This document provides an overview of financial prioritization techniques for product owners. It discusses calculating sources of return like new revenue, retained revenue, and operational efficiencies. It also covers costs and financial metrics like net present value, internal rate of return, payback period, and discounted payback period. The document then proposes using Agile metrics like velocity, story points completed, and actual costs to calculate cost performance index and schedule performance index for prioritization and forecasts. Examples of scoreboards, velocity charts, and release burndowns are also presented.

1. Product Owner Support Financial Prioritization Pierre E. NEIS

2. Agenda Objectives Reminder Sources of Return Prioritization Examples PO Training - Financial Prioritization 2

3. Objectives Get enough financial information to help prioritization Financial information are: Wins Losts Return of Investment Focus to value creation and waste elimination PO Training - Financial Prioritization 3

4. Reminder the Product Iceberg Stories, Epics & Themes PO Training - Financial Prioritization 4

5. the Product Iceberg 5 Priority Sprint Release Future Releases PO Workshop - The Product Backlog

6. Stories, Epics & Themes 6 Theme User Story A collection of related User stories A description of desired functionality told from the perspective of the user or customer. Epic A large user story PO Training - Financial Prioritization

7. Sources of Return Objective is to assess each themes to make prioritization decisions Outputs: Discounted Payback, Return of Investment (ROI), Net Present Value (NPV), Costs Inputs: Sources of Return PO Training - Financial Prioritization 7

8. Sources of Return New Revenue Incremental revenue Retained revenue Operational Efficiencies Development Costs Costs Net Present Value (NPV) Present Value Internal Rate of Return (ROI) Payback Period Discounted Payback Period (DPP) Comparing Returns PO Training - Financial Prioritization 8

10. Evaluate the average purchase time scope (when you get the new client)

11. Estimate revenue (consider average revenue of Buyer’s Persona)PO Training - Financial Prioritization 9

12. Incremental revenue PO Training - Financial Prioritization 10

13. Retained revenue PO Training - Financial Prioritization 11

14. Operational Efficiencies Growth anticipation Waste elimination Automation of time-lost necessarily activities Communication enforcement between Services Reduced employee turnover New comers training Any time sensitive process Multiple processes alignment Accuracy improvement Rework reduction PO Training - Financial Prioritization 12

15. Development Costs PO Training - Financial Prioritization 13 example Source: Mike Cohn ,Agile Estimating and Planning (p.100)

16. Costs PO Training - Financial Prioritization 14 example Using the last example Cost per story point (or ideal day) = Adjusted Cost per Iteration / expected Velocity In the example, average velocity is 20: CPSP = 13.500/20 = 675 Source: Mike Cohn ,Agile Estimating and Planning (p.100)

17. Net Present Value (NPV) NPV = sum of the present values of each item in a stream of future values NPV(i) = ΣFt (1+i)-t i = interest rate Ft = net cash flow in period t (1+i)-t = Present Value Factor = amount of future discounted cash flow PO Training - Financial Prioritization 15 n t=0

18. Present Value NET PRESENT VALUE = ΣPresent Value of all themes Advantage: easy to calculate, easy to understand Disadvantage: misleading by comparing different cash flow streams PO Training - Financial Prioritization 16

19. Internal Rate of Return (ROI) Internal Rate of Return (IRR) is defined as the interest rate at witch the NPV is equal to 0 PV(i*) = ΣFt (1+i)-t = 0 PO Training - Financial Prioritization 17 n t=0

20. Payback Period NPV gives a Present Value amount IRR gives an Interest Rate Payback Period is the amount of time required to earn back the initial investment: Σ (all Net cash flowssincestart) PO Training - Financial Prioritization 18

21. Discounted Payback Period (DPP) PO Training - Financial Prioritization 19 Discounted Cash Flow (DCF) = Present Value DPP = Σ (DCFssincestart)

22. Comparing Returns PO Training - Financial Prioritization 20 Taking Mike Cohn’s example Financial analysis of themes helps in prioritization… but here another approach

