Value Stream mapping is a Lean management tool used to identify the process of delivering value to a customer. The Scaled Agile Framework® defines it as:
Value streams represent the series of steps that an enterprise uses to build solutions that provide a continuous ow of value to a customer. Value streams are the primary means for understanding business objectives, organizing teams and trains, and delivering end value. They are realized by Agile Release Trains.7
Organizing around long-term Value Streams, instead of by functional silos or short-term project teams, can increase the flexibility of teams to pivot to new value opportunities, and provide visibility into wasteful activities that don’t provide clear value to the customer.
Lean-Agile budgets are tied to Value Streams and the teams that realize those Value Streams, rather than specific projects.2 Such budgets allow those teams to make decisions about how to best create value without having to request new project-level funding every time product direction changes. This approach can also ensure that low-value ideas do not remain funded if they do not appeal to customers.
Decentralized Business Decisions
Flexible budgeting will not make an organization faster if business decisions remain centralized. The individuals best able to make business decisions, including product owners at a team level and product managers at a program level, should be empowered to make those decisions regardless of their organizational status. Without such decentralization, decision-making slows down and teams lose the flexibility to pivot to new value propositions when needed.
A recent Harvard Business Review study found a high correlation between overall financial performance and the efficiency of the decision-making structures that firms set up.3 This does not mean that all business decisions should be decentralized. As seen in the study, the most successful organizations set clear thresholds as to when financial decisions must be made by senior leadership.
Value-Driven organizations identify non-financial metrics to measure customer value and base their business decisions on objective data rather than hunches. Innovation Accounting is a term from the Lean Startup movement to describe metrics designed to measure progress when traditional accounting metrics are not applicable.4 Popular examples include customer activation or retention metrics.
Business decisions need not be based on traditional accounting metrics or even precise ‘level of effort’ estimates. Costs can be extremely difficult to estimate for IT projects; one in six projects has a 200% cost overrun.5 A better process is to use less precise size estimation, combined with business value rankings, to sequence jobs against each other or make simple determinations of whether jobs can fit in a given budget. The 2015 Standish Group CHAOS report found a higher degree of success on projects that used relative prioritization techniques instead of hard-to-develop ROI estimates.6