How to Incorporate Value into Agile Estimation

The Velocity Trap

Estimating is a necessary evil for any project taking more than a couple hours. Long before anyone built software for a living, any team with a plan and a budget probably had an effort and time estimate too. Imagine what the project manager for the Great Pyramid of Giza gave as an estimate for building it. (Greek historian Herodotus believed it took 100,000 workers 20 years.)

When it comes to estimating, speed is a good thing, right? If I can get to my destination in 30 minutes instead of 60 minutes, isn’t that good? If I can do it safely, then logic would say that yes, faster is better. 

But what happens if the desired destination is wrong? Then it doesn’t matter if it took you 30 minutes or 30 hours, you’re still in the wrong place. 

I see teams fall into the Velocity Trap all the time. “We need to go faster, we need to increase our output!” I once worked on a product where we fell into this trap with several fast releases of easy work. In the end, our customers left for another company’s product. While we were releasing at three times the rate of our competition, they were offering the customer the value they needed. 

We focused so much on speed, we forgot to ask if the customer was getting what they wanted. 

Calculating Business Value with Relative Estimation

Okay, we want to avoid the velocity trap. How about we focus on business value? 

Early in my career as both a product and project manager, I failed to find an easy and effective way to calculate value. The easy ways produced something useless and the more accurate methods took forever. 

I kept searching, and eventually stumbled on a good alternative: Relative Estimation. 

This methodology isn’t just good for estimating time and effort — with some adaptation, you can apply the same principles to calculating value. Here’s how it works:

Imagine you’re selling a house and you want to spruce it up to raise its value. Painting the house gives you a lot of permanent value. Putting a pool in turns out to have a low or even negative value.  Using relative estimation, we might end up with the following business values for possible home improvements: 

Right on! I now had the tools to avoid the Velocity Trap! 

Of course, solving one problem can lead you into another: the Value Trap. 

Also known as Gold Plating, this is when you spend time and effort to add more bells and whistles that might never be used. 

When we fall into the Value Trap, we can end up in conversations such as, “We can’t possibly release this in less than eighteen months! There is too much the customer needs!” 

The Value Trap too has a solution . . .

Solving the Value Trap with the Impact/Effort Prioritization

I first learned about the  Impact/Effort Matrix from long time mentor and Applied Frameworks founder, Luke Hohmann. In that context, Luke was using it to guide strategic decision making.

Watching Luke teach the Impact/Effort Matrix, I had an epiphany on how to incorporate value into Agile estimation: 

BV ÷ LoE = Priority

(Business Value divided by Level of Effort equals Priority)

It was in this workshop that I finally understood why that software project I had worked on was a failure. We rapidly pushed out releases comprised of easy work — failing to take into account that the easy work was of little value to the customer. 

Returning to the home improvement analogy, we were installing tons of furniture when there still wasn’t a roof on the house. 

Here’s how we can apply the Business Value Prioritization Equation to the home improvement example: 

If we looked only at Value, we would choose painting the house. Looking only at Effort, we choose a deep clean of the house. Considering Priority, though, we can see the best impact to effort ratio is in tearing out the carpets and exposing the hardwood underneath. 

Going Deeper with WJSF

The Business Value Prioritization Equation is a simple technique to get you started with looking at both effort and value in your work. But this technique only scratches the surface of what makes up value. 

For those who find Impact/Effort oversimplified, you may want to consider  Weighted Shortest Job First (WSJF). Scaled Agile has incorporated WSJF into its  SAFe methodology and you can read more on the practical use of it in our article on  Features and WSJF. 

Value Prioritization Is at the Heart of the Profit Engine Framework

Whether you use the Prioritization Equation or its more detailed sibling WSJF, evaluating your work prioritization in more than one dimension will likely lead to more questions, such as:

• “What is our customer’s perception of value?” 
• “Should we charge by time access or by transaction?”
• “What’s our return on investment for this work?”

These are great questions, and they fit into a broader systems thinking approach we call the Profit Streams Canvas. This framework can help you answer what to build — it will help you understand why.

Pretty neat, huh?