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The Lean SHIFT… from “On Time, On Scope, On Budget” to

“Maximum Value, Shortest Time, Minimum Risk”

Dr Andy Carmichael

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2017 July 11th 14.35 – 15.30 The Lean Shift... from On Time, On Scope, on Budget, to Maximum Value, Shortest Time, Minimum Risk (12 ο ΕΤΗΣΙΟ ΣΥΝΕΔΡΙΟ ΓΙΑ ΤΟ PROJECT MANAGEMENT)

As project managers, we have often judged our success by whether we delivered what the customer said they wanted, within the time and the budget specified. Given that less than a third of all projects meet such criteria*, we would have some justification for pride if we always achieved this! However, in increasingly complex and unpredictable business environments, are these the right criteria by which to judge project management success? The Agile and Lean movements point to a different approach, with a different set of measures to indicate success. Why are organisations increasingly turning to such approaches, and why would “on time, on scope on budget” be a less than perfect measure? Can it even make sense – as is often the case in agile projects – to start work before the requirements have even been finalised?

This presentation examines the reasons for focusing on continuous delivery of value, rather than fixed requirements. It introduces the principles and practices of Kanban as a general approach to managing and monitoring continuous value-adding processes, and shows how the metrics inherent to kanban systems provide common ways to assess and compare projects, even if the projects use widely different processes. Drawing on Toyota’s approach to lean manufacturing – where “kanbans” were first used to control when to create items, in the right quantity, at the right time – the Kanban Method focuses on “knowledge work” (such as software product development), with similar aims to limit work in progress and tailor work processes to respond rapidly to the customers’ needs and purposes. While managing cost is essential, the reason for carrying out projects is to realise value. With projects in competitive business contexts, value can only be assessed when customers receive and react to the products. This in turn indicates that short delivery cycles, and minimum lead times for smaller items delivered within these cycles, is the key to responding to market feedback, and maximising the value returned.

* According to Standish Group reports between 2011 and 2015.

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I teach Kanban!

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Some themes:• Project paradigm versus value-flow paradigm

• Why shift to Value, Time and Risk

• What is Kanban?

• How kanban systems scale?

• What’s the problem with “irrefutable demand”?

• Managing systems for flow rather than utilisation

• The primacy of time in investment decision-making:

• Focus on reducing “Lead Time” to reduce risk

• Understand “cost of delay” as an economic basis for rational work management

• Portfolio management is investment management

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• Project paradigm is our default thinking throughout business…

• Define scope and time horizon (constraints)

• Estimate schedule, budget and risk

• Manage slack to ensure on-time-on-scope-on-budget

“In complex domains (e.g. multiple overlapping products in competitive markets), a project-centric model of the world is profoundly unhelpful!”

Because this defines a different problem to the real one!

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• Project paradigm is our default thinking throughout business…

• Define scope and time horizon (constraints)

• Estimate schedule, budget and risk

• Manage slack to ensure on-time-on-scope-on-budget

“In complex domains (e.g. multiple overlapping products in competitive markets), a project-centric model of the world is profoundly unhelpful!”

• Value-flow paradigm• Manage investments to maximise probability of value realisation

• Manage risk on the value side as well as cost

• Time is of the essence

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• Project paradigm is our default thinking throughout business…

• Define scope and time horizon (constraints)

• Estimate schedule, budget and risk

• Manage slack to ensure on-time-on-scope-on-budget

“In complex domains (e.g. multiple overlapping products in competitive markets), a project-centric model of the world is profoundly unhelpful!”

• Value-flow paradigm• Manage investments to maximise probability of value realisation

• Manage risk on the value side as well as cost

• Time is of the essence

https://en.wikipedia.org/wiki/Cynefin_framework#/media/File:Cynefin_as_of_1st_June_2014.pn

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What is Kanban?Principles, General Practices, How to Start, How to Scale.

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… of change management:

1. Start with what you do now

2. Agree to pursue improvement through evolutionary change

3. Encourage acts of leadership at every level

Don’t start by changing your process, nor by re-organising…Start by seeing your work differently

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… of service delivery:

1. Focus on the customers’ needs and expectations

2. Manage the work; not the workers

3. Evolve policies to improve customer outcomes

Don’t start by changing other people‘s work…Start from customers’ needs and how your service can be fit for purpose

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1. See your work as a flow of value to your customer

2. Start from where you are

3. Visualize your work, your process and your policies

4. Adopt validated changes that improve things

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1. Visualize

2. Limit work in progress

3. Manage flow

4. Make policies explicit

5. Feedback loops

6. Improve and evolve

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Feature Selected

2 - 5

Pool of Ideas

User Story Identified

30

User Story Preparation

In Progres

s

Ready

User Story Development

In Progres

s

Ready (Done)

