A look at how to make good economic decision in product development using Cost of Delay, understanding queues and small batches.

1. @KarimHarbott
The Economics of
Product Development
Karim Harbott - Mar 2016

2. • Enterprise Agile Coach and Trainer
• The 5th LeSS Trainer globally and 1st in the UK
• Former Head of Scaled Agile at McKinsey & Co.
• Former developer, ScrumMaster & Project Manager
• Trained Team and Executive Coach
• Years of experience in scaling Scrum in large product
groups
Karim Harbott
A Little About Me
karim@guidingagile.com
@KarimHarbott
www.guidingagile.com

3. 1. A Common Language
2. Queues
3. Batch Size
4. Prioritisation

4. A Common Language
“You may ignore economics, but economics won’t ignore you.”
Donald G. Reinertsen

5. Should we run our test department at
80% capacity with a 2 week queue or
90% capacity with a 4 week queue?

6. Should we delay delivery by 4 weeks to
include an extra feature? What about 8
weeks? Or 12?

7. We can only make trade-offs effectively
if we have an economic framework.

8. “If you only quantify one thing, quantify
cost of delay.”
Donald G. Reinertsen

9. Benefit
Cost

10. BenefitCost
Product Development Business Function

11. Queues
“In Product development, our greatest waste is not unproductive
engineers, but work items sitting idle in prices queues.”
Donald G. Reinertsen

12. What are some examples of
queues in product development?

13. How Much do Your Queues Cost You?

14. Capacity Utilisation
Queueing Time
x2
x10
M/M/1/∞ queue
50% 90% 100%0%
0
5
10
15
20
x20
Capacity utilisation = % of cycle time waiting in a queue!!
Capacity Utilisation & Queue size

15. Resource Cost
Excess Capacity
Cost
Total Cost
Delay Cost
Capacity Utilisation & Cost

16. Selectively add capacity in areas
of high variability.

17. Grow T-Shaped People

18. Queue length depends on
variability and capacity utilisation.

19. Watch the baton, not the runners.

20. Batch Size
“Don’t test the water with both feet.”
Charles de Gaul

21. What are some examples of
large batches in product
development?

22. 10 Weeks10 Weeks
Small Batches Have Many benefits

23. Probability of occurrence
£1
100%
Spend = £1
£2
10%
Saving = £0.90
£3
Saving = £0.99
1%
67% less investment for the same payoff
Cumulative investment
The Value of Fast Feedback

24. Holding Cost
Batch Size
Cost
Total Cost
Transaction Cost
Your Optimal Batch Size

25. Holding Cost
Batch Size
Cost
Total Cost
Transaction Cost
Enabling Small Batches

26. Project
funding
Large
projects
‘Phased’
projects
Detailed
project
planning
Manual
regression
testing
Complex
architecture
Reviews /
sign-offs
Manual
deployment
processes
Some Inhibiters to Small Batches

27. Prioritisation
“The key is not to prioritise what's on your schedule, but to schedule
your priorities”
Stephen Covey

28. Which job should we do first?
The 2-week job with a £10k per week CoD?
Or the 3-week job with a £12k per week CoD?

29. Scheduling is a decision to delay one job
over another.

30. If durations and costs of delay are equal, use
first in first out scheduling (FIFO) scheduling.

31. If all durations are equal, use schedule
highest cost of delay jobs first (HCDF)
scheduling.

32. If all costs of delay are equal, use schedule
shortest jobs first (SJF) scheduling.

33. If durations and costs of delay are
all different, use schedule
weighted shortest jobs first (WSJF) scheduling.

34. Project
Duration
(weeks)
Cost of
Delay (£k)
Weight =
CoD / duration
1 1 10 10
2 3 3 1
3 10 1 0.1
Weighted shortest job first
Weighted shortest job last
Cost of DelayCost of Delay
Delay cost£
1
2
£1k 3£3k
£3k
Delay cost = £7k
3
£100k
£30k 2
£30k 1 Delay cost = £160k
Weighted Shortest Job First (WSJF)

35. 9 68
7 34
5 12
ShortMediumLong
Low
Medium
High
Duration
Cost of Delay
Quick-&-Easy Estimation

36. In Summary

37. 1. Measure cost of delay, even if it is not perfect.
2. Pay attention to queues and their cost.
3. Prevent queues from building up by building in
excess capacity.
4. Drive down transaction costs to enable small
batches.
5. Limit your work-in-progress (WiP).
6. Prioritise using weighted shortest job first (WSJF).
Summary

38. 6 Myths of Product
Development
Find Out More

39. “When high-quality decentralised economic information is absent,
it is too often replaced by the mind-numbing bureaucracy of
centralised control“
Donald G. Reinertsen

41. Karim Harbott
karim@guidingagile.com
@KarimHarbott
www.guidingagile.com
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