This course was created by Jez Humble. We are pleased to offer this training in our library.
Skill Level Intermediate
- As we discussed in the module on product management, many companies don't actually use economic models to make investment decisions. And, in fact, our research shows that 76% of organizations use decision by committee or the opinion of the most highly paid person, or they don't have any systematic way for making investment decisions. However, 24% of organizations do, and that's very important. Having an economic model for making investment decisions is important because, as Don Reinertsen says, "You may ignore economics, but economics won't ignore you." If you're not thinking about these things, you're going to make decisions that are suboptimal. You're going to waste money. You're not going to build things that actually deliver to the top line of your company and you will fail. The other quote I like from Don Reinertsen, he says, "The measure of execution in product development "is our ability to constantly align our plans "to whatever is, at the moment, the best economic choice." Step one in thinking about economics is to translate all of your decisions into a single measure. And that measure should be something you can use to compare things across your entire product portfolio. You may already have a measure like this. Many industries have standardized measures. For example, the airline industry uses cost or revenue per available seat mile as the comparison point. So having a single measure that you can translate everything to allows you to make quantitative decisions and comparisons. If you don't have a measure that's standard for your industry, there's one very simple measure you can use, which is the dollar or whatever currency you use in your country. Converting everything to a single unit is necessary to be able to make effective decisions. What we're talking about in this unit, in this module, is planning tools and prioritization tools. It's important to remember that we don't need high levels of precision in this context. High levels of precision are important in accounting when you're actually accounting for things at the backend, but for planning and prioritization processes, typically you don't need a very high level of precision. People could spend a lot of time estimating things to the nth degree in fine detail. Usually, that's absolutely not necessary. So these are just some things to bear in mind as we work through the material in this unit. We're also presenting a number of tools in this module. These tools are arithmetic tools. They use numbers. None of them are very scary. It's just basic arithmetic. We're not doing calculus or anything crazy. The important thing about the tools is not just the numbers that come out in the backend. It's also the discussions that they generate within your teams. A lot of these tools will force you to think about assumptions. What assumptions are we going to have to make in order to put numbers into this tool? And, in fact, when you look at these tools, you may think, well, I just don't even know what numbers to start with. That's okay. Have a discussion. Come up with a number and it may change later. The important thing is the discussions around assumptions that you're going to have in coming up with those numbers. So make sure you record those assumptions, and use those assumptions as a way to have further discussions as you go through the product development life cycle, and you can even design experiments to test those assumptions. That is often the most important thing to come out of using these models, is the shared understanding, communication and the assumptions that come out of putting numbers into the tools and making the calculations.