Prioritizing Your Product Backlog

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© Copyright Mountain Goat Software® ® Mike Cohn Founding member and director of Agile Alliance and Scrum Alliance Founder of Mountain Goat Software Doing Scrum since 1995 Started my career as a programmer 2

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© Copyright Mountain Goat Software® ® Combine formal & informal Formal prioritization approaches for Choosing among projects Choosing between “epics” or “big features” An informal approach (expert opinion) Once you’ve selected the epics / big features 3

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© Copyright Mountain Goat Software® ® Why? Features that are too small cannot be effectively prioritized against each other What’s more important in a word processor? The A key or the E key? Tables or undo? What’s more important on a car? The left front wheel or the right front wheel? Increased leg room or a larger engine? 4

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© Copyright Mountain Goat Software® ® Kano analysis 1 O Must be present in order for users to be E3F;EX76 Mandatory / Baseline O The more of it, the better Linear O Features a user doesn’t know she wants, until she sees it Exciters / Delighters 9

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© Copyright Mountain Goat Software® ® Surveying users To assess whether a feature is baseline, linear, or exciting we can: Sometimes guess Or survey a small set of users (20-30) We ask two questions A functional question How do you feel if a feature is present? And a dysfunctional question How do you feel if that feature is absent? 11

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© Copyright Mountain Goat Software® ® Functional and dysfunctional forms If your hotel room includes a free bottle of water, how do you feel? I expect it to be that way. I like it that way. I am neutral. I can live with it that way. I dislike it that way. ✔ If your hotel room does not include a free bottle of water, how do you feel? I expect it to be that way. I like it that way. I am neutral. I can live with it that way. I dislike it that way. ✔ Functional form of question Dysfunctional form of question 12

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© Copyright Mountain Goat Software® ® Categorizing an answer pair Dysfunc ctional Qu uestion Like Expect Neutral Live with Dislike Like Expect Neutral Live with Dislike Q E E E L R I I I M R I I I M R I I I M R R R R Q Functional Question Mandatory Linear Exciter Questionable Reverse Indifferent 13

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© Copyright Mountain Goat Software® ® Aggregating results Apply stylesheets Automate report execution Export reports to PowerPoint 3 11 31 1 3 2 4 22 20 4 1 0 21 9 14 5 1 1 Questionable Reverse Indifferent Mandatory Linear Exciter Themes 14

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© Copyright Mountain Goat Software® ® Relative weighting Assess the impact of having a story/theme from 1-9 Assess impact of NOT having it from 1-9 Calculate the value of each story or theme relative to the entire product backlog This gives you the relative value of that story or theme Estimate the cost of each story theme Calculate the cost of each story or theme relative to the entire product backlog This gives the relative cost of that story or theme Priority is given by (Relative Value ÷ Relative Cost) 2 17

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© Copyright Mountain Goat Software® ® Relative weighting: an example More investment choices Portfolio rebalancing Comply with new law Total: ,7>3F;H77@7XF Relative Penalty Total Value Value Percent Estimate Cost Percent Priority 8 9 1 6 2 9 14 11 10 35 40 31 29 100 64 40 42 146 44 27 29 100 91 115 100 .AF3>03>G7,7>3F;H77@7XF,7>3F;H7*7@3>FK Value Percent = Total Value / ∑ (Total Value) Cost Percent = Estimate / ∑ (Estimate) 18

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© Copyright Mountain Goat Software® ® O You are the VP of Product Development at MyCookSpace.com, a social networking site O You have a minimally functional site up with 4,000 registered cooks O You are trying to grow that to 400,000 as quickly as possible before you run out of money O You are also interested in other features that result in revenue O Identify 4-5 epics or big features to develop O Complete a relative weighting worksheet O Make reasonable but wild guesses at development effort estimates Prioritizing MyCookSpace.com 19

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© Copyright Mountain Goat Software® ® Expert opinion Focus needs to be on delivering value to the customer But consider these four factors 1. Delivery of new capabilities 2. Development of new knowledge 3. Mitigation of risk 4. Changes in relative cost 3 21

