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Lean/Agile/Kanban – the Economics of Speed
Colm O’hEocha
AgileInnova>on
Slow Down to Speed Up
1 Copyright © 2012 AgileInnova>on
London Lean Kanban Day 16th March 2013
What is said… …What is heard
Copyright © 2012 AgileInnova>on 2
What is said… …What is heard
Hey Boss – this Lean stuff sounds great! Lean – sounds like it could help cut costs
Its all about ‘Con>nuous Improvement’ Oh-‐Oh – I think he means ‘don’t expect any improvements soon’…
…and Respect for People …code for ‘team want to get paid more’…
Limi>ng WIP and U>lisa>on… ..and they want to do less work…
…visualizing the work,… …now that could be embarrassing…
…and itera>ons of learning …they want permission to mess up!
Two Ways to Reduce Waste
Batch Up (Economies of Scale) • Big
• Features • Releases • Projects • Commitments
• Efficiency • Maximise U>lisa>on • Increase Produc>vity • Reduce Costs
• Local Op>misa>on
Speed Up (Economies of Speed) • Small
• Features • Releases • Investments • Risks
• Efficacy • Maximise Feedback • Improve Outcomes • Reduce Cycle Time
• Global Op>misa>on 3
Copyright © 2012 AgileInnova>on
Sample Project
Copyright © 2012 AgileInnova>on
Commercial So`ware Product – API Access Module for Travel Booking System 8 people @ €110K per year, 6 months development
Return of €210K Immediately on Delivery (month 6)
Monthly Transac>on Revenue builds from €5K to€31K – growth ends month 14 Maintenance & Support: 20% of transac>on revenue
Cash Discount Rate: 6% p.a. 4
Travel Booking Backend System
Airline Mobile Site
Airline Booking Partners
Airline Internal Systems
Vendor Supplied UI API
Investment Period
Payback Period
Profit Period
Investment Curve
Max. Cash Consumed
Self-‐Funding Point
Break-‐Even Point
Cash
Time
5 Copyright © 2012 AgileInnova>on
Cumulated Profits
NPV: Net Present Value – amount we would gain/loose (in todays money) by inves?ng in the project
Max Cash Invested
Pay-‐back Month
RoI 3 yrs
NPV
Single Release
Sample Project
Copyright © 2012 AgileInnova>on 6
Team%Size 9
Average%Fully%Loaded%Salary 110000
Annual%Cost%of%Capital 6%
Monthly%rate%of%transaction%growth%(8%months) 30%
Maintenance%Costs%%%of%Transaction%Revenue 10%
Year
Month 1 2 3 4 5 6 7 8 9 10 11 12
CostsDevelopment%Costs €82,500 €82,500 €82,500 €82,500 €82,500 €82,500
Maintenance/Support%Costs €0 €0 €0 €500 €650 €1,245 €1,719 €2,234 €2,904 €3,776 €4,908 €6,381
Adjustment%for%Reduced%Variability%T%50%%Less%Change%Mgt
Adjt%for%Reduced%Demand%T%30%%Dev%and%Maintenance%Costs T€24,750 T€24,750 T€24,750 T€24,900 T€24,945 T€25,124 T€516 T€670 T€871 T€1,133 T€1,472 T€1,914
Adjustment%for%Reduced%Risk%T%50%%Chance%Technology%Failure €0
Adjustment%for%Better%Quality%T%10%%less%development%cost T€8,250 T€8,250 T€8,250 T€8,250 T€8,250 T€8,250
Adjustment%for%Less%Overhead%T%5%%Development%Costs%Saved
Costs%Incurred €49,500 €49,500 €49,500 €49,850 €49,955 €50,372 €1,203 €1,564 €2,033 €2,643 €3,436 €4,466
