On the Yellow Brick Road

2008: A Retrospective

Things I’m most grateful for:

  1. Creating new games with Vera and Portia. Lesson Re-Learnt: The best results come from collaboration.
  2. Creating and playing games with wonderful people and getting paid for it. Lesson Learnt: Turning what you love into your job won’t make it a chore if you genuinely love what you do.
  3. Meeting heroes like Eli Goldratt, Neil Armstrong, Daniel Dennett and Gerald Weinberg. Lesson Learnt: “The real voyage of discovery consists not in seeing new landscapes, but in having new eyes.”
  4. Travelling, meeting people and working with different teams in different settings. Lesson Learnt: Every team, every situation is different, yet we can all learn from each other.
  5. Applying the Agile values in work and life with the help of friends and peer-coaches. Lesson Learnt: It’s often hard to “walk the walk”; we need all the help we can get; that’s how we add value.
  6. The reaction of people who took part in XP Days or one of our sessions. Lesson Learnt: The best learning happens when we’re having fun. A big thank you to everyone I worked with.

2009: My Wishes

  • I wish to co-create more games.
  • I wish to co-create an Agile Fairytale and a Lean Fairytale.
  • I wish to co-create a fun Agile Analysis session.
  • I wish to apply more Lean and Theory of Constraints to expand agility beyond IT.
  • I wish to keep writing, as it makes me think.
  • I wish to keep on learning more every year and apply what I know to help great teams.
  • I wish to keep on working with great teams.
  • I wish you a Happy 2009 – may it bring you all that you deserve!

A Toyota Way evening in Paris

Lean presentation in Paris

On the 21st of January 2009 I’ll be in Paris to present an evening seminar on how to apply the Toyota Way management principles to Agile software development. The seminar is organised by Carl Azoury and Olivier Huber of Zenika.

To me, Agile is the application of Lean principles to software development. So, the presentation contains a lot of parallels between the two. A lot will be very familiar if you already know and practice Agile.

So, what’s left to learn? Some of the Toyota Way management principles aren’t in Agile methods. These principles are useful when we go beyond software development. There comes a moment in any successful Agile enablement when the development team is no longer the bottleneck. Suddenly, we’re faced with a completely different set of issues. Now that Agile gains more and more acceptance, we need to be able to deal with these new challenges or accept that most Agile transformations will either die or bring limited extra business value.

The more I read and learn about Toyota, the more I realise how much I don’t know and how many preconceived ideas I have to abandon. I need to keep learning. The Toyota Product Development System, for example, contains many counter-intuitive ideas like set-based design. Real Options thinking can help us understand why some of these techniques work. We’ve only started to scratch the surface of Lean ideas.

Toyota losing money? Impossible!

In the news, even Toyota is affected by the economic climate. They might even have to post the first loss since the early years. Isn’t Toyota invincible and perfect? Of course not. It will be a real show of faith in the Toyota Way if Toyota continue to keep on their workers, keep training them and keep improving to be ready when sales take off again.

Secretly, top Toyota management must be happy that this crisis happens now. One of their main concerns is complacency. No one should ever think that the work is “done”, now that Toyota is the biggest manufacturer. Hansei and Kaizen should be applied relentlessly, it’s always possible to do better. Nothing better than tough economic times to bring back the sense of urgency.

See you in Paris

The seminar is free, but you must register here. Don’t wait too long because places are limited.

See you there!


Real Options in the Real World

Real Options?

This Friday, Portia and I will present the “Real Options Space Gameat XP Days London. This strategy board game set in space allows players to experiment with Real Options concepts.

Real Options is a tool to optimize decisions: it helps us to consider and manage more possibilities and gives us more time to gather information, so that our decisions are better informed. The basic ideas are taken from financial options, but have been widened to be applicable to real-world management decisions.

There are several types of Real Options. Let’s see if the option metaphor is a useful one. How can we apply Real Options in the real world?

