reinertsen agile day atlanta intro to sglpd 5-8-2015

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Second GenerationLean Product Development

Agile Day AtlantaAtlanta, GAMay 8, 2015

Donald G. ReinertsenReinertsen & Associates

600 Via Monte D’OroRedondo Beach, CA 90277 U.S.A.

(310)-373-5332Internet: [email protected]

Twitter: @dreinertsenwww.ReinertsenAssociates.com

2Copyright 2015, Reinertsen & Associates

Seven Big Ideas of 2GLPD

1. Understand your economics.2. Manage your queues.3. Exploit variability.4. Enable smaller batches.5. Control WIP and start rates.6. Prioritize based on economics.7. Accelerate feedback.


1. Understand Your Economics

• In product development all difficult decisions involve multiple variables.

• Making decisions that affect multiple variables requires quantification.

• Doing such quantification, to a useful level of accuracy, is surprisingly easy.


Should we operate our testing process at 80 percent utilization with a 2 week queue, or at 90 percent utilization with a 4 week queue?

A Typical Question


Making Economic Decisions

Waste

Cycle Time

Variability

Efficiency

Unit Cost

Value-Added

Revenue

Life CycleProfits

Economic SpaceProxy Variable Space

Transformations


The Modeling ProcessCreate Baseline Model

Determine Total Profit Impact of Missing a MOP

Calculate Sensitivity Factors

ModelExpenseOverrun

ModelSchedule

Delay

ModelValue

Shortfall

ModelCost

Overrun

ModelRisk

Change


The Model OutputLife-Cycle Profit Impact

-$80,000

-$500,000

-$100,000-$150,000

-$40,000

1 PercentExpenseOverrun

1 PercentProduct Cost

Overrun1 Percent Value

Shortfall 1 Month Delay1 Percent

Increase in Risk


Range of Cost of Delay Estimates

Poor Intuition

Average Intuition

Best Case Intuition

Average Analysis

Quality Analysis

Any Analysis Beats Intuition

200:1

50:1

10:1

2:1

1.2:1

Source: Reinertsen & Associates Clients


Managing Weight vs. Product Cost

Engineer Supervisor ProgramManager

Boeing 777 Weight Reduction Decision Authority

$300

$2,500

$600

Dollars per Pound


2. Manage Your Queues

• Many product developers assume higher utilization leads to faster development.

• They neither measure nor manage the invisible queues in their process.

• Consequently, they underestimate the true cost of overloading their processes.

• Such overloads severely hurt all aspects of development performance.

Traffic at rush hour illustrates the classic characteristics of a queueing system.

Pho

to C

opyr

ight

200

0 C

omst

ock,

Inc.


The Effect of Capacity Utilization

Queue Size vs. Capacity Utilization

0

5

10

15

20

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%Capacity Utilization

Que

ue S

ize

Notes: Assumes M/M/1/ Queue, = Capacity Utilization

1

2

qL


Total Cost

Cost of Delay

Cost of Excess Capacity

Managing Queues

Excess Product Development Resource

Dollars

Minimize Total Cost to Maximize Profits


Longer Cycle Time

Lower Quality

More Variability

Increased Risk

More Overhead

Less Motivation

Queues Create...

Why Queues Matter

Managing Queues is the key to improving product development economics.


3. Exploit Variability

• In manufacturing it is always desirable to reduce variability.

• In product development eliminating variability eliminates innovation.

• We must understand the specific conditions that make variability valuable and manage our process to create these conditions.

• We need development processes that function in the presence of variability.


Payoff vs. Price

Price

Payo

ff

Expected Price

Price

Prob

abilt

yAsymmetric Payoffs and Option Pricing

Strike Price

Expected Payoff

Price

Expe

cted

Pa

yoff Strike

Price

x

=


Higher Variability Raises This Payoff

Price

Expected Payoff

Payoff SD=15 Payoff SD=5

Option Price = 2, Strike Price = 50, Mean Price = 50, Standard Deviation = 5 and 15

Strike Price


4. Enable Smaller Batches

• When work products are invisible, batch sizes are invisible.

• When batch sizes are invisible, product developers pay little attention to them.

