovation

Number of Options

Short

Known
Expiry
Date,
Seasonal
(fixed window
of
opportunity)

Medium
(months, quarters,
1-2 years)

Long
(years, decades)

Few

Low

Low


Fashion
Craze
Fad

Shelf-Life Risk
Schedule Risk
Low

High

High

Many

(months,
quarters,
1-2 years)

Number of Options

(window of
opportunity)

Medium

Fashion
Craze
Fad

Innovation

Known
Expiry
Date,
Seasonal

Differentiator

(days, weeks,
months)

Spoiler/Follower

Short

Low

Low

Few

Long
(years,
decades)


Low
If we are market leading our
innovations are less time
critical

Risk is a multi-dimensional problem
So understanding cost of delay
Yes, however, it isn’t always relevant! Cost of
enables us to know what to pull
delay attaches to a deliverable item. What if
next?
that item is large? Whole projects, minimum
marketable features (MMFs) or minimum viable
products (MVPs) consist of many smaller items.
We need to understand the risks in those
smaller items too, if we are to know how to
schedule work, replenish our system and make
pull decisions wisely


Market Risk of Change

Profits
Market Share
etc

Start
Late

Differentiators
Spoilers
Regulatory
Changes

Cost Reducers

Scheduling

Potentia
l Value

Highly
likely
to
change

Market Risk

Build
(as rapidly as
possible)

Table Stakes
Buy (COTS)
Rent (SaaS)

Highly
unlikely
to change

Start
Early

Product Lifecycle Risk
High

Not well understood
High demand for innovation &
experimentation

Low

Major
Growth
Market

Investment

Growth
Potentia
l

Product Risk

Innovative/New

Cash Cow
Low


Well understood
Low demand for
innovation

Low

High

Risk is a multi-dimensional contextual
problem
These are just useful examples!
We must develop a set of
We can easily envisage other risk dimensions risk
such as technical risk,that work in context for
taxonomies vendor dependency
risk, organizational maturity riskbusiness.
a specific and so forth.
It may be necessary to run a workshop with
stakeholders to explore and expose the real
business risks requiring management


A middle-ground in effective Risk
Management

Qualitative Taxonomies
2 -> 6 categories
Cheap
Fast
We can easily envisage other risk dimensions
Accurate
such as technical risk, vendor dependency risk,
Consensus
organizational maturity risk and so forth.
Managed Risk
It may be necessary to run a workshop with
stakeholders to explore and expose the real
business risks requiring management

Homogenous
Cheap
Fast
High Risk


Heterogeneous
Expensive
Time Consuming
Fake Precision?
May still be
High Risk

Visualize Risks to provide Scheduling
Information
Outside:
Start Early

Market Risk
Items with the same shape carry the same risks
and should be scheduled into the kanban system
TS
at approximately the same time.
CR
It is also wise to hedge risk by
Do not
Tech Risk
Lifecycle
New
allocating prioritize items. From a whichever ones
capacityprofile pick group for
in the system of items
Spoilrisk
with the same
items of differentMidprefer most Start Late
risk profiles.Inside:
you like or
Unknown Soln
Diff Cow
Known but not us
Done it before
Commodity
Intangible
Disc
Std
Maj. Cap.

ELE
Delay Impact

FD

Expedite

Risk profile
for a work
item or
deliverable
Cost of Delay

Risk Management


Understanding our tolerance to different
risks
We need to decide what we value as a
business, our strategic
What are our expectations for position & our
predictability, business agility, profitability?
go-to-market strategies
Are our current capabilities aligned with our
expectations?
Have we a clearly stated strategic position and
set of go-to-market strategies?


Matching Shelf-Life Risk to Capability
Business Agility

Where does our
High
business currently
Short
(days, weeks,
rank on these sliders?

Frequent Short Frequent

Lead Time

Replenishment

Predictability

Are our business strategy and expectations aligned
with our currently observed capabilities?
If we plan to Medium
pursue short shelf-life
opportunities, do we have the agility and
(months,
predictability to pull it off?
quarters,
1-2 years)

Delivery

months)

Long
Low

(years,
decades)

Seldom Long

Kanban system dynamics

Seldom

Matching Cost of Delay Risk to Capability
Business Agility

If we have many fixed date requirements we
need a reasonably strong business agility
capability and a lot of predictability
Standard

Delivery

Predictability

Replenishment

High
for predictability will work. However, our
business will be constantly in a reactive mode
Fixed Date

Lead Time

Where does our
Frequent Short Frequent
Predictability
business currently
Not Applicable Expedite
If we suffer a lot of expedite demand, strong
rank on with business agility without a need
these sliders?
capability

Intangible
Low


Seldom Long

Seldom

Matching Market Risk of Change to
Capability Business Agility
Where does our
Less
Highly regulated industries requireFrequent Short Frequent
predictability
in delivery
business currently capability
Differentiators

Lead Time

Predictability

Replenishment

To pursue a strategy of innovation or fast market
following we need a high level of business agility –
fast, frequent
Spoilers delivery

Regulatory
To be innovative or Changes
fast following in a highly
More
regulated industry requires us to be both
predictable and exhibit a high level of business
Cost Reducers
agility

Delivery

rank on these sliders?

