Prioritizing Your Product Backlog

© 2009 Mountain Goat Software© Copyright Mountain Goat Software®
Prioritizing Your
Product Backlog
Mike Cohn
mike@mountaingoatsoftware.com
June 8, 2010
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© Copyright Mountain Goat Software®
®
Mike Cohn
Founding member and
director of Agile Alliance
and Scrum Alliance
Founder of Mountain
Goat Software
Doing Scrum since 1995
Started my career as a
programmer
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®
Combine formal & informal
Formal prioritization approaches for
Choosing among projects
Choosing between “epics” or “big features”
An informal approach (expert opinion)
Once you’ve selected the epics / big features
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Why?
Features that are too small cannot be
effectively prioritized against each other
What’s more important in a word processor?
The A key or the E key?
Tables or undo?
What’s more important on a car?
The left front wheel or the right front wheel?
Increased leg room or a larger engine?
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Prioritize epics then open them up to
optimize release contents
The release
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Approaches to prioritizing
Kano analysis
Expert opinion
Theme screening
Theme scoring
Relative weighting
Financial analysis
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Non-ﬁnancial
prioritization
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Kano analysis1
Must be present in order for users to be
Mandatory / Baseline
The more of it, the better
Linear
Features a user doesn’t know she wants,
until she sees it
Exciters / Delighters
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Impact on user satisfaction
Feature
Presence
SatisfactionLowHigh
Low High
Exciters/
Delighters
Mandatory
Linear
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Surveying users
To assess whether a feature is baseline,
linear, or exciting we can:
Sometimes guess
Or survey a small set of users (20-30)
We ask two questions
A functional question
How do you feel if a feature is present?
And a dysfunctional question
How do you feel if that feature is absent?
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Functional and dysfunctional forms
If your hotel room
includes a free
bottle of water, how
do you feel?
I expect it to be that way.
I like it that way.
I am neutral.
I can live with it that way.
I dislike it that way.
✔
If your hotel room
does not include a
free bottle of
water, how do you
feel?
I expect it to be that way.
I like it that way.
I am neutral.
I can live with it that way.
I dislike it that way.
✔
Functional
form of
question
Dysfunctional
form of
question
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Categorizing an answer pair
Dysfuncctional Quuestion
Like Expect Neutral Live with Dislike
Like
Expect
Neutral
Live with
Dislike
Q E E E L
R I I I M
R I I I M
R I I I M
R R R R Q
Functional
Question
Mandatory
Linear
Exciter
Questionable
Reverse
Indifferent
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Aggregating results
Apply stylesheets
Automate report
execution
Export reports to
PowerPoint
3 11 31 1 3 2
4 22 20 4 1 0
21 9 14 5 1 1
Questionable
Reverse
Indifferent
Mandatory
Linear
Exciter
Themes
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What to include
All of the baseline features
Some amount of linear features
But leaving room for at least a few exciters
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You are thinking about buying a new eco-friendly
car. Identify examples of:
Mandatory features
Linear features
Exciters
Your new car
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Relative weighting
Assess the impact of having a story/theme from 1-9
Assess impact of NOT having it from 1-9
Calculate the value of each story or theme relative to
the entire product backlog
This gives you the relative value of that story or theme
Estimate the cost of each story theme
Calculate the cost of each story or theme relative to
the entire product backlog
This gives the relative cost of that story or theme
Priority is given by (RelativeValue ÷ Relative Cost)
2
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Relative weighting: an example
More investment choices
Portfolio rebalancing
Comply with new law
Total: RelativePenalty
TotalValue
ValuePercent
Estimate
CostPercent
Priority
8
9
1
6
2
9
14
11
10
35
40
31
29
100
64
40
42
146
44
27
29
100
91
115
100
Value Percent = TotalValue / ∑ (TotalValue)
Cost Percent = Estimate / ∑ (Estimate)
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You are theVP of Product Development at
MyCookSpace.com, a social networking site
You have a minimally functional site up with 4,000
registered cooks
You are trying to grow that to 400,000 as quickly as
possible before you run out of money
You are also interested in other features that result in
revenue
Identify 4-5 epics or big features to develop
Complete a relative weighting worksheet
Make reasonable but wild guesses at development effort
estimates
Prioritizing MyCookSpace.com
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Expert opinion
Focus needs to be on delivering value to the
customer
But consider these four factors
1. Delivery of new capabilities
2. Development of new knowledge
3. Mitigation of risk
4. Changes in relative cost
3
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Theme screening
Identify around 5-9 selection criteria for
what is important in the next release
Select a baseline theme
Likely to be included in the next release
Understood by most team members
Assess each candidate theme relative to the
baseline theme
4
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Theme screening: an example
Continue?
ThemeARank
Net Score
Generates revenue in Q2
Starts us integrating product lines
Competitiveness with ABC Corp.
Importance to existing customers
0
ThemeB
−
0
0
EpicC
BaselineTheme
ThemeD
EpicE
EpicF
0
−
0
0
0
−1
0
0
0
0
0
−
0 0
−
0
0
0
0
1 7 34 4 4 2
N N NY Y Y Y
Selection
criteria Themes