• Many companies institutionalize large batch sizes.• Batch size reduction is attractive because it is fast,

easy, cheap, granular, leveraged, and reversible.• It is a great starting point for LPD.

Batch Size Queues Cycle Time

X 0.5 X 0.5 X 0.5


Small BatchesLarge Batch

Unreviewed Drawings

Drawing Review Process

200

20

10 Weeks 1 Week


Small BatchesLarge Batch

Unreviewed Drawings

Drawing Arrival Rate

200

20

10 Weeks 1 Week

Who’s First?Who’s Last?


Cheaper Correction

Cheaper Debug

Lower Cost Changes

Better Economics

Fewer Status Reports

Faster Cycle Time

Early Feedback

Faster Learning

Less Requirements Change

Less Debug Complexity

More Efficient Debug

Cheaper Testing

Less Non-Value-Added

Better Code

Fewer Open Bugs

More Uptime

Higher Validity

Smaller Changes

Benefits of Small Batch Testing


Setting Batch Size

Economic Batch Size

0

5

10

15

20

25

1 2 3 4 5 6 7 8 9 10

Items per Batch

Cost

Transaction Cost Holding Cost Total Cost


5. Control WIP and Start Rates

• Many developers incorrectly assume that the sooner they start work, the sooner they will finish it.

• They are constantly tempted to start too much work.

• This dilutes resources and causes long transit times through their processes.

• A long transit time hurts efficiency, quality, and responsiveness.


Little’s Formula

• By constraining WIP in development processes we can control cycle time.

• This approach, which is known as Lean Kanban, is currently growing rapidly in software development.

Rate Departure Average

Queuein Customers ofNumber Average

Queuein Time Wait Average

q

q

qq

L

W

LW


1234

12

34

COD Savings of Project 1 and 2 Late Start Advantages for Project 3 and 4

Control Number of Active Projects


Avoiding Long Planning Horizons

Datum

Search Area

D = Vt

D = Vt

A =V2 t2

Planning Horizon

Error


Visual WIP Control Boards

ReadyQueue Coding

Readyto Test Testing

TestComplete

A D

E

C

B

WIP Constraint = 10 unitsWIP constraints can be local, regional, or global.


6. Sequence Work Correctly

• The sequence in which work is processed is called the queueing discipline.

• By changing the queueing discipline we can reduce the cost of a queue without decreasing the size of the queue.

• Since manufacturing has homogeneous flows it always uses FIFO (First-In-First-Out).

• For the non-homogeneous flows of product development other approaches have better economics.


Cost of

Delay

Time

2

Cost of

Delay

Delay Cost

First-In First-Out

Last-In First-Out

Project DurationCost of Delay

1 3 32 3 33 3 3

Use FIFO for Homogeneous Flow

1

3

23

1


Cost of

Delay

Time

Cost of

Delay

Delay Cost

High Weight First

Low Weight First

12

3

Project DurationCost of Delay

Weight = COD/

Duration1 1 10 102 3 3 13 10 1 0.1

1

23

Weighted Shortest Job First (WSJF)

160 796 Percent Reduction!


7. Create Faster Feedback

• When queues and batch sizes are large feedback is slow.

• Slow feedback hurts quality, efficiency, and cycle time.

• Feedback speed has enormous economic leverage in product development, but it is rarely explicitly managed.


The Front-Loaded Lottery• A lottery ticket pays $3000 to the winning

three digit number. • You can pick the numbers in two ways:

• Pay $3 to select all three digits at once.• Pay $1 for the first digit, find out if it is

correct, then choose if you wish to pay $1 for the second digit, and then choose if you wish to pay $1 for the third digit.


100%Probability

of Occurrence

Value of Feedback

Cumulative Investment

100%

10%

Savings= $0.90

$1 $2

10%

0 $3

Savings= $0.99

1%

Spend $1.00


1. Understand your economics.2. Make your queues visible and control them.3. Create a process to exploit variability.4. Enable smaller batches. 5. Control cycle time by controlling WIP.6. Sequence work based on economics.7. Accelerate feedback with smaller batches.

Seven Big Ideas of 2GLPD


1991 / 1997 1997 2009

Going Further

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