A 60 min summary of the big ideas behind Second Generation Lean Product Development. A video of a similar, but shorter, presentation can be found at: http://www.youtube.com/watch?v=oyEtKpqqx_s
These ideas come from my book, The Principles of Product Development FLOW.
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Reinertsen Agile Day Atlanta Intro to SGLPD 5-8-2015
1. No part of this presentation may be reproduced
without the written permission of the author.
Second Generation
Lean Product Development
Agile Day Atlanta
Atlanta, GA
May 8, 2015
Donald G. Reinertsen
Reinertsen & Associates
600 Via Monte D’Oro
Redondo Beach, CA 90277 U.S.A.
(310)-373-5332
Internet: Don@ReinertsenAssociates.com
Twitter: @dreinertsen
www.ReinertsenAssociates.com
2. 2Copyright 2015, Reinertsen & Associates
Seven Big Ideas of 2GLPD
1. Understand your economics.
2. Manage your queues.
3. Exploit variability.
4. Enable smaller batches.
5. Control WIP and start rates.
6. Prioritize based on economics.
7. Accelerate feedback.
3. 3Copyright 2015, Reinertsen & Associates
1. Understand Your Economics
• In product development all difficult
decisions involve multiple variables.
• Making decisions that affect multiple
variables requires quantification.
• Doing such quantification, to a useful
level of accuracy, is surprisingly easy.
4. 4Copyright 2015, Reinertsen & Associates
Should we operate our testing process
at 80 percent utilization with a 2 week
queue, or at 90 percent utilization with
a 4 week queue?
A Typical Question
5. 5Copyright 2015, Reinertsen & Associates
Making Economic Decisions
Waste
Cycle Time
Variability
Efficiency
Unit Cost
Value-Added
Revenue
Life Cycle
Profits
Economic SpaceProxy Variable Space
Transformations
6. 6Copyright 2015, Reinertsen & Associates
The Modeling Process
Create Baseline Model
Determine Total Profit Impact of Missing a MOP
Calculate Sensitivity Factors
Model
Expense
Overrun
Model
Schedule
Delay
Model
Value
Shortfall
Model
Cost
Overrun
Model
Risk
Change
7. 7Copyright 2015, Reinertsen & Associates
The Model Output
Life-Cycle Profit Impact
-$80,000
-$500,000
-$100,000
-$150,000
-$40,000
1 Percent
Expense
Overrun
1 Percent
Product Cost
Overrun
1 Percent Value
Shortfall 1 Month Delay
1 Percent
Increase in Risk
8. 8Copyright 2015, Reinertsen & Associates
Range of Cost of Delay Estimates
Poor Intuition
Average Intuition
Best Case Intuition
Average Analysis
Quality Analysis
Any Analysis Beats Intuition
200:1
50:1
10:1
2:1
1.2:1
Source: Reinertsen & Associates Clients
9. 9Copyright 2015, Reinertsen & Associates
Managing Weight vs. Product Cost
Engineer Supervisor Program
Manager
Boeing 777 Weight Reduction
Decision Authority
$300
$2,500
$600
Dollars
per Pound
10. 10Copyright 2015, Reinertsen & Associates
2. Manage Your Queues
• Many product developers assume higher
utilization leads to faster development.
• They neither measure nor manage the
invisible queues in their process.
• Consequently, they underestimate the true
cost of overloading their processes.
• Such overloads severely hurt all aspects
of development performance.
11. Traffic at rush hour
illustrates the classic
characteristics of a
queueing system.
PhotoCopyright2000Comstock,Inc.
13. 13Copyright 2015, Reinertsen & Associates
Total Cost
Cost of Delay
Cost of Excess Capacity
Managing Queues
Excess Product Development Resource
Dollars
Minimize Total Cost to
Maximize Profits
14. 14Copyright 2015, Reinertsen & Associates
Longer Cycle Time
Lower Quality
More Variability
Increased Risk
More Overhead
Less Motivation
Queues Create...
Why Queues Matter
Managing Queues is the
key to improving product
development economics.
15. 15Copyright 2015, Reinertsen & Associates
3. Exploit Variability
• In manufacturing it is always desirable to reduce
variability.
• In product development eliminating variability
eliminates innovation.
• We must understand the specific conditions that
make variability valuable and manage our
process to create these conditions.
• We need development processes that function in
the presence of variability.
