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Where is the business value?

In agile we say that we do value driven development. We try to work on the most valuable items first so that when the time comes when there is either no more money to spend or no more time left we have the most valuable stuff done and deployed to production.

From all the projects and product development teams I worked with over the years I have seen only a few that measure and track value across time.
The challenges with measuring value are that value is defined different depending on your perspective and that there are numerous possibilities to measure it.

There is value in doing the right thing, that is value measured on outcomes. And there is value in doing things right, that is values measured as output. There is a big and important difference. Output is the stuff you produce like e.g. stories. How much stuff are you making, how fast and at what costs.
Outcomes is the difference it makes. Why are we making this stuff? and why should anyone care? You could measure things like economic value, product quality, strategic alignment and innovation rate just to name a few.

In this post a simple example of how you could work with economic value.

Lets say you are a project team and are delivering your project in 3 month release cycles. The objective of the project is to be able to increase online sales by 10% from 10M to 11M. Great, how do you measure that while you are developing? you can’t as you will only get feedback after shipping the functionality!

What you can do is to let the product/sales/marketing people make an impact estimate on how much sales increase they can achieve with the proposed epics of functionality.
Lets say they estimate that the new functionality impacts sales increase as follows

Epic 1 Epic 2 Epic 3 Epic 4
Increase from 10M -> 11M 30% 10% 10% 50%
Economic Impact 300k 100k 100k 500k

Don’t worry, product managers, sales and marketing actually studied for making these estimates. It was when a VP once told me

…getting value estimates is easy, that is what our product managers and our sales people have been doing long before you came in…

that I started to realise that it is nothing special at all.

Once you have these impact estimates you can use them to assign economic value points to your stories. The impact estimates limit the amount of value the epic and its stories can create. Without such a limit the value points would be meaningless because you would not able to see progress towards the objective. One way to assign economic value points is to first do a relative value point estimation on your stories. Once that is done you can just distribute the estimated impact.

Lets say Epic 1 consists of 8 stories.

Epic 1 Story 1 Story 2 Story 3 Story 4 Story 5 Story 6 Story 7 Story 8
Value Points 3 1 5 8 13 5 20 3
Economic value 15.517 5172 25.860 41.376 67.236 25.860 103.520 15.517

With this data you can easily measure value delivered each sprint. You can use this data as one out of many of the attributes for ordering your backlog. Another benefit is that you can take action when the rate of added value starts decreasing. It will as value added most of the times follow an s-curve.
After your first release you can start measuring real progress towards your objective of 10% online sales increase.

You can easily extend the impact table with other objectives and estimate impact for those. You could add for example strategic alignment, innovation rate, costs and so on.

Oh yes, of course you have no time to spend on estimating and planning as there is never enough time to do it right, but always enough time to do it over?

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