Value-Driven Delivery - Part 1
“Which choice will add the most value for the customer?”
In agile, delivering value early and often is vital. Understanding the project goals and maintaining alignment with stakeholders is essential to understanding what value looks like for the project and establishing a foundation on which the team can deliver. When the agile team can provide high-value work in small increments, managing stakeholder engagement will be more effective, and opportunities for realignment will be frequent and beneficial; however, if time passes on a project without stakeholder engagement or value added to the project, the likelihood of introduced risks increases. Identifying, managing, and monitoring project scope and goals and creating alignment between stakeholders and the team reduces potential waste (partially done work, more processes, extra features) and risk. Fortunately, teams can utilize numerous tools and techniques to ensure that projects are worthwhile endeavors and help monitor key metrics throughout a project.
Return on Investment (ROI)
Considering Return on Investment (ROI) is a great way to evaluate whether the project aligns with business goals. ROI measures the profitability of an investment by calculating the ratio of the profits received from the venture to the capital invested in it. However, ROI might not convey the actual value that a project might deliver, and factors such as inflation and interest rate should be factored into the calculation. The result expressed as a percentage should also be considered in the context of the organization or industry. A result of 3% from an ROI calculation, for example, might justify the initiation of some projects in certain situations or reconsideration in others.
The basic formula to calculate ROI is as follows:
ROI = (Present Value – Cost of Investment / Cost of Investment) x 100
Net Present Value (NPV)
Net present value is the current value of a revenue stream over a series of periods. However, to calculate NPV, we must estimate future inflation and interest rates, which are not always accurate.
NPV= Cash Flow / (1+i)^t − initial investmentWhere:i = Required return or discount ratet = Number of time periods
Internal Rate of Return (IRR)
A discount rate is the interest rate needed to earn a given amount of money today to end up with a given amount in the future. The IRR is the discount rate at which project revenue and costs are equal, and the higher the IRR, the more valuable the project is. Rather than guess future interest rates and inflation, such as with NPV, calculating effective discount rates for the project use internal estimates of project duration and payback.
Earned Value Management (EVM)
To effectively determine the overall health of an agile project, we need to construct a single diagram that can show the project status in terms of both schedule and total value delivered to date. Earned value management combines spending and schedule data to produce a comprehensive set of project metrics, including planned value (PV), earned value (EV), schedule variance (SV), cost variance (CV), schedule performance index (SPI), and cost performance index (CPI).
Pros:
Visual representation
Leading metrics are more valuable than trailing metrics
Cons:
As plans change, the EVM will become less effective
EVM might be a false indication of project success
Agile Project Accounting
Agile project accounting refers to the economic models associated with agile projects and the cadence in which agile projects deliver value. Prioritizing the highest-value parts of the project can influence the payback period and investment return and provide opportunities to get early benefits by using some of the project functionality while still executing the remainder of the project. By chunking the work, we reduce the economic value at stake, de-escalate the impact of disputes on future work, and use agile contract models such as the DSDM.
Key Performance Indicators (KPIs)
Key performance indicators are metrics to show how well the project is performing. KPIs can vary but generally include metrics dealing with the projects:
Rate of progress.
Remaining work.
Likely completion date.
Likely costs remaining.
KPIs that might be helpful in predictive life cycles include:
Performance measurement baseline
Scope
Schedule
Cost
KPIs that are useful in agile life cycles:
All about getting things done
Likelihood of targets
Managing Risk
Agile teams need to consider risks and technical dependencies. Project risks are anti-value, opposite of the kind of value we want to deliver on agile projects. Therefore, risk management is essential, and risk mitigation and avoidance strategies should form early in the project. It is critical that the agile team meet with the development team, sponsors, customers, and other stakeholders during risk identification, as their ideas and lessons learned from previous projects, risk logs, and industry risk profiles are invaluable. Involving these team members will increase their participation in the risk management plan and its responses. Iterative development allows for high-risk work to be tackled early in the life cycle, which can help address any doubt related to the project. The goal should be to tackle high-risk areas of our project sooner rather than later. Agile teams use the risk-adjusted backlog (bringing risk to the early portion of the project) and risk burndown charts (tracking risk as they move down in priority and elimination).
Regulatory Compliance
Some projects may require regulatory compliance or other Enterprise Environmental Factors (EEFs) and are subject to specific procedures, processes, and requirements that are non-negotiable. While the agile methodology values working software over comprehensive documentation, regulatory compliance must fulfill the specified requirements. There are two approaches to incorporating regulatory compliance into the agile process:
Include the criteria during the standard development work throughout the project.
Ensure time after the project has been completed to work on work required to meet regulatory complianc
In the series's next section, we will learn strategies for prioritizing value in agile projects.
