Clarke Ching - Cash Flow Driven Development

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Cash Flow Driven Development :

Cash Flow Driven Development Clarke Ching, Allan Stoneham, Sarah Campbell Sources: wikipedia.org Lean Agile Scotland 2012

Calibration exercise :

Three Projects A B C D E F G H I 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 i ii iii iv v vi vii viii ix x Two Ways Work on 1 project at a time A B C D … Work on all three projects at a time. A 1 i B … Calibration exercise How much of your capacity is wasted? 5% 10% 20% 30% 40% ????

Introducing: James Watt:

Introducing: James Watt Source: wikipedia.org

PowerPoint Presentation:

Cash Flow

His greatest invention?:

His greatest invention? http://en.wikipedia.org/wiki/File:Grazebrook_Beam_Engine.jpg This is a Boulton & Watt beam blowing engine re-erected on the Dartmouth Circus roundabout, on the A38(M) in Birmingham, UK. It was built in 1817 and used in Netherton at the ironworks of M W Grazebrook.

PowerPoint Presentation:

Michael My father made him an offer he couldn't refuse. Kay What was that? http://en.wikiquote.org/wiki/The_Godfather

An offer too good to refuse: Horse Power:

= An offer too good to refuse: Horse Power

An offer too good to refuse: Horse Power:

= = 30 HP Which currently costs you £900 p.a.. I’ll charge you £300 p.a.., saving you £600 p.a.. If you sign up for 20 years . An offer too good to refuse: Horse Power

PowerPoint Presentation:

" People don't want to buy a quarter-inch drill. They want a quarter-inch hole !“ - Harvard Business School marketing professor Theodore Levitt.

What’s our equivalent of Horse Power?:

What’s our equivalent of Horse Power?

Quiz – More staff for free? More money?:

Quiz – More staff for free? More money? What happens if you finish every project 25% sooner? Before: AAAA BBBB CCCC After: AAA BBB CCC DDD You gain 33% more staff, for free. (Which is worth Wage-Bill * 33%) You can do 33% more work, for free. But do you have 33% more work to do?

What if you “sold” or “used” only half that 33% increase?:

What if you “sold” or “used” only half that 33% increase? Fixed Costs $2,000,000 Revenue per project $800,000 Before: 3 projects $ 2,400,000 Profit: $400,000 But now you can do 4 projects! But you can only sell a small one, bringing in revenue of only $400,000. Your revenue goes up to $2,800,000 Your profit $800,000 Your profit has doubled! You are a hero! And facilities can afford better beans for the coffee machine … or …

Focus on Cash Flow by Focusing on Project Flow by Eliminating Multitasking.:

Focus on Cash Flow by Focusing on Project Flow by Eliminating Multitasking.

Let’s ignore the switching cost…:

Let’s ignore the switching cost…

The True cost of Multi-tasking…:

The True cost of Multi-tasking… Blue resources specialise in the earliest 3 tasks – A,B,C, 1,2,3, i,ii,iii Yellow resources specialise in the middle 4 tasks and, Green resources do the last 3 tasks. So, our projects look like this: Let’s also assume that each project has it’s own project manager. There is one more, very important, thing we need to discuss to make this real: Why are we doing these projects? A B Project 1 C D E F G H I J Project 2 Project 3 1 2 3 4 5 6 7 8 9 10 i ii iii iv v vi vii viii ix x

PowerPoint Presentation:

Let’s say that these three projects fulfil real business purposes with real financial benefits: These $$$$$ are the BENEFIT of finishing the projects. You can also think of these numbers - $10K , $8K , and $5K - as the COST of DELAYING these projects by a week. Project 1 A new product which earns $10,000 per week, once live. Project 2 Once delivered, saves $8,000 per week on postage. Project 3 Fixes a known defect in one of our “live” products which currently causes support costs of $5,000 per week (& decreased customer satisfaction). We’ll save $5,000 per week once delivered.

1. Ideal scenario, no shared resources:

1. Ideal scenario, no shared resources P1 P2 P3 A 1 i B 2 ii C 3 iii D 4 iv E 5 v F 6 vi G 7 vii H 8 viii I 9 ix J 10 x 20 weeks* 20 weeks* 20 weeks* * Each task takes 2 weeks to complete x3 x3 x3 Resources : $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ Cash Flow $10K/week $8K/week $5K/week Each project proceeds independently . They’ll finish at the same time. Cash Flows at the same time.

