The art of Maximizing Value — Introduction to identifying, estimating and measuring value
If you have been a Product Owner for some time, then you should know that the purpose of the Product Owner role is to “maximize the value of the Product”. There are many ways to maximize the products’ value, for example by continuously making choices about what to built and what not to built. However, many Product Owners in practice struggle with the concept of value. The find difficulty in answering these (seemingly easy, yet difficult) questions:
- How do your express what value is for your product?
- How do measure if your product is delivering value?
- How do you actually steer on value?
In this blogpost, we will be covering some basic concepts around value, such as “What is value?”, “What are techniques for estimating value?” and “How to measure value?”. But first, let’s explore why you should care about value at all? Let’s explore what value is, and then let’s investigate how to estimate and measure value.
Why should you care about value?
The obvious answer is of course: Because being a Product Owner, you are responsible for maximizing value! How could you do that, if you don’t know how to identify, estimate and measure value for your product? However, Many Product Owners struggle with this concept. These Product Owners are pushed by stakeholders and management to “just deliver” and “try to maximize the output or velocity”. However, more velocity doesn’t equal more value!
Another reason why anybody in any organization, doing something with Agile, should care about value, is because Agile is just a means to an end. Agile or Scrum are not a goal in itself. The whole point of adopting an Agile way-of-working is to improve business performance. When organizations lose sight of the business reasons for adopting Agile, people often start to ask questions that seem to be sensible, yet they might create unintended and undesirable consequences. Some examples of such questions are…
The answers to these questions are interesting of course. However, they wouldn’t help an organization to deliver more value to customers. These questions are all focused around practices, tools and techniques. Whilst delivering value is not about such practices, tools or techniques. Value isn’t about the Development Team’s velocity. I always compare velocity with ball possession in a soccer match. You need ball possession in order to play, and attack your opponent. However, the value isn’t in having more ball possession. The value is in scoring one more goal than your opponents! The value is in winning the match. So if you don’t measure value, the success of any agile adoption program or product development effort is based on nothing more than intuition and assumptions.
What is value?
Value comes in many different forms, value is context dependent and the definition of value in a certain context may change over time! “What?” you may wonder. Yes, you read it correctly. What ‘value’ is, or what it means, is firstly context dependent. In a marketing context for example, value may be related mostly to getting exposure in the marketplace, to gain a better reputation and/or to increase online presence (besides many other options). Value in an online, web-based games company could be the income generated by in-game advertisements, which could for example be increased by the time that people spend playing online games. An important value metric in such a case could be the ‘Daily Active Users’ or the ‘Daily Active Minutes’ metrics for example. In other contexts, there may be other types of value and other ways to measure them.
Also, value is time-dependent. When you start building a new mobile app for example, value may in the first period be to actually get people to download the app from the App or Play Store. When you see people are downloading the app, there seems to be an interest in the product. When this interest is observed, the definition of value in that context may change to a definition that people aren’t only downloading the app, but that they actually start using it more. So in such a case, you may want to focus more on usage. When you notice that people start using the app more, it may become more relevant to increase the users’ satisfaction. And after that maybe focus more on increasing revenues for example. So as you see, what value is, may change over time!
Now in addition to all this, you could say that there are three generic target audiences for delivering value to, being:
- Company Value
- Customer (or User) Value
- Societal or Environmental Value
Depending on your context (B2B, B2C, B2B2C, etc.), you might have to deal with one or multiple of these target audiences to whom you will deliver value. In many organizations though, we want to deliver value for customers and to deliver value for our own company. In some organizations, there is also a higher purpose to make the world a better place. This you often find in not-for-profit organizations for example. Based on your specific context, you should identify how to express value, for which target audience you’ll do that, and how to estimate and measure value. Which brings us to the next question for this blog.
How can I identify Value?
There are many different ways, tools and techniques for estimating and measuring value. However, are pretty much useless as long as you haven’t defined value for your context yet. Have you already defined value for your context? Awesome, then you could skip this question. If you haven’t defined value yet for your context, then check out the example below!
Example for defining value
Of course, identifying value starts with a clear picture of what the product is. So for this example, let us say that the product we’re building is an Employee Self-Service product, made specifically for Healthcare institutions. It is a digital product and thus an online, self-service portal, which purpose is:“The self-service solution will unburden customers and users by automating and digitizing all administrative and support processes in healthcare organizations.”
Some of the features of this product include:
- See and change your personal, contact and address information;
- See your payslips, annual statements and reimbursements paid-out;
- Being able to submit expenses, which go through a customized workflow;
- Being able to see your roster/planning (because it is often flexible);
- Being able to change your workshifts with colleagues (if they have the right certifications, education and skills, like the person offering the shift);
- Being able to offer workshifts to an internal marketplace;
- Being to exchange salary for leave, a company bike or other benefits;Of course, there were many other features in the product, but this is just to give you an impression. Now, let us look at some ways of identifying value. The Value Pyramids (B2B, B2C) offer us with some inspiration for identifying Customer Value. In this case we can use both the B2B and B2C value pyramids to identify value, since we have multiple target audiences:
Value delivered to Healthcare organizations (B2B): Reduces Costs, Helps to Organize, Connects People, Simplifies, Integrates, Reduces Effort and Saves Time.
Value for Healthcare workers: Saves Time, Reduces Effort, Avoids Hassles, Helps to Organize, Simplifies, Connects and Provides Access to Information.
Since the product we’re considering is an administrative online self-service portal, it makes sense that the value for the Healthcare organizations is similar to the value to the Healthcare workers.