Feature Acceptance

8In

Progress

Ready

Deploy- ment

5

DeliveredFeature

Preparation

3 - 10In

Progress

Ready

Discarded

Epic 511

Epic 606

Epic 287

Epic 329

Epic 439

Epic 562

Epic 478

Epic 431

Story 602-01

Epic 335

Epic 302

Epic 602

Epic 512

Story 602-04

Story 602-02

Story 602-06

Story 602-03

Story 602-05

Story 302-03

Story 302-01

Story 302-07

Story 302-02

Story 302-08

Story 302-06

Story 335-09

Story 335-10

Story 335-04

Story 335-08

Story 335-03

Story 335-01

Story 512-04

Story 512-07

Story 512-02

Story 512-05

Story 512-03

Story 512-06

Story 335-06

Story 335-05

Story 335-02

Story 512-01

Story 335-07

Story 302-09

Story 303-05

Story 302-04

Epic 221

Epic 662

Epic 651

Epic 589

Epic 444

Epic 609

Epic 577

Epic 362

Epic 468

Epic 401

Epic 582

Epic 521

Epic 339

Epic 276

Epic 694

Epic 213

Epic 274

Epic 287

Epic 388

Epic 419

Epic 386

Epic 294

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PolicyBusiness case

showing value, cost of delay, size

estimate and design outline.

PolicySelection at

Replenishment meeting chaired

by Product Director.

PolicyAs per

“Definition of Done” (see…)

PolicySmall, well-understood,

testable, agreed with PD

& Team

PolicyRisk assessed per

Continuous Deploy-ment policy

(see…

Lead Time

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1. See your organization as a network of interdependent services

2. Scale out sequentially, service by service

3. Design each service independently from first principles

4. Use feedback loops through the management system to achieve balance and improve service delivery to customers

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The 3 Dimensions of Scaling Kanban

Chains: expand the

scope (before / after)

Portfolio

Product

Service

Personal

Products - GoalsStrategic Direction

Features - ValueProduct Management

Stories - DeliveryDay to day Leadership

Tasks - FocusIndividual Professionalism

WEEKS/DAYS

DAYS/HOURS

MONTHS/WEEKS

YEARS/QUARTERS

Hierarchies: related work

items with different sizes,timescales and levels of decision-making (scale-free Kanban)

Networks: management

of interdependent servicesat the same level

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Value, Time and RiskWhat else matters?

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Value

Lead Time

The new iron triangle?

• Fit for purpose quality (non-negotiable)

• Maximum value (visible only in retrospect)

• Minimum lead time (the immediate imperative)

Quality

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Quality

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• Protecting loss of profits• Increased turnover• Increased learning• Reduced risk• Cost saving• New market option• Cover competitors’ moves• Staff retention• Process improvement• etc…

How would you put a monetary value on each of these?

Value

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Source: David J Anderson http://www.slideshare.net/ScrumTrek/david-anderson-enterprise-service-planning-kanban

• Protecting loss of profits• Increased turnover• Increased learning• Reduced risk• Cost saving• New market option• Cover competitors’ moves• Staff retention• Process improvement• etc…

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• Focus on reducing “Lead Time” to reduce risk and improve feedback

• Understand “cost of delay” as an economic basis for rational work scheduling

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• Cadence versus deadline

• Effect of artificial deadlines

• Discovering the real deadlines (where Cost of Delay changes abruptly)

From Alexei Zheglov @az1 -https://twitter.com/az1/status/862052219226664961

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Value flow from a new developmentwith no delay, 10-week, and 20-weeks delay

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Delay Cost & Urgency/CoD Profile

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• How urgent is it to start this item?

• Pay attention to the “last responsible moment” for starting a work item (say, 85% probability point)

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• The likelihood of event X occurring

• The effect of event X occurring – f(X)

• The number of times you get to make similar decisions

• Optimising at subsystem level is dramatically less effective• Entrepreneurial organisation

• The right level of exposure to risk (survivable risk)

• Avoidance of deadly risk (non-survivable risk)

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• Project A:• 25% probability of $1M LOSS

• 50% probability of $1M PROFIT

• 25% probability of $8M PROFIT

• Project B:• 25% probability of $1M PROFIT

• 50% probability of $2M PROFIT

• 25% probability of $2M PROFIT

Larry Maccherone: Probabilistic Decision Making (Maccherone, 2015)

Which project is better… … for your company?…for your career?