Shared Resource, No Multi-tasking:

Sadly, in the real world we have to share resources.  Say, we only have 1 of each type of resource. We still have 3 project managers. And they each want their projects to start immediately and keep moving. But … we also have a commercial manager who prioritizes the projects to maximise cash flow. Let’s call this person a FLOW-MASTER. Flow-masters hate multi-tasking Shared Resource, No Multi-tasking

2. Shared-resources, Single-tasking :

And then, after handing off to Yellow, who starts work on P1, Blue moves to P2, the next most important project. This is single-tasking! 2. Shared-resources, Single-tasking A x1 x1 x1 B Resources: P1 C D E F G H I J P2 P3 1 2 3 4 5 6 7 8 9 10 i ii iii iv v vi vii viii ix x 20 weeks 28 weeks 36 weeks $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $10K/week $8K/week $5K/week The flow-master wants the cash from project 1 to flow first. So Blue sticks with P1 until complete. Notice the cash flow:

Shared Resource, Multi-tasking:

Let’s take away our FlowMaster and let the project managers prioritize between themselves. So we still have 1 of each type of resource. We still have 3 project managers. And they each want their projects to start immediately and keep moving. How do they prioritize? In the name of “ fairness ” they agree to share resources … asking the staff to “multi-task”. Shared Resource, Multi-tasking

3. Real World Bad – Multi-tasking:

3. Real World Bad – Multi-tasking A x1 x1 x1 B Resources: P1 C D E F G H I J P2 P3 1 2 3 4 5 6 7 8 9 10 i ii iii iv v vi vii viii ix x 48 weeks 50 weeks 52 weeks $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $10K/week $8K/week $5K/week Notice the cash flow: How is this going to work? We have no FLOWMASTER so, In order to keep all PMs and their customers happy, Blue will work on P1 for a bit, then P2 for a bit, then P3 for a bit, then P1 for a bit, then … That’s fair – right? Notice how all three projects are making progress, albeit slowly? They are multi-tasking .

Compare Project 1:

Compare Project 1 A B P1 C D E F G H I J A B P1 C D E F G H I J 48 weeks Multitasking No Multitasking Notice that P1 finished (an incredible) 28 weeks sooner. Cash starts flowing 28 weeks sooner. At $10K per week the cost of multi-tasking – the lost profit - was $280,000 20 weeks Let’s look at Project 1, which has a cost of delay of $10,000 per week.

Compare Project 2:

Compare Project 2 P2 A B C D E F G H I J P2 A B C D E F G H I J 50 weeks Multitasking No Multitasking P2 started later … but finished 22 weeks sooner. Cash starts flowing 22 weeks sooner. At $8K per week the cost of multi-tasking – the lost profit - was $176,000 28 weeks Let’s look at Project 2, which has a cost of delay of $8,000 per week.

Compare Project 3:

Compare Project 3 P3 A B C D E F G H I J P3 A B C D E F G H I J 52 weeks Multitasking No Multitasking 36 weeks P3 started much, much later … but still finished 16 weeks sooner. [Go back and check … I just did.] At $5K per week that’s $80,000 lost forever due to multi-tasking. Let’s look at Project 3, which has a cost of delay of $5,000 per week.

Compare Project end Dates:

Compare Project end Dates Notice All 3 projects finish much sooner. Yes, all of them. A B P1 C D E F G H I J P2 P3 A B C D E F G H I J A B C D E F G H I J 20 weeks 28 weeks 36 weeks A B P1 C D E F G H I J P2 P3 A B C D E F G H I J A B C D E F G H I J 48 weeks 50 weeks 52 weeks Multitasking No Multitasking

Compare Throughput:

Compare Throughput Without multitasking we can complete 2 more projects of similar size A B P1 C D E F G H I J 20 weeks P2 A B C D E F G H I J 28 weeks P3 A B C D E F G H I J 36 weeks A B P1 C D E F G H I J P2 P3 A B C D E F G H I J A B C D E F G H I J 48 weeks 50 weeks 52 weeks Multitasking No Multitasking P4 A B C D E F G H I J 42 weeks P5 A B C D E F G H I J 50 weeks

Compare Profits:

Compare Profits And, the multi-tasking scenario made $536,000 less profit than the non-multitasking scenario . $536,000 lost forever A B P1 C D E F G H I J P2 P3 A B C D E F G H I J A B C D E F G H I J 20 weeks 28 weeks 36 weeks A B P1 C D E F G H I J P2 P3 A B C D E F G H I J A B C D E F G H I J 48 weeks 50 weeks 52 weeks Multitasking No Multitasking

Multi-tasking is evil.:

The choice to multi-task is usually unconscious. Or ignored because “It’s not my battle.” Or lived-with because “It is my battle but I don’t want the fight”. Multi-tasking is evil. What’s your Cost of Delay ?

