Evidence-Based Portfolio Management (EBM-PM) - focused on Unrealized Value

• Organizations seek to improve their competitiveness by being more responsive to change
• agile approaches improve their responsiveness
• many organizations have the rewards of agility at the team level, but their traditional management practices impede deeper change that would enable true business agility
• Agile principles and practices must spread beyond the Scrum Team to achieve the dramatic improvement that they seek in their business results
• the way to greater success requires organizations to examine the way they
  • invest in innovation
  • quantify success
• Organizations that think they simply need to deliver faster, without considering what they are delivering, are missing the greatest benefit of agility
  • rapidly trying out ideas
  • discarding those that don’t work
  • enhancing those that do
  • uncovering new ideas from customers, employees, partners, and stakeholders
• Being able to change investment strategies, quickly, based on new information, separates the companies with winning products and happy customers from those companies who are mere footnotes in the history of their industry
• Evidence-Based Portfolio Management (EBM-PM)
  • applies lean and agile principles to the challenge of investing to derive the greatest business benefit
  • uses rapid delivery of small increments of value to run experiments, gather information, and adapt investment decisions based on evidence from the market
  • sets clear aspirational goals to aid alignment and commitment and lets the people closest to the customer develop creative solutions that create real, measurable value
• The Way We Usually Invest is Wasteful
  • traditional portfolio management practices increase risk and impair the ability to pivot when new events arise:
  • Solutions are disconnected from outcomes.
    • build a lot of things without clearly understanding the problem it will solve or the opportunity that it will address
    • undertake work with only vague notions of the outcomes they are trying to achieve
  • Estimates are based on conjectures
    • From these vague proposals, the people who will have to deliver the solutions are asked to make unexamined guesses about cost and schedule based on minimal information (under extreme and artificial time pressure, during the annual budgeting process)
    • estimates become non-negotiable commitments
  • People are trapped by dictated solutions and coerced estimates
    • They are stuck in a vicious time-pressured cycle in which they can never take time to truly understand the problem or opportunity or devise solutions
    • they spend time and effort building things that may have no value to customers, with limited ability to change course if they find evidence that customers need a very different solution
  • Solutions are crippled by early lock-in
    • When organizations view all change as bad, they limit their ability to learn from new information
    • Organizations can learn by delivering partial solutions early and frequently
  • Organizations are crippled by infrequent, exhaustive, and exhausting planning
    • Opportunities arise continuously, locked in by relatively long-term (annual or longer) budgeting processes
    • opportunities that occur at other points in the year are often foregone
    • the organization lacks the flexibility to respond to new opportunities
  • Risks are amplified by delay and denial
    • When the size of investments is huge, the risk of failure can be paralyzing, leaving budgets that are always “in discussion”
    • The opportunity eventually slips away when organizations require a high-fidelity plan that will meet all needs and address all risks before it invests the money
    • better solution: fund experiments to learn more, while adapting continuously to new information
• Principles
  • EBM-PM seeks to improve business results by reducing waste and over-investment in work that adds little or no business value
  • It reduces risk by investing in small increments, and then monitoring the results of these in frequent intervals
  • The basic principles:
  • Experimenting Beats Comprehensive Planning
    • Improving business impact requires delivering products and services that help customers achieve better outcomes
      • within a window of opportunity
      • for a reasonable price
      • at an acceptable level of cost
    • Since the world is uncertain, you can’t plan what customers need upfront, or what they are willing to pay, and since you can’t predict what customers will need, you can’t predict how much it will cost
    • This is why you need to work iteratively and empirically Running focused experiments
  • Making Smaller Bets Reduces Avoidable Loss
    • Funding a product or service in a series of experiments lets test new ideas quickly, allowing the ideas that won’t work to be identified quickly
    • This lets you focus on the ideas that are more likely to produce better results
    • Betting only a small amount minimizes the amount of effort you’ve “wasted” going down the wrong path when an idea proves to be unworkable
  • Working on Fewer Things at a Time Finishes Them Faster
    • Organizations generally have more ideas than they have the capacity to pursue
    • force teams to multi-task, the teams to lose focus, and become less effective:
      • Each initiative takes longer to deliver
        • teams lose effectiveness when they switch contexts between different initiatives
      • Delaying value realization or feedback on value delivered
        • deprives the organization of the information it needs to make course-correcting decisions