Table Stakes
Less


Seldom Long

Seldom

Understanding capability is critical to our
risk management strategy
If you cannot assess your current
delivery capability and align your
strategy and marketing plans
accordingly, then …

You are doomed
before you start!


How much risk do you want to take?
Given our current capabilities, our
desired strategic position and goWe only have capacity to do so much work. How
we allocate that capacity across different risk
to-market strategies, how much risk
dimensions will determine how aggressive we
do you want to take?
are being from a risk management perspective.

The more aggressive we are in allocating
capacity to riskier work items the less likely it
is that the outcome will match our expectations


Hedge Delivery Risk by allocating capacity
in the kanban system DeployEngineering
Ready

2
Expedite

Development
Ongoing

3

Testing

3

Done


1
P1

AB
Fixed
Date

2

E

D

MN

PB
Standard

3

F

G

GY
Intangible

3

I

DE

ment
Ready
∞

Done

Aligning with Strategic Position
or Go-to-Market Strategy
DeployEngineering
Ready

Cost
Reducer
s

3

2

3

Testing

3

Ongoing

Done


niche! Enabling early delivery for narrower
P1
markets but potentially including value
AB
DA
generating differentiating features

E

D

MN

PB
Spoilers

1

F
GY

Differenti
ators

Done

The concept of a minimum viable
∞
product (MVP) will contain the table
Market segmentation can be used to narrow the
stakes for at least given market
necessary table stakes for any 1 market niche
G
2

Table
Stakes

Development

ment
Ready

1


I

DE

Trade off growing market reach against
growing share & profit within Deploya niche
EnginCapacity allocated to Table Stakes will

ment
eering
determine how fast new niches can be Ready
Development
Testing
Ready

Cost
Reducer
s

3

developed.

3

It is important to define a MVP in
∞
Allocate more to Table Stakes to speed market
terms of table stakes and
reach/breadth.
differentiators required to enter a
G
specific market segment
Allocate more to differentiators to grow
P1
2

Table
Stakes

3

Ongoing

Done


market share or AB
profit margins
DA

2

E
Allocate D
more to spoilers to defend market
share MN
PB

Spoilers

1

F
GY

Differenti
ators

Done

1


I

DE

Hedging Investment Risk against Product
Lifecycle in a Portfolio Kanban
Horizontal position shows percentage complete
Allocation of
personnel
Total = 100%

Complete
0%

Cash Cows
10% budget

D

C

K

E

G
F


Complete
100%

B

A

Growth Markets
60% budget
Innovative/New
30% budget

Projects-in-progress

Color may indicate cost of
delay (or other risk)

H

impact

The Optimal Exercise Point
If we start too early, we forgo
the option and opportunity to do
something else that may provide
value.
If we start too late we risk
Ideal Start
incurring the cost of delay

When we
need it

Here

With a 6 in 7 chance of on-time
delivery, we can always expedite
to insure on-time delivery
85th
percentile
Commitment point


An underlying philosophy for risk
management


Some simple rules to improve risk
management
1. Establish a list of risks that are
applicable in your business domain
2. Create a qualitative taxonomy of 2 to
6 categories for each dimension of
Cost of delay, shelf-life, product adoption
risk lifecycle, market risk of change
3. Work with things that can be
All can be established as (soft*) facts. Risks
established by consensus as (soft)
associated with different classifications within
facts.risk dimensions are understood and the
these Do not speculate about the
dynamics
future! of how they might affect an outcome
are business
4. Use meaningful predictablelanguage

* Where hard facts cannot be established by measurement or
market research, a strong consensus opinion is achieved


Prediction based on qualitative risk
assessment
For example, if we load our
entire capacity with fixed
delivery date demand then it is
highly likely that some items
will be delivered late and we
will incur a (significant) cost of
delay


Allocate capacity to hedge risks
5. Our key strategy to manage risk
is to allocate capacity in
accordance with our
capability, risk tolerance and
business risks under management
6. Set kanban limits across risk
categories
7. Allow the kanban to signal what
type of risk item to pull next


