Product Business Cases Suck: Find Out Why and What to Do About It
Traditionally, product business cases have been constructed around the facets of scope, cost and time. These methods are out of date in a world where agile is the product development methodology of choice. The scope is constantly reprioritised based on customer insight, and therefore the project outcomes, timings and costs are affected by each sprint and team learning.
In this article, we make the case for a better way of managing scope, cost and risk in the face of uncertainty.
Business cases for agile projects should consider what we think of as Product Future Value (PFV) as it embraces risk and uncertainty and allows for multiple potential benefits as customer input is continuously integrated.
The Need for Product Future Value
Current methods of project budgeting, such as net present value (NPV) and internal rate of return (IRR), have been the tools of choice for many decades.
However, these methods lack the sophistication needed to handle scenarios where there are high degrees of uncertainty. Sources of this uncertainty might include unqualified risks (known unknowns), unforeseen risks (unknown unknowns), wide variations in the business value created through the investment, or significant lowering of implementation costs.
Technology projects are infamous for breaching their planning constraints. Recovering from these breaches inevitably results in one or more of the following: additional costs being allocated to resources in order to deliver on time; increased allotted time (usually incurring more cost); reduction in the scope of the project such that cost and time windows are maintained; or acceptance of a lower level of quality for the sake of product release.
Managing project budgets in this way is not only problematic, but also constitutes a missed opportunity. Negative NPV and the inability to model risks means vital projects never get off the ground. NPV also encourages a fear-driven approach to budget management leading some organisations to stick their heads in the sand, rather than face an uncomfortable, if somewhat likely, future.
How could Product Future Value thinking (PFV) help with these challenges?
PFV encourages optimism about the future potential of newly deployed products and technology, and uncovers new ways to add business value, as illustrated by the diagram below.
The comparison above demonstrates the limitations of the NPV based approach and shows the additional dimensions taken into account in PFV thinking.
PFV offers value in learning and ever-changing opportunity, especially in the case of agile where customer input can affect product development at any time.
A More Strategic Role for Finance
Future Value thinking requires a more expansive view of opportunities and risks, but also a different way of working with finance teams.
For instance, does the finance department understand what value the project is bringing to a business or are they primarily focused on costs?
Finance managers could add greater value by developing a more comprehensive understanding of the business value a project is expected to bring. Conversely, project teams should engage finance departments in authentic discussions that are just as focused on future value as they are on containing risk.
One way to strengthen this engagement is for finance teams to become more embedded in projects, as suggested in this article in Finance Monthly. Finance managers can therefore learn about the changing value of the project over time, while removing the constraints of a fixed budget. After all, agile processes are incremental, so it makes sense that the budgetary practice of agile projects should also be incremental, as pointed out by Alan Morgan from the Swiss Institute for Agile Risk Management.
Implementing future value requires that project financial management be updated to properly support agile approaches, and requires that the full scope of risks and opportunities are included in discussions.
Product Balanced Scorecard
Having made our argument for a future-focused view of business case management, this is only one aspect.
We propose that a broader perspective can be achieved through the implementation of a product balanced scorecard, of which the financial value is just one quadrant.
A product balanced scorecard opens eyes to a wider set of objectives than OKRs and makes it possible to cover measures across customer, business and product delivery.
We will discuss more on the product balance scorecard in our next blog.
To sum up, NPV and IRR are outdated product management models. They are limited in their view because they assume that future value can be accurately predicted at the beginning.
Agile approaches allow us to introduce a more opportunity-focused way of deploying capital. Adopting a Product Future Value (PFV) approach embraces uncertainty, flexibility and risk, and opens up new possibilities.
A broader set of inputs into the financial component of the business case are needed. Project teams and finance departments should also change their approach and work more co-creatively by meeting regularly to discuss product development progress and reassessing the future risk and value as it evolves.
It is high time business case management approaches came up to date.
References and Further Reading
Alan Morgan, The Financial Management of Agile Projects
Andy Jordan, Business Cases in an Agile World
Finance Monthly, 4 Keys for Finance Departments to Accelerate Agile Transformation
Keith J. Leslie and Max P. Michaels (McKinsey & Company), The Real Power of Real Options