Product/Project prioritization based on economic impact and financial throughput

Whoever knows me comprehends the fact that I am more of a process-oriented guy rather than a product hence you might be curious on why I am going to talk about project/product prioritization in this article however I see the value in sharing my experience in terms of structuring the proper process around prioritization cause I see a trend of “more features = more value for the end-users” concept leading great products to miserably fail.

I won’t explain each term/concept in this article and instead will focus on the approach and will provide relevant links so that you can explore those terms/concepts in detail if you are not already familiar with those.

I will mainly focus on:

1. Prioritization of features within the predefined value stream/product/project depends on the methodology/framework, organizational structure
2. Prioritization of projects within the predefined program/portfolio

So for both, the following approach works pretty well regardless of the methodology/framework and organizational structure.

In order to have proper prioritization in place you need to have two main inputs handy:

1. Projected Market Value
2. Projected Flow Time (effort estimation)

Nowadays it is common to skip the projected market value input and rely on effort estimation to trigger prioritization because it is REALLY complex to determine end-user value in various situations. In any case money ($$$) is MANDATORY for proper prioritization.

In various cases, you may find that there is no expected outcome in terms of money for a particular project/product if you are working on NGO or government projects mainly oriented to end-user benefits in terms of reducing the time they spend on any of their activities. So let’s see how we can quantify projected market value in these complex cases.

There are numerous articles describing how to forecast projected market value ($$$) in SaaS or fixed price product/service environment hence I would focus on the NGO/government services where I prefer to leverage the Value = Benefits/Cost concept shared by Folding Burritos. I would highly advise reading this article if you are not familiar with the Benefits/Cost type of value definition. In case you have your own way of defining the value ($$$) you can skip this article and proceed reading.

Let’s say you have the first input ($$$) handy hence the next step is to determine the Flow Time of each feature/project.

Here you can read about the definition of Flow Time that I am referring to.

In order to simplify I would say forecasted Flow Time is the forecasted duration of your feature/project. Man-days estimation will also fit this exercise however I won’t advise going with it, because it doesn’t count Wait Time (queues) within the flow of work unless you can’t get a flow time (duration) estimate but the idea is to use flow time which consists of both touch time (value-added time) and wait times (queues, impediments, non-value-added time).

So let’s START!

See below the sequential prioritization scheme:

Compare Financial Throughput rate = Projected Market Value/Herbie Flow Time

So first of all you need to know what Herbie means in this context hence please refer to this great article explaining the concepts of Herbie from the book “The Goal” in a more accessible way.

I would highly recommend reading “Tame your Work Flow” where ToC (Theory of Constraints) and management by exception with advanced mental models are explained in detail leading to a pragmatic and human-centered systems-thinking approach for creating breakthrough performance-innovation in knowledge-intensive digital-businesses.

So let’s say you already know what does Herbie Flow Time mean (flow time of the constraint in your workflow, for example, UAT stage, see below image):

Above is just a random example, in the majority of the cases “Development” stage would be the constraint in software development.

Example:

Project/Feature 1

Forecasted market value: 100$

Herbie forecasted flow time: 5 days

Throughput rate: 100/5 = 20

Project/Feature 2

Forecasted market value: 200$

Herbie forecasted flow time: 15 days

Throughput rate: 100/15 = 13.333

Project 1 wins and should be prioritized to start first even if project 2 forecasted market value is higher!

2. Compare Cost of Delay (ROI for MBAs) = Projected Market Value/E-to-E Flow Time

Example:

Project/Feature 1

Forecasted market value: 100$

Herbie forecasted flow time: 5 days

Throughput rate: 100/5 = 20

Project/Feature 2

Forecasted market value: 200$

Herbie forecasted flow time: 10 days

Throughput rate: 200/10 = 20

In this case, we will compare CoD values

Project/Feature 1

Forecasted market value: 100$

Forecasted E-to-E flow time: 15 days

Throughput rate: 100/15 = 6.6

Project/Feature 2

Forecasted market value: 200$

Forecasted E-to-E flow time: 25 days

Throughput rate: 200/25 = 8

Project 2 wins and should be prioritized to start first!

NOTE: Leverage CoD comparison only if financial throughput rate ratio is equal for both projects as highlighted above.

3. Compare E-to-E flow time

In this case, we will compare the E-to-E Flow Time of each project because let’s assume CoD is the same.

Example:

Project/Feature 1

Forecasted market value: 100$

Forecasted E-to-E flow time: 15 days

Throughput rate: 100/15 = 6.6

Project/Feature 2

Forecasted market value: 200$

Forecasted E-to-E flow time: 30 days

Throughput rate: 200/30 = 6.6

Project 1 wins because the Forecasted E-to-E flow time is shorter.

Compare E-to-E flow time for each project only if N1 (Financial Throughput rate ratio) and N2 (Cost of Delay) highlighted in the above 2 examples are equal.

Hope the approach described above will help you to better prioritize your projects and features :)