- Principle #1: Take an economic view
- Principle #2: Apply systems thinking
- Principle #3: Assume variability; preserve options
- Principle #4: Build incrementally with fast, integrated learning cycles
- Principle #5: Base milestones on objective evaluation of working systems
- Principle #6: Visualize and limit WIP, reduce batch sizes, and manage queue lengths
- Principle #7: Apply cadence, synchronize with cross-domain planning
- Principle #8: Unlock the intrinsic motivation of knowledge workers
- Principle #9: Decentralize decision-making
The 9 principles of the Scaled Agile Framework (SAFe).
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Principle #1: Take an economic view
While you may ignore economics, it won’t ignore you.
—Don Reinertsen, Principles of Product Development Flow
Achieving the goal of Lean—that is, the shortest sustainable lead time with the best quality and value to people and society—requires understanding the economics of the mission. Without that, even a technically competent system may cost too much to develop, take too long to deliver, or incur manufacturing or operating costs that cannot economically support efficient value.
To this end, the entire chain of leadership, management, and knowledge workers must understand the economic impact of the choices they’re making. Traditionally, the economic constraints on their activities are known only to the decision-makers and authorities who understand the business, marketplace, and customer finances.
However, centralizing such knowledge means that a worker’s everyday decisions are either made without this information or escalated to those who have it. The first choice directly undermines economic outcomes. The second increases delays in value delivery, which ultimately has the same effect.
SAFe highlights the important role of economics in successful Solution development. Therefore, SAFe’s first Lean-Agile principle is to take an economic view. It’s Principle #1 for a reason: If the solution doesn’t meet the Customer’s or solution provider’s economic goals, then its sustainability is suspect. Solutions fail for many reasons, and economics is a big one. This chapter describes the two essential aspects needed to achieve optimal economic outcomes via Lean-Agile methods:
Deliver early and deliver often
Understand the economic trade-off parameters for each program and Value Stream
Each of these steps is outlined in the following sections. In addition, SAFe represents many of these principles directly in its various practices, such as the ‘Economic Framework’ in part 7.
Deliver Early and Often
Enterprises decide to embrace Lean-Agile development either because their existing processes aren’t producing the results they need, or because they anticipate that they won’t do so in the future. By choosing a Lean-Agile path, they are embracing a model based on incremental development and early and continuous value delivery, as Figure 1 illustrates.
Figure 1. Moving to early and continuous delivery
That decision alone contributes perhaps the primary economic benefit, as illustrated in Figure 2.
Figure 2. Incremental development and delivery produce value far earlier
Figure 2 shows how Lean-Agile methods deliver value to the customer much earlier in the process. Moreover, this value accumulates over time: The longer the customer has it, the more value the customer receives. Conversely, with the waterfall model, value can’t even begin until the end of the planned development cycle.
This difference is a material economic benefit of SAFe. What is more, this picture does not take into account the advantages of receiving far faster feedback related to the solution and of eliminating the probability that the waterfall delivery would not occur on time or may not demonstrate fitness for use. Moreover, there is a third and final factor, as shown in Figure 3.
Figure 3. Value is higher early on, producing higher margins over a longer period of time
Figure 3 illustrates a key differentiator, as long as the quality is high enough: Products and services delivered to market early are typically more valuable. After all, if they arrive ahead of the competition, they aren’t available from anyone else and the buyer perceives them as worth paying a premium. Over time, features become commoditized. Cost, not value differentiation, then rules the day. For this reason, even a Minimum Viable Product (MVP) can be worth more to an early buyer than a more fully featured product delivered later.
The net effect is that cumulative gross margins are higher. This is the premise of Lean-Agile development—one that is firmly entrenched in the Lean-Agile Mindset and that drives the development of the solution in the shortest sustainable lead time.
Understand Economic Trade-Off Parameters
The rationale discussed previously serves as motivation for adopting a more effective economic model of faster delivery. However, there is far more work to be done when executing a program. After all, economic decisions made throughout the life of the solution will ultimately determine the outcome. Therefore, it’s necessary to take a more in-depth look at additional economic trade-offs. Reinertsen describes five factors that can be used when assessing the economic perspective of a particular investment, as shown in Figure 4 .
Figure 4. Five primary trade-off parameters for product development economics
In this illustration:
Development expense – The cost of labor and materials required to implement a Capability
Cycle time – The time to implement the capability (lead time)
Product cost – The manufacturing cost (of goods sold) and/or deployment and operational costs
Value – The economic worth of the capability to the business and the customer
Risk – The uncertainty of the solution’s technical or business success
Understanding these trade-offs helps optimize life-cycle profits, which is the key to unlocking optimal development economic value. At the same time, however, it requires a deeper project understanding. Here are two examples:
A team building a home automation system estimates that moving more functionality to software can reduce the cost of electronic parts by $100. Doing so would delay the release lead time by three months. Should the team take this step? Clearly, the answer is ‘it depends.’ It depends on the anticipated volume of the product to be sold compared to the Cost of Delay (CoD) of not having the new release to market for three extra months. Some further analysis is required before that decision can be made.
A large software system with substantial technical debt has become extremely difficult to maintain. The development expense is largely fixed. Focusing on the technical debt now will reduce the near-term value delivery. But it will also reduce lead time for future features. Should the team take this step? Again, the answer is ‘it depends.’ More quantitative thinking will need to be applied.
In addition to the trade-off parameters, Reinertsen describes a number of key principles that help teams make informed decisions based on economics:
The Principle of Quantified CoD – If you quantify only one thing, quantify the CoD
The Principle of Continuous Economic Trade-Offs – Economic choices must be made throughout the process
The Principle of Optimal Decision Timing – Each decision has its ideal economic timing
The Sunk Cost Principle – Do not consider money already spent
The First Decision Rule Principle – Use decision rules to decentralize economic control
This last principle is particularly relevant to SAFe, and to the corollary Principle #9 – Decentralize decision-making, and is described further in the ‘Economic Framework’ chapter in part 7.