Note: I first published this post on Linkedin in July 2015. – Col.
I’ve often seen organisations start the transformation to become agile and to focus on a model of accelerated delivery of value. Starting small, a pilot team learns this new way of working and (in a limited way) the organisation sees the benefits of accelerated delivery.
The urge then is to scale, with multiple teams all aiming to replicate the early successes. This can be challenging. At a portfolio level a backlog of ideas for products and services will exist and potentially will grow.
No organisation has unlimited capacity – all have limits to the amount of work in progress. Therefore, it’s important to prioritise this portfolio backlog of potential products and services, just like we do for features and capabilities in a team backlog.
Let’s recap on some fundamentals that organisations need to be mindful of if they are focusing on accelerated delivery:
- Don’t do things that add no value
- Focus on finishing the highest value things first
- Make decisions based on metrics
- Accept that metrics improve over time – start with what you have
- Use feedback loops and make them short
So, the high-level portfolio prioritisation needs of an organisation might be expressed like this:
- The highest value things are prioritised for completion
- Resources are directed to the place where they will deliver the most value for the company
- We can measure the relative value of work being delivered across teams
- Senior leaders can make informed decisions on when and where to redeploy people and money to focus on the highest value waiting to be delivered
How can an organisation meet those needs? We can create simple models to:
- Forecast the potential cost/value ratio of delivering a change
- Compare the relative value of things not yet started
- Compare the actual return on investment against the forecast
- Make more informed decisions on what to start next, what to finish first and what to stop now
Types of Work
Fundamentally, work can have value in three ways:
- Work that mitigates risk to the company
- Work that delivers cash value to the company
- Work that enables delivery of type 1 or 2 work
We can create models for each type of work that help us estimate in advance:
- How much it will cost to complete the work
- How much value there is in the work
- When the value will be delivered to the company
At a simple level, the different types of value models have different profiles.
Risk Value Products and Services
A Risk Value Product is one where the majority of the value delivered by that product is by mitigating risk. Example risks might be legal non-compliance, health and safety of staff or reputational damage to the company.
The profile for a Risk Value product or service might look like this
Sample Profile for a Risk Value Product or Service
Enabler Value Products and Services
Enabler Value Products deliver most of their value by allowing other Products and Services already in the Portfolio to be delivered. An example might be to select a 4G network provider across the enterprise, enabling a range of mobile products for staff to be developed, that in themselves deliver cash value or mitigate risk.
The profile for an Enabler Value product or service might look like this
Sample Profile for an Enabler Value Product or Service
Cash Value Products and Services
Cash Value Products and Services deliver most of their value in direct financial terms, such as cost savings or increased revenue. I’ll go into a little more detail on Cash Value Products and Services.
We need to consider how long we will count the value realised before we say, “This isn’t a new thing any more, it’s just how we do business” otherwise we’d be measuring the cash value of a new product or service indefinitely, which would be unrealistic. So we might say, “Two (or some other period, depending on the product) years after the delivery starts, we won’t measure the value realised any more”. This is a very important factor in assessing the ROI on a piece of work.
Now let’s compare two profiles for the delivery of the same Cash Value Product. One Profile will reflect a traditional, “Waterfall” approach and the other will reflect an incremental, iterative agile delivery approach.
Approach 1 uses a traditional delivery model:
- Small team on 1 year delivery timescale
- Phases of design, development and test
- Big bang release near the end
- Value delivered snapshot after 2 years from work starting
The Profile looks like this.
Sample Profile for Approach 1 – Waterfall
Now let’s consider the delivery of the same Product using an agile, iterative, incremental approach. This is Approach 2.
- Small team on 1 year timescale
- Cross-functional team
- Small incremental releases every month
- Value delivered snapshot after 2 years from work starting
The Profile for Approach 2 looks like this
Sample Profile for Approach 2 – Agile
If we do a comparison of the key metrics for the two different approaches, we see some important differences.
Approach 1 – Traditional
- Cost of team = £316k
- 1st value delivered = M11
- Breakeven = M16
- Net value realised 2 years after work started = £424k
- ROI after 2 years = 133%
Approach 2 – Agile
- Cost of team =£316k
- 1st Value delivered = M1
- Breakeven = M10
- Net value realised 2 years after work started = £722k
- ROI after 2 years = 227%
However, it’s important to note that the improved ROI in Approach 2 is only realised if value is delivered early and often.