= better than
0

= same as
−

= worse than
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Theme scoring
Like theme screening but selection criteria are
weighted
Need to select a baseline theme for each criteria
Avoids category compression
Each theme is assessed against the baseline for
each selection criteria
5
Much worse than reference 1
Worse than reference 2
Same as reference 3
Better than reference 4
Much better than reference 5
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3.90
1 3 2
Yes No Yes
Theme scoring: an example
Continue?
Rank
Net Score
Generates revenue in Q2
Starts us integrating product lines
Competitiveness with ABC Corp.
Importance to existing customers
Weight
Rating
Theme A
Weighted
Score
3
2
3
5
0.75
0.20
0.45
2.50
Rating
Epic B
Weighted
Score
1
3
4
2
2.15
0.25
0.30
0.60
1.00
Rating
Theme C
Weighted
Score
4
3
4
3
3.40
1.00
0.30
0.60
1.50
25%
10%
15%
50%
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the relative weighting exercise, complete
a theme screening or theme scoring
worksheet for MyCookSpace.com
Theme screening or scoring
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Financial
prioritization
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How much?
How long?
At what interest rate?
If you’re buying a house:
It’s a $220,000 loan
For 30 years
At 7% per year
Three factors to consider
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Technique #1
Net PresentValue (NPV)
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Which project would you prefer?
Year
Projeect A Projeect B
Investment Return Investment Return
0
1
2
3
4
5
$1,000 $1,000
$200 $3,000
$300 $500
$500 $300
$3,000 $200
$0 $0
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A dollar today is worth more than a dollar a
year from now
The time-value of money
I’ll gladly pay you on
Tuesday for a hamburger
today.
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Calculating the value of future dollars
To buy a $5 hamburger
next Tuesday…
To buy a $5 hamburger
in a year, how much do
I put in the bank today?
I would put around $4.99
in the bank today
$5.00 $5.00
1.10
$4.54==
Assumes 10%
interest rate
The present value of
$5.00 a year from now
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Present value of one future amount
FutureValuePresent
Value
=
$5.00
= $4.54An example:
Generalizing
FV
t
PV =
Simplifying
-t
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Measures the return on a theme or project
as an amount of money
Net present value (NPV)
Ft
-tNPV(i) = ∑t=0
n
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NPV example
Quarter
Cash
Flow
-t Discounted
Cash Flow
Running
Total
0
1
2
3
4
-200 1.000 -200 -200
-600 0.971 -583 -783
100 0.943 94 -689
300 0.915 275 -414
500 0.888 444 30
Assuming 12% annual discount rate (3% / quarter)
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Discount rate sensitivity
Quarter Cash Flow
Discounted Cash
Flow (3%)
Discounted
Cash Flow (6%)
0
1
2
3
4
Total
–200 –200 –200
–600 –583 –783
100 94 –689
300 275 –414
500 444 30
100 30 –29
NPV is highly sensitive to the chosen discount rate
Do the project under
these circumstances
But not under
these
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Comparing NPVs
Highest NPV brings the most present-value dollars
to the company
Theme NPV
Scalability
Gift registry
Ad hoc reporting
Pay by invoice
$2,100
$1,253
$784
$385
Comparing NPVs can be
misleading. What if:
•“Pay by invoice” requires
a $5 investment
•“Scalability” requires
$50,000?
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Technique #2
Internal Rate
of
Return (IRR)
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Rather than expressing returns in dollars,
