Wednesday, July 1, 2009

The concept of Relative Value

One of the interesting things that Chaman brought to my notice was details around TOC and that Throughput should be measured as sales (Rs / dollars).

Now, most people see Throughput in terms of story points that the dev teams estimate for stories. This is natural but inconsistent with the spirit of TOC. Story points, no matter that they are nebulous and a relative measure, are estimated by the people doing the job (devs, qas, etc.). And that firmly land them on the cost side. While it is meaningful to get this estimate, for the purpose of measuring throughput in the context of TOC, we may find "value" estimate by business more appropriate.

Now, given that the stories are not independent units but assimilate into a larger system which is then sold to end customers or used by end customers, the value of a story can't be defined with precision. The value of a story derives from making the system more attractive for end customers. As this is an abstraction of "value", its estimation becomes subjective to interpretation and nailing it down with accuracy difficult. Hence, relative value. My suggestion would be to use the standard sizing / estimation concepts for this. With some changes. Get the business to answer 2 questions:

1. By implementing this story, how much more direct (and indirect) revenue will the system generate? If this cannot be determined quantitatively, then ask the second question:
2. By implementing this story, how qualitatively useful is it making the system for end users / customers?

Use triangulation to ensure the relative accuracy of these numbers. This should enable us to measure relative value being delivered every iteration and hence throughput.

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