Defer Commitment. Banish Backlogs
8. Defer Commitment to manage
uncertainty
When developing options upstream of the
commitment point, classify the item for each
9. The Lean concept of “Last
dimension of risk under management. at the
Responsible Moment” is
A good mixpoint of commitment –withinpoint
of options, providing choices the
each risk category is required. The more risks
of replenishment
under10. “Backlog” more options will be
management the implies committed.
required. The greater the min-max upstream
Uncommitted items are options.
kanban limits will need to be
Develop a “pool of ideas”


Abandon Prioritization. Banish Priority
11. Prioritization is waste!
Prioritization is an exercise to
schedule variable for real business
Priority is a proxya sequence of items at a
risk information.
specific point in time. Only at the
Do not point ofbehind a proxy. Enable better
mask risk commitment can a proper
assessment be made making by
governance and better decision of what to
exposing the business risks under management on
pull next. Filter options based
throughout the workflow
kanban signals. Select from
filtered subset


Abandon Formulas & Calculations
12. Do not try to give relative
weight to risk categories or
calculate a risk number using a
Without a formula calculating a priority should
be impossible!
formula
Embrace the idea that formulas and proxy
Weightings and formulas mask
variables such as “priority” have no place in real
sound risk management decisionmay lead us
risk information and making

to unbalanced, misallocated

Transparently expose business risks throughout
capacity the system risk management
and poor

decisions


Visualize Risks on the Ticket
Decorators

Title

Typically used
to indicated
technical or
skillset risks

H

Checkboxes…
risk 1
risk 2
risk 3
risk 4

SLA or
Target Date

Letter

req
complete

Color of the
ticket

Business
risk
visualizatio
n
highlighted
in green

Visualize Risks on the Board
Engineering
Ready

2
Expedite

Development
Ongoing

3

Testing

3

Done


1
P1

AB
Fixed
Date

2

E

D

MN

PB
Standard

3

F

G

GY
Intangible

3

I

DE

Deployment
Ready
∞

Done

Conclusions


Make Business Objectives Explicit

The credo, values, purpose or mission
of the business entity must be defined

Kanban enables strategic
Clearly communicate the strategic
position positions & go-to-market
& go-to-market strategies
strategies to be
transparently implemented


Qualitative Approaches are Lean
Qualitative approaches to risk
assessment are fast, cheap and drive
Stop speculating about
consensus

business value and ROI.
There is no crystal ball gazing! Riskrisks
Instead assess real
analysis is not speculative!
and design kanban systems
to manage them!


Don’t Set Yourself Up for Failure

Know your your strategic plan
If current capabilities!

&
marketing objectives are
Lead time distributions &
not aligned with your
replenishment and delivery cadence
define business agility!
current capabilities, you
many be doomed before you
start!


Kanban & Qualitative Risk Assessment
are powerful in combination
Kanban systems address variability
Fully exploit Kanbanin, and focus attention on
improving, flow!
enabled business agility to

delivery better business

Improved business agility from
Kanban is onlyoutcomesexploited
valuable if through

qualitative risk
management


Thank you!

About

David Anderson is a thought
leader in managing effective
software teams. He leads a
consulting, training and
publishing and event planning
business dedicated to
developing, promoting and
implementing sustainable
evolutionary approaches for
management of knowledge
workers.
He has 30 years experience in the high technology industry
starting with computer games in the early 1980’s. He has led
software teams delivering superior productivity and
quality using innovative agile methods at large companies
such as Sprint and Motorola.
David is the pioneer of the Kanban Method an agile and
evolutionary approach to change. His latest book is
published in June 2012, Lessons in Agile Management – On the

Road to Kanban.

David is a founder of the Lean Kanban University, a business
dedicated to assuring quality of training in Lean and Kanban
for knowledge workers throughout the world.


Acknowledgements

Donald Reinertsen directly influenced the adoption of virtual
kanban systems and the assessment of cost of delay & shelf-life as
criteria for scheduling work into a kanban system.
Chris Matts & Olav Maassen strongly influenced the concept of
options & commitments and the upstream min-max limits is based on
an example first presented by Patrick Steyaert.

I’d like to thank Mike Burrows & Janice Linden-Reed for review
comments and inputs on the content presented here.

David J Anderson
& Associates, Inc.


Appendix



Fixed Date

Intangible

Standard

Expedite

Example Distributions

Key Note - Stop Starting, Start Finishing 2013 - Aligning Creative Work with Business Risk

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