- SAFe discourages "project accounting", but acknowledges that an ART may be forced to do that because especially in a cross-company value stream, contracts may be hard to change on a short notice. We spent a good half hour discussing the detrimental effect of cost centers (i.e. resource utilization) on flow (i.e. value delivery). An SPC would accept the current cost structure when launching an ART and then collaborte with Executives on a Portfolio level to move to a value stream centered budget structure.
- On a Portfolio level, SAFe suggests that budgeting be done per Value Stream, on a (no finer granularity than) per Program Increment basis, so the Enterprise should assign for each Value Stream (= each ART) budget based on the expected outcome of the Value Stream.
- Cost transparency is provided on the highest level of abstraction that the organization has, i.e. you'd measure on a portfolio level the "cost per epic" [i.e. "The new iphone"]. While it would theoretically be possible to drill this down to Value Stream and even team level, SAFe favours TCO (Total Cost of Ownership) with a systemic "Optimize the Whole" view.
- SAFe standardizes Story Points across teams and then uses Story Points as a "hard currency" in the sense that stakeholders and finance understand where the money goes ("expensive" and "cheap" feature requests). Dean indicates that a workable PBI (i.e something you'd put in a Sprint) should be no bigger than 8 Story Points, while a Program level Epic might be 5k SP's, while another might be 1k (also providing a dimension for "fairly cheap" and "fairly expensive"), then counting on the Law of Large Numbers to make this "sufficiently accurate" for value based prioritization.
- Dean gave examples of a single SP ranging to a cost between 800 and 1800€ depending on the value stream: This gives a fairly accurate price tag for a portfolio topic.
Again, this resorts to using the Law of Large Numbers, and it will (based on the distribution) be off more often than not when drilled down to a User Story level. Again, it's about optimizing a system, not a component of the work.
- In PI Planning (i.e. the big, quarterly Planning Event), each overarching PI Objective ("Sprint Goal") is assigned with a "business value" ranging from 1 to 10, where 10 is the most valuable and 1 the least valuable. Teams will then collaborate during the PI to deliver the WSJF (weighted shortest job first), i.e. deliver maximum measurable business value from a customer perspective, keeping in mind thatthe focus is the delivery of a valuable product increment as an ART, not the completion of individual team objectives.
- ROI tracking is then done in a simple, yet sophisticated process of having Business Owners ("real PO's") account the value delivery per PI objective (i.e. Iteration Goal) with anything between 0 (done, but no value) and 10 points (done, EXTREMELY valuable) to give feedback how well the plan (i.e. PI investment) worked out.
- Teams receive transparency whether they delivered on their owned team objectives, and also whether the value stream delivered. Points of inaccuracy in the value forecast become the subject of retrospectives within the team(s).
- From a management perspective, the goal of PI planning is to move delivery value forecasting accuracy (i.e. how much the ART will deliver in the PI) as close to 100% as possible, which equals a corresponding reliability in cost estimates (i.e. SAFe comes with a promise of catching potential budget overruns early - a HUGE thing for large enterprises!)
- One of Dean's personal pet peeves is MBO (Management by Objectives) with monetary incentives, because that not only doesn't work in Knowledge work, but it also causes dysfunction. As a current WIP, he is creating educational material for middle management on why and how to move away from MBO. SAFe encourages a salary structure without any performance bonuses beyond enterprise-wide profit shares.
Sunday, July 17, 2016
How SAFe deals with cost accounting
I was asked the question "How does SAFe handle money?" - well, in a complex organization, this is a complex topic. Here is a non-comprehensive list of answers:
SAFe discourages utilization-based accounting. SAFe favours value delivery based accounting. Executive management retains full transparency and control over cost.
Fiduciary accountability is realized through the several feedback mechanisms induced in SAFe to ensure the ART operates to continuously maximize ROI based on assigned funding. Failure to deliver the presumed value are revealed early and continuously.
SAFe encourages optimizing the system as a whole, which requires moving (the impact of) CapEx and OpEx decisions to Portfolio level and away from components of the ART. This prevents local cost optimization which could be very expensive for the organization as a whole.