173RE: [scrumdevelopment] Measuring Business Value
- Dec 8, 2001Excellent.
Right now software projects only allow variation between cost, quality, time
and functionality (usually just functionality).
I intend to restate the formula as you indicated below, where
business value f(cost, time, quality, functionality), so the busines person
adjusts the four to create business value.
From: mpoppendieck [mailto:mary@...]
Sent: Saturday, December 08, 2001 4:01 PM
Subject: [scrumdevelopment] Measuring Business Value
I am delighted to hear that your next book will focus on driving
software development based on business value. I thought I'd post
few observations on the subject.
There are many barriers that get in the way of optimizing business
value across a value chain, especially when the value chain includes
more than one organization. Generally, each organization is trying
to maximize its own individual measurements. However, measurements
which do not span the value chain invariably cause sub-optimized
business value across the organizations.
To use a manufacturing example, we used to optimize the utilization
of individual machines. After all, I had to use a very expensive
coater, and it's burden rate was assigned to the unit cost of my
product, and my product's P&L statement was based on it's
cost. This meant that it was imperative that I maximize the
utilization of that big machine, so as to minimize my product's
This logic, however sound it may seem, turned out to be patently
wrong. Machine productivity is a sub-optimized measurement. Only
when it was abandoned as a critical performance measurement could
progress on providing real business value be made. People who
understand Just-in-Time and Supply Chain Management understand this.
When a contract is put in place between two companies, it is assumed
that the contract defines true business value, but in fact, it
rarely does. Contracts cause measurements such as cost, schedule
and scope to be important, because the meeting the contract terms is
thought to be equivalent to providing business value. Generally
these measurements are as misguided as the old manufacturing value
of maximizing machine productivity.
In fact, cost, schedule and scope are usually sub-optimized
measurements; certainly all three of them taken together are. These
measurements do not define true business value across the value
chain, any more than the contract itself defines cross-organization
value. In fact, such measurements will mostly get in the way of
driving the entire effort toward true business value.
The fundamental focus of Supply Chain Management is to do away with
sub-optimizing points of measurement so as to optimize business
value across multiple companies. Software development would do well
to consider how to do the same.
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