Estimating Value

Getting to numbers that make calculating Cost of Delay possible can be hard and it is natural to think it can’t be done. Having a number is usually better than having no number at all, even if the only output is to learn more about what is valuable or not and the assumptions we need to test.

Using dollars has a number of advantages; the key benefit is that we can compare requirements immediately between business areas, across delivery streams, and the whole portfolio. Another driver for assigning dollar benefits to each feature is to reduce the “who shouts the loudest” that many organisations suffer from.

To get started, evaluate each requirement against each of the four benefit types above, estimating the dollar value of the benefits in each case. State your assumptions and make them visible so that others can understand where the uncertainty in the value lies and perhaps help test the hypothesis.

The good news is when a group of people with expertise collaborate they often discover that they actually know more than they thought. Time and time again, group after group, people go from believing that putting a dollar figure on a requirement or feature isn’t possible – to doing it and being somewhat amazed.

Tactics for getting to numbers quickly

Getting to a dollar figure for estimated benefits can be easier than you think. Using the four benefit types tends to trigger questions about value. When a new requirement is raised, start by assessing the value using these four benefit types. The Lean “5-Whys” technique can help in identifying the value of a feature. Keep asking “why” until you are able to identify one or more of these benefit types.

Here are a couple of tactics to help you get to a dollar value quickly:

Estimate the beneficial effects of the change

Let’s take a requirement that will generate an improvement to invoicing clarity and accuracy. If we improve invoice accuracy, customers are less likely to pay late. This would reduce the number of late payments, which would then enable us to earn interest earlier, resulting in a revenue increase.

Make the value equal to the cost of alternatives

Let’s say we have a requirement that will enable us to automate a process. If we automate process X, the value of the change is equal to the cost of executing process X manually.

Key questions such as “What will happen if we deliver this late?” and “What will happen if we can deliver this earlier than expected?” can drive out the answers necessary to quantify the Cost of Delay.

Make assumptions visible!

Once we identify the benefit types, getting to a dollar figure typically requires some assumptions about the effects of the change or the cost of alternatives. The reality of product development is that it involves many risks, unknowns and uncertainties. In order to calculate the dollar benefits you will often have to make assumptions or educated guesses and apply probability where necessary.

The goal is accuracy, not precision. It is more important to see if we can improve knowledge and reduce our assumptions over time, based on experience. Don’t forget that the process of triaging requirements needs to be fast, less than one week.

By making assumptions visible, this prevents blatant gaming of the benefits figures. Visibility of assumptions also allows others to scrutinize and improve those assumptions.

When getting started with Cost of Delay it can help to arrange weekly prioritization sessions where people can bring their ideas, features and requirements and get help with working out the benefits, urgency and cost of delay. It is healthy to challenge and question the assumptions made. Making assumptions visible helps improve the estimation of benefits and improve the reliability of estimates over time. In some cases, the same assumptions are used again and again. It can be helpful to at least use the same numbers and even start building a respository of assumptions and key data points that are shared and built on over time.

If you’re struggling

I’ve noticed a few patterns over the years from doing this. In some cases the value that is generated is predominantly information value. Another fairly common situation is that the investment predominantly relates to either creating or retaining options.

Another impediment can be that someone has “anchored” the conversation about the value by expressing doubt about whether the idea has any value at all. A way forward here can be to first capture the assumptions they are making in order for the value to be zero. Then go and ask some other people what they think, but don’t tell them of the doubts or assumptions of the previous person. The wisdom of a group of experts tends to provide superior results, with much better information about what the key assumptions are likely to be, than trusting a single expert.

If you’re really stuck, feel free to get in touch and maybe we can help out.