Cumulative,Costs,Incurred €49,500 €99,000 €148,500 €198,350 €248,305 €298,677 €299,879 €301,443 €303,476 €306,119 €309,555 €314,021Costs%Incurred €49,254 €49,009 €48,765 €48,865 €48,725 €48,886 €1,162 €1,503 €1,944 €2,514 €3,252 €4,207Cumulative,Costs,Incurred €49,254 €98,262 €147,027 €195,893 €244,617 €293,504 €294,665 €296,168 €298,112 €300,626 €303,878 €308,085
BenefitsRevenue%on%Feature%Delivery €100,000 €80,000 €30,000
Revenue%on%Transaction%fees €5,000 €6,500 €12,450 €17,185 €22,341 €29,043 €37,755 €49,082 €63,807
Adjustment%for%Prioritised%Delivery
Adjustment%for%Innovation%10%%more%Benefit
Adjustment%for%Motivation%T%10%%more%Value%by%the%Team
Benefits%Realised €0 €0 €0 €105,000 €6,500 €92,450 €47,185 €22,341 €29,043 €37,755 €49,082 €63,807
Cumulative,Benefits,Realised €0 €0 €0 €105,000 €111,500 €203,950 €251,135 €273,476 €302,518 €340,274 €389,356 €453,162
Benefits%Realised €0 €0 €0 €102,926 €6,340 €89,724 €45,566 €21,467 €27,768 €35,919 €46,462 €60,100
Cumulative,Benefits,Realised €0 €0 €0 €102,926 €109,266 €198,990 €244,556 €266,023 €293,791 €329,709 €376,171 €436,271
Net%Benefit%Flow T€49,500 T€49,500 T€49,500 €55,150 T€43,455 €42,079 €45,982 €20,777 €27,010 €35,113 €45,646 €59,340
Cumulative%Net%Benefit%Flow T€49,500 T€99,000 T€148,500 T€93,350 T€136,805 T€94,727 T€48,744 T€27,968 T€958 €34,154 €79,801 €139,141
Net%Benefit%Flow%(Discounted%Cash%Flow) T€49,254 T€49,009 T€48,765 €54,061 T€42,385 €40,838 €44,404 €19,964 €25,824 €33,404 €43,209 €55,893
Cumulative%Net%Benefit%Flow%(Rolling%NPV) T€49,254 T€98,262 T€147,027 T€92,967 T€135,351 T€94,513 T€50,109 T€30,145 T€4,321 €29,083 €72,293 €128,186
Max%Invested T€148,500
Rolling%RoI T100% T100% T100% T63% T92% T64% T33% T19% T1% 23% 54% 94%
10 11 12
Payback%Month 10
3%Year%RoI 0%
NPV €0
%Discounted
1
Not%Discounted
Discounted
Not%Discounted
Discounted
Not%Discounted
-‐€600,000
-‐€400,000
-‐€200,000
€0
€200,000
€400,000
€600,000
€800,000
€1,000,000
€1,200,000
1 7 13 19 25 31
Single Release
Sample Project -‐ the Business Case
Copyright © 2012 AgileInnova>on
Self-‐Funding Point
Break-‐Even Point
Max Cash Invested
7
Max Cash Invested
Pay-‐back Month
RoI 3 yrs
NPV
Plan-‐Driven 440K 20 95% 347K
FP/FS Single Delivery a`er 6 months
Copyright © 2012 AgileInnova>on 8
Earlier Benefit Accumula>on
REDUCE COST
INCREASE BENEFIT
Improved Quality
Improved Business Agility
More Mo>va>on
Reduced Risk
More Innova>on
Less Management Overhead
Less ‘Just In Case’ Demand
ECONOMIES OF SPEED
€ Earlier Benefit Accumula>on €
€ Improved Quality €
Reduced Risk
€ Less ‘Just In Case’ Demand €
€0
€10,000
€20,000
€30,000
€40,000
€50,000
€60,000
1 7 13 19 25 31
Extra Sales Original Xac>on Revenue
Advantage of Early Delivery 14 month Product Growth Phase
Copyright © 2012 AgileInnova>on
GeQng to Market 2 months
Earlier ≈ +€0.7M (87%)
€ Earlier Benefit Accumula>on €
Sample Project
Copyright © 2012 AgileInnova>on 10
€ Earlier Benefit Accumula>on € Max Cash Invested
Pay-‐back Month
RoI 3 yrs
NPV
