2018-11-13 Don Reinertsen: An Introduction to Second Generation Lean Product Development
- 1. No part of this presentation may be reproduced without the written permission of the author. An Introduction to Second Generation Lean Product Development SimCorp SAFe Meetup Copehhagen, Denmark November 13, 2018 Donald G. Reinertsen Reinertsen & Associates 600 Via Monte D’Oro Redondo Beach, CA 90277 U.S.A. (310)-373-5332 Internet: [email protected] Twitter: @dreinertsen www.ReinertsenAssociates.com
- 2. Copyright 2018, Reinertsen & Associates 2 Some Big Ideas 1. Understand your economics. 2. Manage queues. 3. Exploit variability. 4. Enable smaller batches. 5. Control WIP and start rates. 6. Prioritize based on economics. 7. Accelerate feedback.
- 3. Copyright 2018, Reinertsen & Associates 3 If we provide developers with good decision support information they can make better economic choices more quickly. Big Idea #1
- 4. Copyright 2018, Reinertsen & Associates 4 Should we operate our testing process at 80 percent utilization with a 2 week queue, or at 90 percent utilization with a 4 week queue? A Typical Question
- 5. Copyright 2018, Reinertsen & Associates 5 Making Economic Decisions Waste Cycle Time Variability Efficiency Unit Cost Value-Added Revenue Life Cycle Profits Economic SpaceProxy Variable Space Transformations The metric of the target space need not always be economic.
- 6. Copyright 2018, Reinertsen & Associates 6 The Modeling Process Create Baseline Model Determine Total Profit Impact of Missing a MOP Calculate Sensitivity Factors Model Expense Overrun Model Schedule Delay Model Value Shortfall Model Cost Overrun Model Risk Change
- 7. Copyright 2018, Reinertsen & Associates 7 The Model Output Life-Cycle Profit Impact -$80,000 -$500,000 -$100,000 -$150,000 -$40,000 1 Percent Expense Overrun 1 Percent Product Cost Overrun 1 Percent Value Shortfall 1 Month Delay 1 Percent Increase in Risk A Cost of Delay makes invisible queues financially visible.
- 8. Copyright 2018, Reinertsen & Associates 8 Range of Cost of Delay Estimates Poor Intuition Average Intuition Best Case Intuition Average Analysis Quality Analysis Any Analysis Beats Intuition 200:1 50:1 10:1 2:1 1.2:1 Source: Reinertsen & Associates Clients
- 9. Copyright 2018, Reinertsen & Associates 9 Decentralizing Control with Decision Rules Engineer Supervisor Program Manager Boeing 777 Weight Reduction Decision Authority $300 $2,500 $600 Dollars per Pound
- 10. Copyright 2018, Reinertsen & Associates 10 Understand Your Economics • In product development all difficult decisions involve multiple variables. • Making decisions that affect multiple variables requires quantification. • Doing such quantification, to a useful level of accuracy, is surprisingly easy. • Good decision support information enables decentralized decisions.
- 11. Copyright 2018, Reinertsen & Associates 11 Invisible and unmanaged queues are the root cause of poor economic performance in product development. Big Idea # 2
- 12. Traffic at rush hour illustrates the classic characteristics of a queueing system. PhotoCopyright2000Comstock,Inc.
- 13. Copyright 2018, Reinertsen & Associates 13 The Effect of Capacity Utilization Queue Size vs. Capacity Utilization 0 5 10 15 20 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Capacity Utilization QueueSize Notes: Assumes M/M/1/ Queue, = Capacity Utilization 1 2 qL
- 14. Copyright 2018, Reinertsen & Associates 14 Total Cost Cost of Delay Cost of Excess Capacity Managing Queues Excess Product Development Resource Dollars Minimize Total Cost to Maximize Profits
- 15. Copyright 2018, Reinertsen & Associates 15 Manage Queues • Many product developers assume higher utilization leads to faster development. • They neither measure nor manage the invisible queues in their process. • Consequently, they underestimate the true cost of overloading their processes. • Such overloads severely hurt all aspects of development performance. • Correct queue size is an economic tradeoff.
- 16. Copyright 2018, Reinertsen & Associates 16 In product development we should try to alter the economic impact of variability rather than trying to eliminate it. Big Idea # 3
- 17. Copyright 2018, Reinertsen & Associates 17 Payoff vs. Price Price Payoff Expected Price Price Probabilty Asymmetric Payoffs and Option Pricing Strike Price Expected Payoff Price Expected Payoff Strike Price x =
- 18. Copyright 2018, Reinertsen & Associates 18 Higher Variability Raises This Payoff Price Expected Payoff Payoff SD=15 Payoff SD=5 Option Price = 2, Strike Price = 50, Mean Price = 50, Standard Deviation = 5 and 15 Strike Price
- 19. Copyright 2018, Reinertsen & Associates 19 Exploit Variability • In product development, we can’t add value without adding variability, but we can add variability without adding value. • We must design development processes that flourish in the presence of variability. • The key to achieving better outcomes in the presence of variability is to create payoff asymmetries.