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Higher Variability Raises This Payoff
Price
Expected
Payoff
Payoff SD=15 Payoff SD=5
Option Price = 2, Strike Price = 50,
Mean Price = 50, Standard Deviation = 5 and 15
Strike
Price
18. 18Copyright 2015, Reinertsen & Associates
4. Enable Smaller Batches
• When work products are invisible, batch sizes are
invisible.
• When batch sizes are invisible, product developers
pay little attention to them.
• Many companies institutionalize large batch sizes.
• Batch size reduction is attractive because it is fast,
easy, cheap, granular, leveraged, and reversible.
• It is a great starting point for LPD.
Batch Size Queues Cycle Time
X 0.5 X 0.5 X 0.5
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Small BatchesLarge Batch
Unreviewed Drawings
Drawing Review Process
200
20
10 Weeks 1 Week
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5. Control WIP and Start Rates
• Many developers incorrectly assume that
the sooner they start work, the sooner
they will finish it.
• They are constantly tempted to start too
much work.
• This dilutes resources and causes long
transit times through their processes.
• A long transit time hurts efficiency,
quality, and responsiveness.
24. 24Copyright 2015, Reinertsen & Associates
Little’s Formula
• By constraining WIP in development
processes we can control cycle time.
• This approach, which is known as Lean
Kanban, is currently growing rapidly in
software development.
RateDepartureAverage
QueueinCustomersofNumberAverage
QueueinTimeWaitAverage
q
q
q
q
L
W
L
W
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1
2
3
4
1
2
3
4
COD Savings of Project 1 and 2 Late Start Advantages
for Project 3 and 4
Control Number of Active Projects
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Avoiding Long Planning Horizons
Datum
Search Area
D = Vt
D = Vt
A =V2 t2
Planning Horizon
Error
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Visual WIP Control Boards
Ready
Queue Coding
Ready
to Test Testing
Test
Complete
A D
E
C
B
WIP Constraint = 10 units
WIP constraints can be local, regional, or global.
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6. Sequence Work Correctly
• The sequence in which work is processed is
called the queueing discipline.
• By changing the queueing discipline we can
reduce the cost of a queue without
decreasing the size of the queue.
• Since manufacturing has homogeneous flows
it always uses FIFO (First-In-First-Out).
• For the non-homogeneous flows of product
development other approaches have better
economics.
29. 29Copyright 2015, Reinertsen & Associates
Cost
of
Delay
Time
2
Cost
of
Delay
Delay Cost
First-In First-Out
Last-In First-Out
Project Duration
Cost of
Delay
1 3 3
2 3 3
3 3 3
Use FIFO for Homogeneous Flow
1
3
2
3
1
30. 30Copyright 2015, Reinertsen & Associates
Cost
of
Delay
Time
Cost
of
Delay
Delay Cost
High Weight First
Low Weight First
1
2
3
Project Duration
Cost of
Delay
Weight =
COD/
Duration
1 1 10 10
2 3 3 1
3 10 1 0.1
1
23
Weighted Shortest Job First (WSJF)
160 7
96 Percent
Reduction!
31. 31Copyright 2015, Reinertsen & Associates
7. Create Faster Feedback
• When queues and batch sizes are large
feedback is slow.
• Slow feedback hurts quality, efficiency,
and cycle time.
• Feedback speed has enormous economic
leverage in product development, but it is
rarely explicitly managed.
32. 32Copyright 2015, Reinertsen & Associates
The Front-Loaded Lottery
• A lottery ticket pays $3000 to the winning
three digit number.
• You can pick the numbers in two ways:
• Pay $3 to select all three digits at once.
• Pay $1 for the first digit, find out if it is
correct, then choose if you wish to pay
$1 for the second digit, and then choose
if you wish to pay $1 for the third digit.
33. 33Copyright 2015, Reinertsen & Associates
100%
Probability
of
Occurrence
Value of Feedback
Cumulative Investment
100%
10%
Savings
= $0.90
$1 $2
10%
0 $3
Savings
= $0.99
1%
Spend
$1.00
34. 34Copyright 2015, Reinertsen & Associates
1. Understand your economics.
2. Make your queues visible and control them.
3. Create a process to exploit variability.
4. Enable smaller batches.
5. Control cycle time by controlling WIP.
6. Sequence work based on economics.
7. Accelerate feedback with smaller batches.
Seven Big Ideas of 2GLPD
35. 35Copyright 2015, Reinertsen & Associates
1991 / 1997 1997 2009
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