Exploration of what Agile is from a business point of view

1. Allan Kelly
allan@allankelly.net
@allankelly.net
What is this thing
you call Agile?
and why should I care?
(I'm only the boss
around here)
Norwich Developer
Conference
February 2015

2. Allan Kelly…
 Provide advice on software
development & business strategy
 Training in Agile, Coaching,
Consulting
Author
– Xanpan: Team Centric Agile Software
Development https://leanpub.com/xanpan
– Business Patterns for Software Developers
(2012, Wiley - ISBN: 978-1119999249)
– Changing Software Development: Learning
to be Agile (2008, Wiley)

3. Disclaimer(Context, Software)
• Everything I am about say is about software,
specifically software development.
• Software is the technology that the 21st
century is built on.
• Much of what I am about to say works also in
the world outside of software.
• But I make no claims about that world.

4. Chinchillas

6. Agile is a
development
methodology
Agile is a a
business
strategy
Agile is a state of being
Agile is not waterfall
Agile

7. Agile, Agile methods & the Agile toolkit
The State of Agile (our objective)
•Quick on our feet
•Respond to change rapidly
•Deliver quickly
The Agile toolkit
•Test Driven Development, Refactoring
•Iterations, Time boxing
•Retrospectives, ....
Scrum
XP
DSDM
Kanban
... Agile Methods
Promise to create the state of Agile

8. Michael A Cusumano
Professor of Management
MIT Sloan School of Management
I can’t think of anything more
important than building an agile
company, because the world
changes so quickly and
unpredictably
[Agility] comes in different forms, but
basically it’s the ability to quickly adapt to
or even anticipate and lead change.
Agility … affects strategic thinking,
operations, technology innovation and the
ability to innovate in products, processes
and business models.

9. Agile Advantage
1. Agile increases return on investment
2. Agile reduces risk
3. Agile creates options

10. • $50,000/month costs
• $1m revenue at the end
-$200,000
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
1 2 3 4 5 6 7 8 9 10 11 12
Costs Revenue Net cashflow
Traditional
NPV = $373,654

11. • $50,000/month costs
• $90,000/month
revenue after 1st
month
-$200,000
$0
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
1 2 3 4 5 6 7 8 9 10 11 12
Costs Additional Revenue Net Cummulative revenue
Iterative
NPV = $5 million

12. Traditional Agile
(Iterative)
NPV $373,654 $5 million
IRR
(no discounting)
9% 180%
Monthly cost
(for 12 months)
$50,000 $50,000

13. NPV rockets because
Something is delivered earlier
… and something generates
revenue for a longer period

14. Agile reduces risk by
decomposing a large thing into
many small pieces
Project A: Risk = 30% Value at risk = £1m
Therefore risk weighted value = £300,000
Prj B: Risk = 15%
Value @ risk = £½m
Therefore … = £75,000
Prj C: Risk = 15%
Value @risk = £½m
Therefore … = £75,000
E: Risk = 6%
@risk = £200k
Therefore = £12k
F: Risk = 6%
@risk = £200k
Therefore = £12k
G: Risk = 6%
@risk = £200k
Therefore = £12k
H: Risk = 6%
@risk = £200k
Therefore = £12k
I: Risk = 6%
@risk = £200k
Therefore = £12k

15. Risk reduction
1 big delivery
$0
$50,000
$100,000
$150,000
$200,000
$250,000
$300,000
$350,000
1 2 4 6 8 10 12
Riskperdelivery
Number of deliveries
Total value at risk Risk weighted per delivery

16. But wait! It does more
• Incremental deliveries allow for feedback
– Market testing
• Feedback allows for course correction
– Increases chance of success
• Feedback allows for early cancellation
– Reduced costs of failure

17. Fail Fast
Fail Cheap
(Salvage)

18. Diseconomies of scale
Milk is cheapest in BIG
cartons
And small cartons of
software reduce risk
Software is cheapest in
lots of small cartons

19. What do you
want?
• Fast – quick to market, quick to respond, …
• Responsive – to customers, …
• Effective – economical, high utilization, …
• Quality products
• Satisfied customers
What do you really
really want?

20. Agile might have a tool for that

21. Warning #1: Contradictions
Some of what you want is contradictory
Predictability <-> Flexibility
High utilization <-> Short lead time
Low cost through low quality

22. Warning #2: You too
An Agile organization needs leadership with an
agile mindset
You can’t delegate this
You have to live it

23. Leader’s Agile state of mind
Speed is itself an advantage
… being fast isn't about just working long hours
… speed must be sustainable
… speed doesn’t come from dropping quality

24. Leader’s Agile state of mind
Diseconomies of scale
Less is more
Get good at working in the small
Keep it small

25. Leader’s Agile state of mind
Experiment
… be tolerant of failure
Fail fast, fail cheap
… salvage

26. Why is your organization effective?
What is its strategic modus operandi?
Is that strategy compatible with Agile?
'Large organizations cannot be
versatile. A large organization is
effective through its mass rather
than through its Agility.’
Peter Drucker
1968

27. Allan Kelly
allan@softwarestrategy.co.uk
http://www.softwarestrategy.co.uk
Twitter: @allankellynet
Questions?

28. Traditional
MonthCosts Revenue Net cash flow
1 $50,000 -$50,000
2 $50,000 -$50,000
3 $50,000 -$50,000
4 $50,000 -$50,000
5 $50,000 -$50,000
6 $50,000 -$50,000
7 $50,000 -$50,000
8 $50,000 -$50,000
9 $50,000 -$50,000
10 $50,000 -$50,000
11 $50,000 -$50,000
12 $50,000 $1,000,000 $950,000
Total: $600,000 $1,000,000
Simple net cash flow: $400,000
Net present value (4% discount rate): $373,654
Internal Rate Return (no discount) = 9%

29. Iterative
Simple net cash flow: $5,350,000
Net present value (4% discount rate): $5,193,772
Internal Rate Return (no discount) = 180%
Costs
Additional
Revenue
Cumulative
revenue Net
$50,000 -$50,000
$50,000 $90,000 $90,000 $40,000
$50,000 $90,000 $180,000 $130,000
$50,000 $90,000 $270,000 $220,000
$50,000 $90,000 $360,000 $310,000
$50,000 $90,000 $450,000 $400,000
$50,000 $90,000 $540,000 $490,000
$50,000 $90,000 $630,000 $580,000
$50,000 $90,000 $720,000 $670,000
$50,000 $90,000 $810,000 $760,000
$50,000 $90,000 $900,000 $850,000
$50,000 $100,000 $1,000,000 $950,000

30. Deliveries
Value per
delivery
% Risk per
delivery
Weighted
risk per
delivery
Total value
at risk
1 $1,000,000 30.00% $300,000 $300,000
2 $500,000 15.00% $75,000 $150,000
4 $250,000 7.50% $18,750 $75,000
6 $166,667 5.00% $8,333 $50,000
8 $125,000 3.75% $4,688 $37,500
10 $100,000 3.00% $3,000 $30,000
12 $83,333 2.50% $2,083 $25,000

31. Options
Better still…
When technology deliver early
With business involvement
You can change your mind
Prioritize high value / needed soon
Postpone (cancel) low value