we’d like to express return as a percentage
Allows for direct comparisons
NPV = how much money a project will
return
ROI = how quickly an investment will grow
Return as a percentage
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Internal rate of return (IRR) and ROI
IRR = Internal Rate of Return
Often called Return On Investment (ROI)
The interest rate at which NPV is 0
0 = PV(i*
) = Ft 1+ i( )
−t
t= 0
n
∑
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IRR gives us the discount rate at which we don’t
care whether or not we do the project
We don’t make $30; we don’t lose $29; we break even
Remember this table?
Quarter Cash Flow
Discounted Cash
Flow (3%)
Discounted Cash
Flow (6%)
0
1
2
3
4
Total
–200 –200 –200
–600 –583 –783
100 94 –689
300 275 –414
500 444 30
100 30 –29
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Use Excel’s irr function
How to calculate ROI or IRR
−200, −600, 100, 300, 500})
An investment
day of the project
remainder of
project
(4 quarters)
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Advantages and disadvantages
Advantages
You don’t need to guess at a discount rate like
with NPV
Can be used to directly compare projects
Disadvantages
Calculation is hard to do by hand (but easy in
Excel); may lead to numbers being distrusted
Cannot use in all circumstances
positive
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Technique #3
Payback period
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Payback period
The amount of time before an initial investment is
paid back
I loan you $5.You pay me back $1/week.The payback
period is 5 weeks.
Quarter Cash Flow
Running
Total
0
1
2
3
4
-200 -200
-200 -400
100 -300
300 0
500 500
Payback
period is 3
quarters.
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Advantages
Calculation is very easy
Longer payback period = greater risk
Disadvantages
Doesn’t consider the time-value of money
Advantages and disadvantages
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Discounted payback period
Quarter
Cash
Flow
-t
i=3%
Discounted
Cash Flow
Running
Total
0
1
2
3
4
-200 1.000 -200 -200
-200 0.971 -194 -394
100 0.943 94 -300
300 0.915 275 -25
500 0.888 444 419
investment is paid back
Discounted payback
period = 4 quarters
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Net PresentValue (NPV)
Expresses return as an amount of money
Return on Investment (ROI) / Internal Rate of Return
The interest rate at which NPV = 0
That is, at which you’d be indifferent to the investment
Expresses return as a percentage
Discounted payback period
Amount of time before discounted returns equal the
investment
Expresses return as an amount of time
Financial analysis recap
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Person
Weeks
Cost
3-Year
Return
NPV IRR
D. Payback
(Quarters)
Feature A
Feature B
Feature C
Feature D
Feature E
Feature F
Feature G
Feature H
Feature I
Feature J
Feature K
Feature L
Feature M
Feature N
Feature O
25 $150 $1,085 $448 133% 2
32 192 $2,109 $940 172% 4
90 $540 $2,537 $883 89% 2
48 $288 $1,360 $443 76% 4
55 $330 $900 $191 48% 2
79 $474 $1,365 $331 56% 4
90 $540 $5,964 $2,519 139% 5
50 $300 $2,415 $1,023 146% 2
15 90 $1,600 $747 221% 1
30 $180 $640 $182 65% 2
75 $450 $516 ($104) 5% NA
40 $240 $171 ($110) (12%) NA
80 $480 $1,025 $142 36% 3
18 $108 $185 $7 24% 2
12 $72 $1,505 $748 355% 1
Comparison matrix
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Mike Cohn
mike@mountaingoatsoftware.com
www.mountaingoatsoftware.com
twitter: mikewcohn
(720) 890−6110
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Prioritizing Your Product Backlog

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