Besides value for Customers, there is of course also value for the company. Value for the organization could be expressed by looking at the Key Value Areas and example metrics from Evidence-Based Management. Some example measures for the organization could be Revenues per Employee, Customer Satisfaction, Time-to-Market, Feature Usage and Current Marketshare.
And then there is of course also value for society. Or environmental value. Although this might be harder to define and measure, some examples of environmental value in this case could be:
Perceived increase of healthcare quality (because healthcare workers can spend more time with patients, instead of doing administration).
Another example could be: Estimated CO2 emission savings (because healthcare workers don’t have to travel to the office all the time to do administration, but they can do that remotely, while being at their clients’ home).
The above example shows that there might be many different ways of expressing value, for different target audiences. Now that we have an idea about how to identify value, with models like Evidence-Based Management and the Value Pyramids for example, let’s dive into the next question.
How can I estimate value?
There are many different techniques for estimating value and once you’ve decided how to identify/express value for your context, you can start using these techniques.
So let’s say that you want to estimate the value of a Product Backlog Item. You could of course create a business case for that item. In this process of writing a business case, you would start gathering requirements, gather market data and do some interviews perhaps? Then you would identify the potential costs, identify potential benefits (such as cost savings, time savings or increasing revenues for example) and calculate the Return on Investment. And of course, you would look at some actual usage data to finalize your calculations. And tada, you have a business case which shows the potential value!
Now here’s the catch in that approach: Many organizations come from a traditional (non-Agile) way-of-working. Directors and Managers are looking for certainty (which you don’t have in complex environments though). So, if you hand them over a well-thought-out business case, then you might feed them just about too much detail. A business case might make them feel good, it might come across as if you’re pretty certain. However, a business case always looks good on paper, but will you ever really deliver upon all its promises and benefits?
So, we favor a more simple approach than writing a complete and detailed business case. Instead, we often pick a handful (max. 10) of bigger Product Backlog Items from the Product Backlog. With bigger we mean that the items should roughly be 4 to 8 weeks of work. When items are much smaller than that, you just make an estimate of the value yourself. When the items are much bigger, they are often too fuzzy to be estimated anyway.
The reason that we want those 4–8 week sized items, is because we’re going to estimate their value together with stakeholders! Don’t estimate value alone. Do it together with your (key) stakeholders, with customers, with users and your development teams! Of course, you can also estimate value for bigger chunks of work (epics and themes), but this is often more difficult for people.
So the way this value-estimation process will work is as follows:
- You first select the (max. 10) items that you want to estimate value for;
- Then you schedule a “value estimation session” and you invite your (right/key) stakeholders, development team, some (potential) customers and users to this session;
- In the session, you kick-off by explaining the purpose of the session and you (or your Scrum Master) will explain the process for the session.
- Then you will offer everybody in the session a “budget”. This budget might be marbles, dots, pokerchips, Monopoly money or something completely different. So with this budget, the stakeholders, customers and users have now become investors. Of course, the investors might also choose to not invest their money. In that case, they could save it for a future session for example.
- After handing over the budget, you could explain how people would have to interpret “value” during this session. One effective way for doing this, is by stating a clear goal (so 1 goal, not multiple) for the quarter ahead. For example: “Increase feature usage, for feature A in product X.” or “Increase customer satisfaction for product Y.”
- The next step is then to ask the stakeholders to invest their money in one or multiple features that you have selected for the session. When investing though, they should take the overarching quarterly goal into account. So basically your question to them is: “Which feature do think contributes most to achieving our goal?”
And that’s it. You should now have all these feature-buckets, containing an investment (or containing no investment). There are probably 1, 2 or 3 buckets that earned most investments, so you’ll know what to start working on, right? If the investments are evenly more distributed (a little bit of money everywhere), then maybe you should restate the overall goal to achieve. Or maybe you should explain that this won’t help with the ordering of the Product Backlog. Alternatively, play around with the budget that people get. Give your more important stakeholders/customers more budget than others perhaps? Or maybe give everybody just 1 marble/dot/pokerchip. Then at least they will have to make a decision to invest in one feature…
How can I measure value?
So, reaching the final question to answer in this blog: How can I measure value? Well, there is no short and simple answer to this question, unfortunately. Instead, we’d like you point you towards the Evidence-Based Management Guide on Scrum.org. This guide will offer you four Key Value Areas to explore, including example measures to track. So, we recommend you to start there and ask us any follow-up questions if you have them.
Want to learn more?
Understanding more about identifying, estimating and measuring value is also part of the Professional Scrum Product Owner — Advanced class. It is one of the concepts belonging to “The Visionary” stance, one of the preferred stances of the Product Owner. If you want to learn more about the stances, check out this webpage. Alternatively, you could…
Go experience the Stances of the Product Owner!
If you’re a Product Owner, Product Manager, Scrum Master or Agile Coach with about a year (or more) of experience under your belt, go and explore the Stances of the Product Owner in the Professional Scrum Product Owner-Advanced class. Find a trainer to your liking or in your area, and deepen and expand your Product Management knowledge and skills. And let us know what you think about the training! What did you like? What can be improved? Let’s collaborate to take the profession of Product Ownership to the next level.
If you’d like to experience the all-new Professional Scrum Product Owner-Advanced class, go to Scrum.org to find a class in your area. If you’d like to participate in one of our classes, check out our Xebia Academy page for more information or inquire for an in-house class via training@xebia.com.
