New: Agile Estimating & Forecasting, 13 July NOW BOOKING – Code BLOG_READER for 45% discount + 25% Early Bird discount
The picture above is a time-value profile: it shows how value changes with time. It is a graphic illustration of cost of delay.
A fine wine might increase in value over time but most things – think product, project, feature or just story – decay with time. Having something today is worth more than having it next week.
I invented Time-Value profiles – although I’m happy to acknowledge Don Rienertsen’s influence. I’ve included time-value profiles in many presentations and courses (they are a key part of my value workshop) but oddly, while I’ve mentioned them in this blog before I’ve never described them. So here goes…
Imagine we want to build a feature for a product. Naturally we ask: “what is this worth?”
Money is the obvious way to measure value but strictly speaking money is not itself valuable – unless you happen to want small colourful pieces of paper or decorated lumps of metal. Money is a store of value. The value of money is not the money itself but what you can exchange the money for. And because money can be traded for a wide variety of things, which are themselves valuable, money is a useful medium for comparison and measurement.
So the question “what is this worth?” may be answered qualitatively (“a vaccine is valuable because it saves lives”) or quantitatively (“a vaccine is worth $10 trillion because it allows life to return to normal”). In order to compare competing opportunities and valuations, and in order to draw a graph, giving value a numerical quantity helps greatly.
A time-value profile shows quantitive value over time when value is measured numerically: maybe in hard money like dollars or yen, or an abstract measure like business points, wooden dollars or Atlantic shillings (I just invented that but it works).
The graph starts today: we say “If we had feature X today it would be worth 100,000 shillings”. Maybe it is worth 100,000 because that is what a customer would pay for it, or maybe because we could sell 100,000 units at 1 shilling each, or so on.
But we don’t have X today. “If we get feature X next month it will be worth 90,000 shillings.” One month delay, one month late to the customer, one month later on Amazon, costs 10,000 shillings.
“If feature X is 3 months away then it is worth less than 50,000 shillings.” And so on.
Now, the unit of value – dollars, francs, shillings, wood – is of little important. Sure $1,000,000 is very different to ₽1,000,000 (Russian roubles if you don’t know) but as long as you don’t mix currencies the actual currency is unimportant.
What is important is the shape of the curve and, especially, where abrupt changes happen. Look again at the graph above: between months two and three there is a sudden drop in value. That has scheduling implications.
Once you start to think about time-value profiles then it becomes obvious that value is a function of time and we need to understand what that function looks like for any given work – project, product, initiative, feature, story, just anything in fact.
It should also become clear that the question “how long will it take to build X” needs to be inverted: “how long have we got to build X?”, “how much of X could we build?” or “in the time we have what could create something to satisfy need X”
And then “how much of the available value can we capture?”. Having X might be worth 100,000 but having a half of X might still be worth 50,000 more than not having X.
As I’ve written before: to any given problem there are multiple solutions. Engineering is not about creating the best possible solution, it is about creating a solution within constraints – as my widgets exercise shows.
Add in capacity planning and a whole new paradigm of scheduling opens up.
Not that I wish to ignore costs – and effort estimates – but they are secondary, and the subject of another blog. I’ll write more about this, and perhaps put something into a workshop, in the meantime my value workshop is the best place to find out more.