We can’t reliably predict which ideas will work and which won’t so we’ve got to experiment to find out.

Big bets fail big

A feature specification or description is a solution hypothesis. When we build a feature and delay validating it with customers we’re making a bet that it’s “right”. What if we’re wrong? Building feature upon feature this way ups the ante until we find ourselves betting the budget on a big-bang release. When we do this we’re not only creating more inventory, we’re investing deeper and deeper, taking on more risk, and essentially making a bigger and bigger bet.Big betsCapital investments in IT projects are big bets made on the merits of business cases built on assumptions. Senior managers often have stronger psychological attachment to bigger projects because they’re assumed to have bigger payback over the long term. Ned Barnholt, HP Executive Vice President and former CEO of Agilent Technologies called this the “tyranny of large numbers”. People get carried away with the expectation of gains instead of what can afford to be lost. Unfortunately, the bigger the investment, the less likely it will be questioned. The business case gets treated as a statement of fact by those responsible for delivery when, really, a business case is also nothing more than a hypothesis.

More control doesn’t reduce the bet

There are some big assumptions being made in this approach, for example:

  1. The requirements define the right solution.
  2. All requirements must be delivered before any value can be realized (all or nothing).
  3. If all requirements are delivered, the value will be realized.

Conventional governance and management practices attempt to optimize productivity. This actually does nothing to address the big risks in the above assumptions. There’s no way to reliably predict what will be valuable and what won’t. There’s more concern about maintaining control than delivering value. As John Seddon likes to say, “it’s about doing the wrong things righter.”

Can we deliver less without delivering too little?

Yep. By making smaller bets we can prove earlier what’s valuable and what’s not valuable. And we can determine what’s enough rather than just paying for everything. If we bet what we can afford to lose each time, we can pursue a set of options and get faster feedback to discover the best and right solution. We can focus on the user, their context, what they’re trying to achieve – the outcome they desire, rather than pursuing a single definition of a feature thought to be the solution users want.Small betsBy making small bets we create multiple, repeating opportunities to test for value. We maintain a smaller overall investment while enabling massive flexibility to achieve business objectives. We build capability through learning about users. We fold innovation into delivery through creative discovery and experimentation.

Incremental capital and operational investments

If we were to take a product-oriented or business services view of the world, where end-to-end cross-functional IT capabilities were on the business front-line so to speak, then we could manage portfolios of products or business services rather than IT projects. Governance then faces the exciting opportunity to help business investors make investments that maximize business performance. Isn’t that more valuable? Isn’t that more meaningful? In this context, why not make smaller incremental capital and operational investments based on actual business measurements rather than on predictive annual budgeting and forecasting? To do this people need simplified accounting and real-time and relevant information. Beyond Budgeting talks about Fast Actuals and Flash Forecasts using moving averages and rolling monthly and quarterly reviews to inform continuous re-evaluation and prioritization.

At Energized Work, we’ve been using cash-basis accounting and value-oriented governance in and across product streams since we originally experimented with throughput accounting with a client in 2008. The types of measurements we take fall within the following categories:

  • Individual product or business service cash flows.
  • Overall portfolio performance.
  • Risk exposure.
  • Impending obsolescence.
  • Cost of delay.

Profitability

Basically, we place small bets across a portfolio and monitor for profitability, customer and stakeholder delight, operating risks, and staff morale. Looking at the data coming back, we gain insights that inform our governance and operating decisions. We can continue investing, making small bets to test for further value. We can stop capital investment early when enough value has been realized, and not waste money on features that won’t be used, while continuing operational investment for as long as the product or business service operates profitably with acceptable risks. We can stop investing in systems approaching their ‘sell-by date’. Today’s projects are tomorrow’s legacies. Imagine this – by sensing impending obsolescence, we can make letting something become a legacy be an explicit portfolio decision based on risk, rather than it just happening in the background. Or we can exit, shutting down anything that’s no longer profitable or adding value, and move the people onto other streams.

Decisions are bets. Understand the gamble

How long does it take for decisions to be tested in your company? Days? Weeks? Months? As Sean Blezard said, “Count the cost, understand the gamble.” We can afford to be more scientific. There are still no guarantees but we can be smarter with our money by making more informed decisions based on evidence. Making small bets allows us to discover new ideas and strategies through an emergent process. Small wins validate the direction. False starts and small mistakes give a signal to proceed in a different way. Making small bets doesn’t mean there’s no bold ambition. We just adapt as we go rather than follow a course set out at the start that may lead to failure.

Something Will McInnes said in his book Culture Shock nicely sums up small bets: “We’re no longer seeking ‘the single best decision for all time’. Instead, we’re free to make a whole series of the ‘best decision right now’. [..] We shift from ‘perfectly planned’ to ‘always learning’ in the face of uncertainty and constant change.”

(This post is based on one of the topics from Energized Work’s World Cafe event at the Agile Business Conference: Governance – Friend or Foe?)

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