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© Copyright Mountain Goat Software® ® Theme screening Identify around 5-9 selection criteria for what is important in the next release Select a baseline theme Likely to be included in the next release Understood by most team members Assess each candidate theme relative to the baseline theme 4 22

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© Copyright Mountain Goat Software® ® Theme screening: an example Continue? Theme A Rank Net Score Generates revenue in Q2 Starts us integrating product lines Competitiveness with ABC Corp. Importance to existing customers 0 Theme B − 0 0 Epic C Baseline Theme Theme D Epic E Epic F 0 − 0 0 0 −1 0 0 0 0 0 − 0 0 − 0 0 0 0 1 7 3 4 4 4 2 N N N Y Y Y Y Selection criteria Themes = better than 0 = same as − = worse than 23

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© Copyright Mountain Goat Software® ® Theme scoring Like theme screening but selection criteria are weighted Need to select a baseline theme for each criteria Avoids category compression Each theme is assessed against the baseline for each selection criteria 5 Much worse than reference 1 Worse than reference 2 Same as reference 3 Better than reference 4 Much better than reference 5 24

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© Copyright Mountain Goat Software® ® 3.90 1 3 2 Yes No Yes Theme scoring: an example Continue? Rank Net Score Generates revenue in Q2 Starts us integrating product lines Competitiveness with ABC Corp. Importance to existing customers Weight Rating Theme A Weighted Score 3 2 3 5 0.75 0.20 0.45 2.50 Rating Epic B Weighted Score 1 3 4 2 2.15 0.25 0.30 0.60 1.00 Rating Theme C Weighted Score 4 3 4 3 3.40 1.00 0.30 0.60 1.50 25% 10% 15% 50% 25

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© Copyright Mountain Goat Software® ® O/E;@9F:7E3?7F:7?7E;67@F;X768AD the relative weighting exercise, complete a theme screening or theme scoring worksheet for MyCookSpace.com Theme screening or scoring 26

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© Copyright Mountain Goat Software® ® >>X@3@5;3>675;E;A@E;@HA>H7F:D777>7?7@FE How much? How long? At what interest rate? If you’re buying a house: It’s a $220,000 loan For 30 years At 7% per year Three factors to consider 28

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© Copyright Mountain Goat Software® ® Which project would you prefer? Year Proje ect A Proje ect B Investment Return Investment Return 0 1 2 3 4 5 $1,000 $1,000 $200 $3,000 $300 $500 $500 $300 $3,000 $200 $0 $0 30

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© Copyright Mountain Goat Software® ® Calculating the value of future dollars To buy a $5 hamburger next Tuesday… To buy a $5 hamburger in a year, how much do I put in the bank today? I would put around $4.99 in the bank today $5.00 $5.00 1.10 $4.54 = = Assumes 10% interest rate The present value of $5.00 a year from now 32

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© 2009 Mountain Goat Software © Copyright Mountain Goat Software® ® Present value of one future amount Future Value ;@F7D7EFD3F7 Present Value = $5.00 = $4.54 An example: Generalizing FV ;t PV = Simplifying *0 0 ;-t 33

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© Copyright Mountain Goat Software® ® NPV example Quarter Cash Flow ;-t Discounted Cash Flow Running Total 0 1 2 3 4 -200 1.000 -200 -200 -600 0.971 -583 -783 100 0.943 94 -689 300 0.915 275 -414 500 0.888 444 30 O Assuming 12% annual discount rate (3% / quarter) 35

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© Copyright Mountain Goat Software® ® Discount rate sensitivity Quarter Cash Flow Discounted Cash Flow (3%) Discounted Cash Flow (6%) 0 1 2 3 4 Total –200 –200 –200 –600 –583 –783 100 94 –689 300 275 –414 500 444 30 100 30 –29 O NPV is highly sensitive to the chosen discount rate Do the project under these circumstances But not under these 36

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© 2009 Mountain Goat Software © Copyright Mountain Goat Software® ® Comparing NPVs Highest NPV brings the most present-value dollars to the company Theme NPV Scalability Gift registry Ad hoc reporting Pay by invoice $2,100 $1,253 $784 $385 Comparing NPVs can be misleading. What if: •“Pay by invoice” requires a $5 investment •“Scalability” requires $50,000? 37