-($1Mx0.25)+($1Mx0.5)+($8Mx0.25) = $2.25M

+($1Mx0.25)+($2Mx0.5)+($2Mx0.25) = $1.75M

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• Project A:• 25% probability of $1M LOSS

• 50% probability of $1M PROFIT

• 25% probability of $8M PROFIT

• Project B:• 25% probability of $1M PROFIT

• 50% probability of $2M PROFIT

• 25% probability of $2M PROFIT

Larry Maccherone: Probabilistic Decision Making (Maccherone, 2015)

If you only get 1 project:Project B better 75% of the time

If you get ∞ projects:Project A better 100% of the time

How many projects do you need for Project B to be better more often than not?

Guess…

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34Larry Maccherone: Probabilistic Decision Making (Maccherone, 2015)

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• Yield / ROI (% average annual rate of return for initial investment)

• Duration (weighted average of the timesuntil those cash flows are received)

• Risk (the potential that anticipated cashflows will not be realised)

• Options

• Hedging

• Payback functions

• It’s not about ranking!

• Complexity (wicked problems)

• There are no good answers

• The path will be created with every step

• The art of learning how to play

• Emergent practice

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Chains Hie

rarc

hie

s

Slides: slideshare

• Project paradigm is weak for complex domains

• Shift to Value, Time and Risk• Kanban focuses on flow of value to

customers• Kanban starts from what you are doing

now• Kanban scales service by service• Quality, Value, Time

• Fitness for purpose• Multiple dimensions of value• Lead Time, Cost of Delay

• Portfolio management is investment management

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Questions and Discussion

Next steps…

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Anderson, David J. 2010. Kanban: Successful Evolutionary Change for Your Technology Business. United States: Blue Hole Press.

Anderson, David J. 2012. "Thoughts on the value of liquidity as a metric." November 27. http://www.djaa.com/thoughts-value-liquidity-metric

Anderson, David J. 2015. Enterprise services planning scaling the benefits of Kanban. http://2015.agileworld.de/system/files/vortrag/15-06-29%20EnterpriseServicesPlanning_david%20 anderson_0.pdf

Anderson, David J., and Andy Carmichael. 2016. Essential Kanban Condensed. United States: Lean Kanban University. http://leankanban.com/guide

Brodzinski, P. 2015. Portfolio Kanban Board. [Blog] Software Project Management: Lean, Agile and Kanban. Available at: http://brodzinski.com/2015/04/portfolio-kanban-board.html

Brougham, Greg. 2015. The Cynefin Mini-Book: An Introduction to Complexity and the Cynefin Framework. United States: C4Media for InfoQ.

Kanban (development) - Wikipedia. (2017, June 21). Kanban (development) -Wikipedia. Wikipedia. Retrieved July 7, 2017, from https://en.wikipedia.org/wiki/Kanban_(development)

Maccherone, Larry. 2015. "Probabilistic Decision Making." November 6. http://www.slideshare.net/.../larry-maccherone-probabilistic-decision-making

Magennis, T. (2011, October 25). Forecasting and Simulating Software Development Projects. FocusedObjective.com.

Maccherone, L. (2014). The Impact of Lean and Agile Quantified. Retrieved July 7, 2017, from http://www.infoq.com/presentations/agile-quantify

Matts, Chris. 2013. "Introducing staff liquidity (1 of n)." https://theitriskmanager.wordpress.com/ 2013/11/24/introducing-staff-liquidity-1-of-n/

Matts, C. 2015. Weighted lead time. https://theitriskmanager. wordpress.com/2015/07/22/weighted-lead-time/

Modig, Niklas and Pär Åhlström. 2012. This Is Lean: Resolving the Efficiency Paradox. 1st ed. Stockholm: Rheologica Publishing.

Morris , Ben, Simon Notley, Katharine Boddington, and Tim Reesa. 2001. “External Factors Affecting Motorway Capacity”, 6th International Symposium on Highway Capacity and Quality of Service, pp 69–7. Stockholm, Sweden June 28 – July 1.

Reinertsen, Donald G. 2009. The principles of product development flow: second generation lean product development. Redondo Beach, CA: CeleritasPublishing.

Stoop, Edwin, 2016. A sketch of the Cynefin framework, a decision-making tool used in management consultancy, Sketching Maniacs, https://commons.wikimedia.org/wiki/File:Cynefin_framework_by_Edwin_Stoop.jpg

Taleb, N. N. (2012, December 12). Understanding Is A Poor Substitute For Convexity (Antifragility). Edge.org. Retrieved July 7, 2017, from https://www.edge.org/conversation/nassim_nicholas_taleb-understanding-is-a-poor-substitute-for-convexity-antifragility

Taleb, N. N. (2013, June 6). Antifragile. Penguin Books Limited.

Slides: slideshare

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Physical book available from Amazon and other booksellers. PDF can be downloaded from leankanban.com/guide

Template can be downloaded from goo.gl/Ho5nz8!

Slides: goo.gl/k399tT