If you’ve ever wanted to own a business or think like a Chief Financial Officer (CFO), being a product owner has many similarities. A good product owner has to think carefully about how to spend money and what kind of return on investment she’ll get.
In most companies, we forget that time is money and we want all of the features! But what if we actually had to pay for them? Well, it may surprise you, but you do! Running an agile team isn’t free, and every product backlog item has a cost associated with it.
Read on for some practical ways to start thinking like a business owner and to help your stakeholders understand the value of their requests.
Know How Much Your Team Costs
In accounting, every dollar spent is categorized and rolls up to the CFOs objectives. In agile, look at converting your estimates for each product backlog item to a dollar amount.
To do this, you first need to understand the cost of running your agile team. You don’t need to be exact here, but go for a rough estimate. If you have 10 team members with average salaries of $100k, you’re spending $1 million a year to run the team. If your team operates with two week sprints, which is the industry average, you have 26 sprints in a year. That means, it costs roughly $39,000 per sprint to operate the team.
If you were a small business owner, you’d be keenly aware of operating costs, yet in the corporate world, money somehow becomes invisible. By making these costs known, the stakes are higher, and pet projects can more easily be shut down.
Understand Your Team’s Speed
Now that you understand the cost of running the team in dollars, it’s important to know the team’s velocity, or the rate that they can complete work. If you have a team that’s been together at least eight sprints, you can calculate average velocity.
Look at the work estimated and compare it to the work completed. For example, your sprints may look something like this (first column is planned work, second column is work actually delivered):
- 20 18
- 25 23
- 18 18 X
- 29 24 X
- 30 29 X
- 15 21
- 18 16 X
- 23 21
These numbers come from estimates, whether they are in story points, days or hours. You don’t want to give any partial credit—incomplete work gets a zero, as we find this averages out over time. In this example, we can throw out the two high and two low numbers to give us an average velocity of 18 to 23.
When we put real dollars into feature requests, people are forced to think about their return on investment.
Know What Each Point Costs
Given the above example, let’s say that you’re about to plan a sprint with this team for 20 story points. If you take that number and divide it by the team cost of $39,000, it costs approximately $1,950 per story point.
Now you can really have some fun with your stakeholders and put real dollars to estimates! If you’re estimating with the modified Fibonacci sequence, it will look something like this:
- 1-$1,950
- 2-$3,900
- 3-$5,850
- 5-$9,750
- 8-$15,600
- 13-$25,350
- 20-$39,000
- 40-$78,000
- 100-$195,000
Is it Really Worth It?
Now when your stakeholder asks, “Can we just have a new login button?” you can say, “Of course, the team estimates that at 40 story points, or a labor cost of $78,000. Is it worth it?” that has a lot more merit than just telling them the point value.
When we put real dollars into feature requests, people are forced to think about their return on investment. They may think its absolutely worth the cost, or they may second guess their requests. By putting money into the equation, you may be able to ward off a lot of feature requests that don’t produce a lot of business value.
Lance Dacy is a Certified Scrum Trainer who’s passionate about applying Scrum beyond technology to all areas of business and life. If you’d like to become a certified Scrum professional, check out the upcoming class schedule.