Agile2008: Converting business value into actual money
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Join For FreeAt Agile2008, Luke Hohmann from Enthiosys
talked about converting business value into actual money. Luke
said prioritizing the backlog by ROI doesn't work and
suggested developing attributes for backlog prioritization
that drive profitable growth. In terms of what we've been doing at one of our
clients using Throughput Accounting this means increasing
revenue without significantly increasing investment and decreasing costs
without impacting throughput (or the capacity to deliver).
To effectively prioritize the backlog for profit a set of attributes should be identified for the
stories in it. A weight is assigned to each attribute representing the degree
of influence the attribute has. A 1 or a 0 is assigned to the attribute, which
is multiplied by the weight. Using binary numbers activates the weight rather
than amplifies it. The backlog is sorted by the resulting numbers. Attributes
can be broadly grouped as follows (there may be others):
1. Stakeholder Preferences
Internal stakeholders might be
sales, marketing, customer service. And, of course, the product or 'system'
itself because it has its own needs (repayment of debt, performance,
maintenance, etc) and should therefore have its own voice to encourage
continuous investment in its architecture and upkeep. External stakeholders
might be customers, integration and/or development partners, distributors.
Obtain stakeholder preferences by leveraging attribute weighting and
collaborative innovation
games to enable continuous prioritization of the backlog.
2. Strategic Alignment
The backlog must support the larger corporate and portfolio goals. Associate
corporate strategy attributes to the backlog and identify which stories
directly support the strategy.
3. Driving Profit
The business model for driving profit comprises a value exchange model
and a profit engine. The value exchange model defines the mechanism by
which value is converted to money. Here are some value exchange models:
- Time-based access
- Revenue earned by granting the right to use the product for a defined
period of time, e.g. licensing, rental, subscription.
- Transaction
- Revenue earned by charging for completion of units of work, e.g.
completing a credit card payment on behalf of the card holder.
- Meter
- Revenue earned by constraining the use of the product, e.g. the number
of concurrent users or pay-as-you-go mobile phone cards.
- Percentage of revenue gained (or costs saved) - Revenue earned by taking a cut of the profit, e.g. a
royalty payment.
- Hardware
- Revenue earned by charging an amount for the hardware required to use
the software, e.g. dongles.
- Service
- Revenue earned by providing a service, e.g. technical support, upgrades.
- Data or Content
- Revenue earned by creating unique data and charging for access to it.
The profit
engine defines how the product's relationship with the market is structured to
drive increasing exchanges of value. E.g. credit card provider networks are
widely available and card providers drive common standards (for the card and
card readers) to lower costs and offer additional services such as anti-fraud
to drive transactions.
A prioritized backlog should be consistent with the product's value exchange
model and profit engine. It should be possible to identify the stories that
contribute to driving profit, e.g if a product's value exchange model is
transactional then a story aimed at reducing processing time per transaction
could assist profit by lowering operational costs. A prioritized backlog should
also balance stakeholder demands and be strategically aligned with the portfolio
and corporate strategy. So, each iteration should convert value into money by
delivering something that generates revenue and grows profit. Every stakeholder
should receive something that demonstrably satisfies their needs and the
product, portfolio and corporate goals.
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