      • Delaying feedback
        • waste time/money on things that later prove to be valueless once they get feedback
• The Innovation Investment Cycle – focus on deciding what to spend
  • EBM-PM is built upon EBM (an empirically-based continuous improvement approach)
  • uses a continuous feedback loop to help an organization realize its goals more effectively
  • Why Budgeting Should Be Separated from Investing
    • many organizations combine budgeting with making investment decisions
    • they first see how many ideas, and how much they will cost, to determine how much they should spend on those ideas
    • The main problem is that at the time budget decisions need to be made, the costs and benefits of “ideas” are largely conjecture, and more planning effort does not improve the quality of the estimates
    • Organizations spend a lot of time and effort without producing very much benefit
    • budget and project work are largely constrained by other business concerns such as profitability, business goals, and the availability of people with the right skills
    • When setting budgets, a better place is, “What is the maximum amount we can afford to spend and still meet our profitability goals?” and base their budgets on that
    • This is not to say that they will spend that amount, but only that they could spend it
    • Budgets determine how many teams an organization can fund. Teams are the engines of work, and the number of teams determines how much work can be accomplished
  • Activities:
  • 1. Define & Refine Goals
    • EBM focuses on 4 kinds of measures
      • CV – value that experience or obtain: stakeholders, customers, employees, investors
      • T2M - how quickly can you improve your CV
      • A2I - how effective are you at improving your CV
      • UV - the remaining opportunity in the market that you’ve not yet tapped
    • EBM-PM is focused on improving your ability to exploit opportunities represented by UV
    • GOALS:
    • Goals should target closing a gap between Current and Unrealized Value
      • Organizational goals are generally expressed in terms of closing some gap between the Current Value and Unrealized Value, usually focusing on the value that customers experience
      • Closing this gap requires improving the outcomes that customers experience
    • Goals should be strategic and measurable
      • lots of intermediate targets to achieve en route to achieving the greater goal
        • Intermediate Goals (or ITG?) like, “Consolidate cloud platforms”, or “Reduce operating expenses by 30%”, but these are things that you want to achieve on the way to achieving something greater, a Strategic Goal (or IG?) like, “Improve product affordability by 30%, to reach more customers”
        • If you are struggling with understanding the goal in customer terms, ask, “What is the single elevating benefit to a customer if we achieve this tactical target?
    • Goals will continuously evolve
      • change as the organization obtains new information about competitive threats and customer opportunities
      • As your insights evolve, you will want to revisit your goals, reordering them, adding new goals, and possibly removing goals that no longer are worth pursuing
    • Goals need to be continuously ordered and re-evaluated
      • goals evolve, based on new information, and need to re-evaluate their relative importance
      • Goal Backlog and continually refine it by
        • identifying new goals
        • shifting the relative importance of existing goals
        • removing goals that are no longer relevant
    • GOAL BACKLOG (business goal)
  • 2. Examine & Abandon Excess WIP
    • Eliminate all work that you can’t connect to your goals
      • Pet projects and random ideas have a way of sprouting like weeds, and even once-valuable work can lose its way or become less relevant over time taking away from making progress on something more important
      • In addition, goals change over time and were once important may no longer
    • To ensure investments are contributing to your current goals
      • periodically take a look at everything you are doing
      • making sure that your work-in-progress is still contributing to advancing you toward your goals
      • for work that isn’t, kill it quickly
      • focus on the work that will help you to make progress toward your goals
        • Using people and resources that were being spent on non-goal work
        • look for places where you can contribute to achieving your goals faster
        • It doesn’t matter how much you have spent on something; the only important thing is what the work will enable you to achieve, and whether you have more important goals to reach
  • 3. Propose Experiments
    • “bottom-up intelligence”: Because teams are closest to the work itself, they are best able to identify ideas that might enable the organization to make progress toward their goals
    • Frame these next steps as experiments with expected measures
    • measures evaluate the experiment’s success when they start gathering data on its effectiveness
    • The proposals for these experiments need to express several elements:
    • Teams only propose new work when they have the capacity. This prevents them from working on more than one thing at a time, which improves their focus and reduces lost time and effort due to task-switching
    • Teams consider the organization’s goals and propose work that expresses where they feel they can best contribute to reaching some goal
    • Outcome-Based Product Release Roadmaps
  • 4. Evaluate Proposals
  • 5. Run Experiments
  • 6. Evaluate Progress Toward Goals
• Conclusion