Flow-based Product Development

Drawn from “Principles of Product Development Flow”

Product Development vs. Manufacturing

Mfg

• Predicatable and repetitive tasks

• Homogeneous Delay Costs

• Homogeneous Task Durations

• FIFO Sequences work well

PD

• Highly variable tasks

• Very different delay costs

• Very different task durations

• FIFO Sequences hardly ever work well

Eight Themes of Flow-Based Product Development• 1. Economics as a Measure of

Project Health

• 2. Manage by Queues, not Capacity

• 3. Variability Always Subtracts Value in Manufacturing, Not Always in Product Development

• 4. Minimize Batch Sizes

• 5. WIP Constraints

• 6. Cadence, Synchronization, and Flow Control

• 7. Fast Feedback

• 8. Decentralized Control

1. Measuring Projects by Profitability

• Hard to measure impact of project decisions on profitability• Proxy variables used instead• Drunk and the Lamppost

Problem

• Hard is not impossible• Understand interaction of 5

key variables through sensitivity analysis

• Focus on quantifying the cost of delay

2. Managing Queues, not Capacity

• Work spends more time in queues than in process

• Managing queues therefore has greater effect on cycle time than maximizing capacity utilization

• In fact, utilization and queue length contra-vary

The Effect of Queues

• Multiple effects of queues on value

• Even queues off the critical path matter

• N.B.: Each “specialist” role on the IT project implies a queue for their services

3. Variability Can Produce Value

• In manufacturing, variability creates waste, harms value

• Manufacturing value lies in minimum variability

• In product development, no variability = no value

• Need to take risks

• But variability is not necessarily a source of value

• Need to understand the economic payoffs for variabilities

Example: Taking Rational Risks

Choice Stakes Payoff ProbabilityExpected

Value

A $15,000 $100,000 50% $35,000

B $15,000 $20,000 90% $3,000

C $15,000 $16,000 100% $1,000

• Choice C has the least risk, but the lowest expected value

• Expected value depends on payoff as well as probability

• Lesson? Variability is not always a source of loss

Product Development Payoffs Do Involve Downside

…So There Is an Optimum Amount of Risk/Variability in IT ProjectsEven If We Don’t Always Know Exactly How Much It Is

4. Reduced Batch Size

• Single most effective way to reduce queue sizes

• Reduces variability in flow

• Numerous virtues to smaller batch sizes

Some Batch Size Issues on IT Projects

• Project Scope

• Project funding: tranche-ing

• Project phases as hard gates: waterfall

• Requirements definition up front

• Project Planning

• Testing

• Design Reviews

• Manufacturing Release

5. WIP Constraints

• Managing by WIP constraints reduces batch sizes, queues

• WIP constraints save more than they cost

• Cost of delay swamps other costs

6. Cadence, Synchronization, and Flow Control• Flow Control: beware

“Congestion Collapse”• Make congestion visible

• Control occupancy

• Use pricing

• Cadence: • Regular time intervals

smooths flow

• Synchronization:• Proper synchronization

requires extra capacity

7. Fast Feedback

• Extremely important for product development

• Feedback influences product development choices

• Small batch sizes favor faster feedback

8. Decentralized Control

• Logical response to unpredictable situations where response time is important

• Military as a model: • Decentralized

control

• Alignment

Three Methods

• Small Batch transfers

• Rapid Feedback

• Limit WIP