- 20. Copyright 2018, Reinertsen & Associates 20 The fastest and easiest way to reduce queues is to reduce the batch size in our product development process. Big Idea # 4
- 21. Copyright 2018, Reinertsen & Associates 21 Small BatchesLarge Batch Unreviewed Drawings Drawing Review Process 200 20 10 Weeks 1 Week Average feedback delay drops from 35 days to 3.5 days.
- 22. Copyright 2018, Reinertsen & Associates 22 Setting Batch Size Economic Batch Size 0 5 10 15 20 25 1 2 3 4 5 6 7 8 9 10 Items per Batch Cost Transaction Cost Holding Cost Total Cost
- 23. Copyright 2018, Reinertsen & Associates 23 The easiest way to control the cycle time of a process is to control the amount of WIP in the process. Big Idea # 5
- 24. Copyright 2018, Reinertsen & Associates 24 Why Limit Active Projects? 1 2 3 4 1 2 3 4 COD Savings of Project 1 and 2 Late Start Advantages for Project 3 and 4 Många barn och lite mat ger tunna smörgåsar. Mange børn og lidt mad giver tynde smørgåsar.
- 25. Copyright 2018, Reinertsen & Associates 25 Avoiding Long Planning Horizons Datum Search Area D = Vt D = Vt A =V2 t2 Planning Horizon Error
- 26. Copyright 2018, Reinertsen & Associates 26 Visual WIP Control Boards Ready Queue Coding Ready to Test Testing Test Complete A D E C B WIP Constraint = 10 units WIP constraints can be local, regional, or global.
- 27. Copyright 2018, Reinertsen & Associates 27 Control WIP and Start Rates • Many developers incorrectly assume that the sooner they start work, the sooner they will finish it. • They are constantly tempted to start too much work. • This dilutes resources and causes long transit times through their processes. • A long transit time hurts efficiency, quality, and responsiveness.
- 28. Copyright 2018, Reinertsen & Associates 28 At both the project and portfolio level, the sequencing of work should be based on economics. Big Idea # 6
- 29. Copyright 2018, Reinertsen & Associates 29 Cost of Delay Time 2 Cost of Delay Delay Cost First-In First-Out Last-In First-Out Project Duration Cost of Delay 1 3 3 2 3 3 3 3 3 Use FIFO for Homogeneous Flow 1 3 2 3 1 A A B B
- 30. Copyright 2018, Reinertsen & Associates 30 Cost of Delay Time Cost of Delay Delay Cost High Weight First Low Weight First 1 2 3 Project Duration Cost of Delay Weight = COD/ Duration 1 1 10 10 2 3 3 1 3 10 1 0.1 1 23 Weighted Shortest Job First (WSJF) 160 7 96 Percent Reduction!
- 31. Copyright 2018, Reinertsen & Associates 31 Sequence Work Based on Economics • The sequence in which work is processed is called the queueing discipline. • By changing the queueing discipline we can reduce the cost of a queue without decreasing the size of the queue. • Since manufacturing has homogeneous flows, it always uses FIFO. • For the non-homogeneous flows of product development approaches like WSJF have better economics.
- 32. Copyright 2018, Reinertsen & Associates 32 Fast feedback loops enable better economic performance in the presence of uncertainty. Big Idea # 7
- 33. Copyright 2018, Reinertsen & Associates 33 The Front-Loaded Lottery • A lottery ticket pays $3000 to the winning three digit number. • You can pick the numbers in two ways: • Pay $3 to select all three digits at once. • Pay $1 for the first digit, find out if it is correct, then choose if you wish to pay $1 for the second digit, and then choose if you wish to pay $1 for the third digit.
- 34. Copyright 2018, Reinertsen & Associates 34 100% Probability of Occurrence Value of Feedback Cumulative Investment 100% 10% Savings = $0.90 $1 $2 10% 0 $3 Savings = $0.99 1% Spend $1.00
- 35. Copyright 2018, Reinertsen & Associates 35 Accelerate Feedback • When queues and batch sizes are large feedback is slow. • Slow feedback hurts quality, efficiency, and cycle time. • Feedback speed has enormous economic leverage in product development, but it is rarely explicitly managed. • Small batches create fast feedback, and fast feedback creates the payoff asymmetries required to exploit variability.
- 36. Copyright 2018, Reinertsen & Associates 36 1. Understand your economics. 2. Make your queues visible and control them. 3. Create a process to exploit variability. 4. Reduce your batch size. 5. Control cycle time by controlling WIP. 6. Sequence work based on economics. 7. Accelerate feedback with smaller batches. Seven Big Ideas of 2GLPD
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