Plan-‐Driven 440K 20 95% 347K
Increased Sales
307K 17 286% 753K
-‐€600,000
-‐€400,000
-‐€200,000
€0
€200,000
€400,000
€600,000
€800,000
€1,000,000
€1,200,000
1 7 13 19 25 31
Single Delivery Extra Sales
Earlier Delivery to Market –Months 4, 5 and 6; Stage
Payments & Increased Transac>on Revenue
Generate Value 36% Rarely used
19%
Never used 45%
Standish Group CHAOS Study
11 Copyright © 2012 AgileInnova>on
€ Less ‘Just In Case’ Demand €
12 Copyright © 2012 AgileInnova>on
“Build an API that exposes the booking engine func>onality to other Applica>ons”
€ Less ‘Just In Case’ Demand €
Just In Case
Just In Time
Sample Project
13 Copyright © 2012 AgileInnova>on
Max Cash Invested
Pay-‐back Month
RoI 3 yrs
NPV
Plan-‐Driven 440K 20 95% 347K
Increased Sales
307K 17 286% 753K
Less Demand 182K 13 609% 977K
-‐€600,000
-‐€400,000
-‐€200,000
€0
€200,000
€400,000
€600,000
€800,000
€1,000,000
€1,200,000
1 7 13 19 25 31
Single Delivery Less Demand Previous
Fewer API Features than Planned were built as they weren’t really necessary -‐ saves Dev Team 30%
costs
€ Less ‘Just In Case’ Demand €
14 Copyright © 2012 AgileInnova>on
Design Development Integra>on Deployment Produc>on
No of Code Changes
System
Interac>on
s
0
10
20
30
40
50
60
70
1 2 3 4 5 6
Debug Complexity
€ Improved Quality €
• Conanuous Tesang • Fast Break-‐Fix Cycle • No building on Bad Code
Sample Project
15 Copyright © 2012 AgileInnova>on
€ Improved Quality € Max Cash Invested
Pay-‐back Month
RoI 3 yrs
NPV
Plan-‐Driven 440K 20 95% 347K
Increased Sales
307K 17 286% 753K
Less Demand 182K 13 609% 977K
Improved Quality
148K 12 851% 1.1M
-‐€600,000
-‐€400,000
-‐€200,000
€0
€200,000
€400,000
€600,000
€800,000
€1,000,000
€1,200,000
1 7 13 19 25 31
Single Delivery Improved Quality Previous
10% Less Development & 50% Less Support Costs finding/
tracking/fixing bugs and reworking features
Sample Project
16 Copyright © 2012 AgileInnova>on
Summary Max Cash Invested
Pay-‐back Month
RoI 3 yrs
NPV
Plan-‐Driven 440K 20 95% 347K
Increased Sales
307K 17 286% 753K
Less Demand 182K 13 609% 977K
Improved Quality
148K 12 851% 1.1M
Increased Innovaaon
-‐ -‐ -‐ -‐
Improved Moavaaon
-‐ -‐ -‐ -‐
Less Risk -‐ -‐ -‐ -‐
…. -‐ -‐ -‐ -‐ -‐€600,000
-‐€400,000
-‐€200,000
€0
€200,000
€400,000
€600,000
€800,000
€1,000,000
€1,200,000
1 7 13 19 25 31
Single Delivery Improved Quality
• Payback Period reduces from 20 to 12 months
• Max Cash Funding from 404K to 148K • Year 3 RoI improves from 95% to 851%
• è NPV from 347K to 1118K§ §(Assumed Discount Rate 6%)
Additional Benefits hard to quantify…
Copyright © 2012 AgileInnova>on 17
REDUCE COST
INCREASE BENEFIT
Improved Business Agility
More Mo>va>on
More Innova>on
Less Overhead
ECONOMIES OF SPEED
€ Stage Payments € € Increased Xac>ons Fees €
€ Fewer Bugs, Faster Debug €
Reduced Risk
€ Fewer APIs Developed €
Colm O’hEocha AgileInnova>on -‐ Agile & Kanban Training & Coaching
www.agileinnova>on.eu colm@agileinnova>on.eu
Q&A
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