23. A simpler way to Prioritization The Metrics within Scrum What we want? Using the AgileEVM approach We want mesure Calculation (example) Inputs Calculation (example) New Metrics: CPI New Metrics: SPI AgileEVM: Summary Conclusion AgileEVM PO Training - Financial Prioritization 21

24. A simpler way to Prioritization Objectives: We want to mesure the Outcome not the Ouputs Business Value Process Prioritization to maximize Business Value Efficient shipping to minimize costs Redistribution of resources when costs are too high or profits too low. PO Training - Financial Prioritization 22

25. The Metrics within Scrum PO Training - Financial Prioritization 23 The Product Owner is concerned with two key performance indicators : Backlog Size Velocity Product Backlog = list of project requirements Velocity = amount of backlog that the team can deliver in a Sprint / Iteration

26. The Metrics within Scrum PO Training - Financial Prioritization 24

27. What we want? Integrating Cost and Schedule Performance Financial forecasts based on actual cost : Consumed Costs, Consuming Rate, Time Allocation, etc. Unlike the velocity, the Actual Cost is the cumulative Team Costs PO Training - Financial Prioritization 25

28. Using the AgileEVM approach PO Training - Financial Prioritization 26 Release dates are based on average velocity (storypoints)= estimate at complete (euros) Assumption: the ratio(story points completed)/(total story points in a release) is a good mesure for Actual Percent Complete

29. We want to measure AC –Actual Cost PV –Planned Value EV –Earned Value BAC –Budget at Complete EAC –Estimate at Complete CPI –Cost Performance Index SPI –Schedule Performance Index PO Training - Financial Prioritization 27

30. Calculation (example) PO Training - Financial Prioritization 28

31. Calculation PO Training - Financial Prioritization 29

32. Calculation PO Training - Financial Prioritization 30

33. Inputs Start Date Budget At Complete Planned Sprints Sprint Lengths Planned Release Story Points + Variables Story Points Completed Story Points Added Actual Cost Current Sprint PO Training - Financial Prioritization 31

34. Calculation (example) PO Training - Financial Prioritization 32 Total Project Budget = 175.000 EPC= 25% PV = 175.000 x 25% = 43.750 APC = 40/200 = 20% completed EV = 175.000 x 20% = 35.000 EV = 35.000 ; PV = 43.750 EV < PV  Project in trouble

35. New Metrics: CPI Cost Performance Index (CPI) gives measure of efficiency: CPI = EV/AC In the example, CPI = 35.000/65.000 = 0.53 Estimate at completed = Total Budget / CPI Here, EAC = 175.000 / 0.53 = 330.188  we predict to be 47% over budget PO Training - Financial Prioritization 33

36. New Metrics: SPI Sheduled Performance Index (SPI), compares EV with PV: SPI = EV/PV In the example, CPI = 35.000/43.750 = 0.80 Estimate Completion = Planned Iteration/ SPI Here, planned Iteration is 4 Est. Compl. = 4 / 0.80 = 5 iterations PO Training - Financial Prioritization 34

37. AgileEVM: Summary 35 PO Training - Financial Prioritization

38. Conclusion Using simple Agile Metrics provides objective analysis to share with teams, management and customers. The early warnings of AgileEVM validates changes to release plans and provides business with the opportunity to make priority trade-off decisions early in the project lifecycle. Source: Tamara Sulaiman (InfoQ), Hubert Smits (rally SW) PO Training - Financial Prioritization 36

39. Examples Scoreboard Velocity Release Burndown SPI (schedule performance index) & CPI (cost performance index) 37 PO Training - Financial Prioritization

40. Scoreboard PI: Planned iteration IL: iteration length PRSP: initial Story Points BAC: budget as completed Average velocity from start Actual % completed Cumulative story points n/PI SPA: Story Points added This gives us the ability to give a complex burndown chart that shows scope growth and velocty BAC - cumEV n: iteration Number (BAC - cumEV)/cumCPI cumulative story point completed for n sprints SPC: Story Points completed 38 PO Training - Financial Prioritization

41. Velocity 39 PO Training - Financial Prioritization

42. Release Burndown 40 PO Training - Financial Prioritization

43. SPI (schedule performance index) & CPI (cost performance index) 41 PO Training - Financial Prioritization