Introducing: The inverted Pyramid :

Introducing: The inverted Pyramid Source: wikipedia.org

PowerPoint Presentation:

This evening at about 9:30 p.m. at Ford's Theatre, the President, while sitting in his private box with Mrs. Lincoln, Mrs. Harris and Major Rathburn, was shot by an assassin, who suddenly entered the box and approached behind the President. The assassin then leaped upon the stage, brandishing a large dagger or knife, and made his escape in the rear of the theatre. The pistol ball entered the back of the President's head and penetrated nearly through the head. The wound is mortal. The President has been insensible ever since it was inflicted, and is now dying. About the same hour an assassin, whether the same or not, entered Mr. Seward’s apartment and under pretense of having a prescription was shown to the Secretary’s sick chamber. The assassin immediately rushed to the bed and inflicted two or three stabs on the chest and two on the face. It is hoped the wounds may not be mortal. My apprehension is that they will prove fatal. The nurse alarmed Mr. Frederick Seward, who was in an adjoining room, and he hastened to the door of his father’s room, when he met the assassin, who inflicted upon him one or more dangerous wounds. The recovery of Frederick Seward is doubtful. It is not probable that the President will live through the night. General Grant and his wife were advertised to be at the theatre... – New York Herald , April 15 , 1865

“Inverted Pyramid” (Invented 19th Century):

“Inverted Pyramid” (Invented 19 th Century) NHS chaos exposed by new e-mails A COMPUTER project costing £6.2 billion that is central to Tony Blair’s National Health Service reforms is in “grave” danger of being “derailed”, leaked Whitehall e-mails reveal. The warning has been issued by Richard Granger, the £250,000-a-year civil servant in charge of what has been billed as the world’s biggest civil information technology project. The scheme is central to the government’s plans to give patients wider choice by allowing GPs to book hospital appointments online with consultants throughout the country. The problems have already caused a year-long delay in the booking system and now threaten to add millions to the cost of the project. To date the system has made only about 20,000 appointments for patients. It was supposed to have made 250,000 by December 2004. When it is fully operational the system is meant to be capable of making up to 9.5m first hospital appointments a year. In the e-mail exchanges in September, Granger blames a senior civil servant in the Department of Health for the fiasco, criticising her repeated last-minute changes and failure to heed his advice. … Jonathon Carr-Brown, The Sunday Times, November 13, 2005 http://www.timesonline.co.uk/article/0,,2087-1869851,00.html Editors scissors Cut according to space constraints Time priority

“Inverted Pyramid” (Invented 19th Century):

“Inverted Pyramid” (Invented 19 th Century) NHS chaos exposed by new e-mails A COMPUTER project costing £6.2 billion that is central to Tony Blair’s National Health Service reforms is in “grave” danger of being “derailed”, leaked Whitehall e-mails reveal. The warning has been issued by Richard Granger, the £250,000-a-year civil servant in charge of what has been billed as the world’s biggest civil information technology project. The scheme is central to the government’s plans to give patients wider choice by allowing GPs to book hospital appointments online with consultants throughout the country. The problems have already caused a year-long delay in the booking system and now threaten to add millions to the cost of the project. To date the system has made only about 20,000 appointments for patients. It was supposed to have made 250,000 by December 2004. When it is fully operational the system is meant to be capable of making up to 9.5m first hospital appointments a year. In the e-mail exchanges in September, Granger blames a senior civil servant in the Department of Health for the fiasco, criticising her repeated last-minute changes and failure to heed his advice. … Jonathon Carr-Brown, The Sunday Times, November 13, 2005 Editors scissors Cut according to space constraints Time priority The Lede = 80% of the value & 80% of effort

How do we do create a project’s Lede?:

How do we do create a project’s Lede ? Twomise – 140 character “story”-description of project. Top 10 – requirements list. (Requirements, not features). 1 . I want to drill a hole (to hang a picture ) [not I want a green drill with …] 2. Costing less than … Do you know your project’s Cost-of-Delay ? If this chip ships 2 months late we miss [Big Phone Maker’s] development cycle and we lose $30M Each month’s delay costs us $8,000 in extra support costs. 1 2 3 4 Read: Made to Stick by Chip and Dan Heath. 5 Write, read & challenge the business case.

Snowball effect.:

project Snowball effect.

Remember these 3 projects? :

Remember these 3 projects? Before: AAAA BBBB CCCC After: AAA BBB CCC If each project makes $100,000 a month once delivered then how much more does project A make? Project B? Project C? The projects not only finish sooner, they start sooner too.

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