The option to delay a project

In this paper, Aswath Damodaran compares a Net Present Value (NPV) analysis with a Real Options analysis to decide which projects to fund when. Projects with a negative NPV now, might still become valuable later. That’s because the Real Options analysis takes into account the value of getting more information and therefore reducing risk and uncertainty.

We always have the Learning Option. We can always gather more information.

In the article, the delay is examined in a situation where the organisation has (or can buy) a way to get a hold on the market, like with a patent. We can create an option to delay a project even in a competitive market: if we have a shorter cycle time than our competitors we can afford to wait longer to start our projects. This gives us more time to gather market information. In a very volatile market, it can be more valuable to wait, to increase the odds of building the right product at the right time.

For example, if Toyota’s new product development time is 6 months shorter than a competitor, Toyota can afford to start development 6 months later. That’s 6 months in which to gather more information, six months in which they could see major swings in customer demand or in the market. That’s six months in which people can work on other projects.

So, if you decrease your cycle time you create options to

  • Increase your cash flow
  • Be first on the market
  • Delay the project, take the go/no go decision later, when we have more information

By using Lean and Agile methods to decrease cycle time, we create real options. Starting later may be the right thing to do.

There are more fun real options, like the option to abandon a project. What could be the value of abandoning a project?


Spaceships over London – Real Options at XP Days

Real Options Space Game

Do you want to prevent galactic war? Do you have experience flying spaceships in dangerous corners of the universe? Not afraid of space pirates and angry aliens? Then sign up for the Real Options Space Game at XP Days London. The pay isn’t great, but the benefits more than make up for that.

The Real Options Space Game is a board game for 6-13 players that lets you play with Real Options concepts. Portia and I will be running two games in parallel (in parallel universes?), so that we can compare many different strategies, a sort of set-based design.

In the game, pairs play the crew of a spaceship who must transport a precious cargo from one end of the galaxy to another. On the way, the crew has to deal with risks such as attacks by space pirates, strikes by disgruntled transport workers, disputes between different alien races, technology breakdowns and more bizarre plot twists. And they have to do it with limited resources and time. Sound familiar?

What are Real Options?

Real Options is a decision-making tool that, like so many of these tools, looks deceptively simple. It’s just common sense, most people respond when we first explain the concepts. But we quickly see that these simple concepts aren’t applied. We can explain Real Options until we’re blue in the face without any effect. You have to experience how to apply the tool under (simulated) pressure to realize if and how Real Options are useful.

Real Options consists of two components:

  • The concept of options. Each option has
    • A value
    • A buying and exercising cost
    • An expiry condition which determines when the option becomes useless
  • A process to deal with options:
    • A way to determine the last moment when we have to take a decision and commit ourselves
    • Keeping as many options open as long as possible
    • Actively seeking out more information and more options in the time before we have to commit

Unlike with financial options, we often don’t have exact numbers for cost and value. Most of the time we don’t need the numbers, we only need to know which of two options has a higher value or lower cost.

And what does that have to do with XP and Agile?

You can apply Real Options in just about any situation where you’re faced with difficult decisions. Once you know the concepts, you see options everywhere.

Real Options underlie some of the tricky Agile and Lean practices. By working with short releases and user stories that are elaborated during a release, we push back the moment of difficult decisions, so that we have more time to gather information. By using good engineering practices (TDD, refactoring, continuous integration…) we lower the cost of changes and decisions, again pushing back the moment of decision. Meanwhile, we have more options open for the direction of the application. Set-based design is an economical way of exploring may design options

It all sounds very reasonable to me, but much of the resistance against Agile is about the ideal moment of decision. Most of us feel more comfortable when we’ve made a decision. Having lots of open options may seem like procrastination or even indecisiveness. We feel the need to make that decision NOW, especially when we’re under pressure. Keeping our heads cool and applying the Real Options tool can help us make better informed decisions.

Once we practice Real Options in real life, we start asking “when do we have to decide?” and we look for more options. Try it, practice it, so that you can take better decisions under pressure.

See you at XP Days London, 11-12 December 2008.

Pictures by Pentadact (spaceship), Jason Pratt (sunrise) and Nasa/JPL (planet). Used with permission