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© Copyright Mountain Goat Software® ® Rather than expressing returns in dollars, we’d like to express return as a percentage Allows for direct comparisons NPV = how much money a project will return ROI = how quickly an investment will grow Return as a percentage 39

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© Copyright Mountain Goat Software® ® Internal rate of return (IRR) and ROI IRR = Internal Rate of Return Often called Return On Investment (ROI) The interest rate at which NPV is 0 0 = PV(i*) = F t 1+ i ( )−t t= 0 n ∑ 40

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© Copyright Mountain Goat Software® ® IRR gives us the discount rate at which we don’t care whether or not we do the project We don’t make $30; we don’t lose $29; we break even Remember this table? Quarter Cash Flow Discounted Cash Flow (3%) Discounted Cash Flow (6%) 0 1 2 3 4 Total –200 –200 –200 –600 –583 –783 100 94 –689 300 275 –414 500 444 30 100 30 –29 41

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© Copyright Mountain Goat Software® ® Use Excel’s irr function How to calculate ROI or IRR ;DDM−200, −600, 100, 300, 500}) An investment ?367A@F:7XDEF day of the project 3E:YAIE8AD remainder of project (4 quarters) 42

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© Copyright Mountain Goat Software® ® Advantages and disadvantages Advantages You don’t need to guess at a discount rate like with NPV Can be used to directly compare projects Disadvantages Calculation is hard to do by hand (but easy in Excel); may lead to numbers being distrusted Cannot use in all circumstances 7 9 A@5753E:YAIFGD@EBAE;F;H7;FEF3KE positive 43

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© 2009 Mountain Goat Software © Copyright Mountain Goat Software® ® Payback period The amount of time before an initial investment is paid back I loan you $5. You pay me back $1/week. The payback period is 5 weeks. Quarter Cash Flow Running Total 0 1 2 3 4 -200 -200 -200 -400 100 -300 300 0 500 500 Payback period is 3 quarters. 45

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© Copyright Mountain Goat Software® ® Advantages Calculation is very easy '73EGD7EF:76GD3F;A@A8X@3@5;3>D;E= Longer payback period = greater risk Disadvantages Doesn’t consider the time-value of money A7E@VF?73EGD7BDAXF34;>;FK3F3>> Advantages and disadvantages 46

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© Copyright Mountain Goat Software® ® Discounted payback period Quarter Cash Flow ;-t i=3% Discounted Cash Flow Running Total 0 1 2 3 4 -200 1.000 -200 -200 -200 0.971 -194 -394 100 0.943 94 -300 300 0.915 275 -25 500 0.888 444 419 O ;E5AG@F8GFGD753E:YAIE3@667F7D?;@7I:7@F:7 investment is paid back Discounted payback period = 4 quarters 47

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© Copyright Mountain Goat Software® ® Net Present Value (NPV) -G?A86;E5AG@F768GFGD753E:YAIE Expresses return as an amount of money Return on Investment (ROI) / Internal Rate of Return The interest rate at which NPV = 0 That is, at which you’d be indifferent to the investment Expresses return as a percentage Discounted payback period Amount of time before discounted returns equal the investment Expresses return as an amount of time Financial analysis recap 48

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© Copyright Mountain Goat Software® ® Person Weeks Cost 3-Year Return NPV IRR D. Payback (Quarters) Feature A Feature B Feature C Feature D Feature E Feature F Feature G Feature H Feature I Feature J Feature K Feature L Feature M Feature N Feature O 25 $150 $1,085 $448 133% 2 32 192 $2,109 $940 172% 4 90 $540 $2,537 $883 89% 2 48 $288 $1,360 $443 76% 4 55 $330 $900 $191 48% 2 79 $474 $1,365 $331 56% 4 90 $540 $5,964 $2,519 139% 5 50 $300 $2,415 $1,023 146% 2 15 90 $1,600 $747 221% 1 30 $180 $640 $182 65% 2 75 $450 $516 ($104) 5% NA 40 $240 $171 ($110) (12%) NA 80 $480 $1,025 $142 36% 3 18 $108 $185 $7 24% 2 12 $72 $1,505 $748 355% 1 Comparison matrix 49