Metrics needed for models
To develop these models, we need to estimate some key metrics about the work and the product or service being considered:
- The size and composition of the team needed to deliver it
- The duration we estimate it will take to deliver it with that team
- The frequency and incremental value of each release
- The time when we will no longer measure the value of the product
Preliminary work needs to be done before that estimation can take place
The use of Vision Boards and Product Roadmaps will provide important pointers to the overall business value model and prioritisation of features and capabilities.Roman Pichler’s excellent work in this area will provide advice and guidance (as well as tools) to help define the overall proposition for a product or service. This initial definition will give you enough to start assessing the estimation metrics I’ve described above and begin creating a profile.
Once a profile has been created for a proposed product or service, it can be compared with others waiting in the portfolio backlog.
Senior leaders can then rationally assess the relative value of work not yet started, and fundamentally decide one of three things for each profile:
- Don’t do it – the value proposition isn’t strong enough
- Do next – it’s the most valuable thing in the portfolio backlog
- Do later – when it becomes the most valuable thing in the portfolio backlog
Comparing Profiles to aid prioritisation of the portfolio – Product A delivers better ROI than Product B
Once work gets underway, the initial baseline profile (that informed the investment decision and the prioritisation of starting the work) can be compared to the actual value profile that emerges as things progress. This allows senior leaders to make measured decisions on whether to continue the work on a Product or Service or to terminate it (because it is not delivering the value expected or because enough value has already been realised).
A Product not meeting expectations of value – Fewer releases and higher delivery costs than forecast
Apples and oranges – comparing Risk, Enabler and Cash Value profiles for prioritisation
A portfolio will inevitably comprise of a mix of the three different types of products. Comparing one Cash Value profile against another is relatively straightforward, as described above. But how can you assess Risk profiles against one another, Enabler profiles against one another, and a mix of all three?
Comparing Risk Value products
You could use a simple matrix with a scoring system to rank the most valuable Risk Products against one another. A sample is below.
A simple scoring matrix of categories of risk mitigated by different products
You may also be able to use existing risk assessment techniques to quantify a financial value of mitigating a risk – a simplistic example could be
“There is a 20% risk of us incurring £500,000 of fines within one year if we do nothing”.
Reducing that risk to 5% within one year might be worth say, £75,000. If the cost of the product to mitigate that risk is £100,000, you may decide to live with the risk or you may not. But you have applied some structured thinking to assessing the value of delivering the product, and you can compare the relative value to other items in the portfolio.
Comparing Enabler Products
Enabler products might be quantified by applying a percentage of the value released by the Risk and/or Cash Value products that are blocked until the enabler is in place.
If an Enabler product will cost £100,000 to deliver, unblocking one Cash Value Product in the portfolio with a projected Net Cash Value of £90,000 over its measured value period, you probably won’t do it.
But if the Enabler Product unblocks that £90,000 Net Cash Value Product AND a Risk Product that will have a net mitigation value of £30,000, it starts to make sense to deliver the enabler.
Again, the metrics won’t be perfect, but it might well be better than what you have in place right now, and it gives you an evolving toolset to compare the different types of Products and Services in the portfolio.
It needs to work for your circumstances
There is no simple once size fits all approach to this. Your organisation will have to determine the best approach to apply. Then try it, review it, and adapt it periodically to get it better.
When to review your portfolio profiles
How often you should review new profiles looking to enter the portfolio backlog and benchmark “in progress” Product work on actual value realised will vary from organisation to organisation.
I’d suggest perhaps every one to three months. More than one review a month will create too much reporting overhead.
Waiting more than three months between reviews risks waste, because of a lack of feedback, and a product that potentially delivers enormous value could languish in the shadows for too long.
Having read this far, I commend your perseverance. I have covered quite a range of topics. If you only take away one piece of information from this article, I suggest it should be the following points:
- Organisations can’t do everything at once
- The portfolio must be prioritised on value
- Metrics should drive prioritisation
- Metrics should check if reality meets expectations
- If a Product is failing to meet expectations, consider stopping the work and redeploying people and money on to high value work not yet finished
If you lead an organisation, you have a portfolio backlog. It just may not look like one yet. In amongst the dozens of ideas and concepts, there are quite possibly one or two that will deliver more value than all of the others combined. This approach for assessing and prioritising the portfolio backlog will help you identify those gems, and weed out the lame ducks.
The foundations to this idea are not new. I’ve drawn upon many concepts such as the Cost of Delay, Real Options and Black Swan Theory amongst others. I don’t claim it to be perfect either – far from it.
But if it has delivered value to you in thinking about how to prioritise and track the delivery of products and services based on value, and it has stimulated you to talk to colleagues about how you might go about it at a portfolio level, I’m happy.
I’d like to thank the colleagues I’ve bounced these ideas off over the last few months, in particular Kenny Grant of GrantWorks Blue, a trusted friend and excellent coach, and Alan Simmonds of Preterlex, a terrific man with enormous experience and a very gifted mind.