How does a Product Owner measure value?
Scrum is about generating Value for organizations. But what is this thing called (business or product) Value? And how can a Product Owner measure Value into something meaningful in the context of a product or a business at large?
In this article, let us explore the concept of the product Value in Scrum, what it is, and how a Product Owner can measure Value effectively.
What is Value?
According to Wikipedia, Value is an informal term used to describe all forms of value that determine the health, well-being, and longevity of a team, product, business or organization. Simply put, Value is used as an indicator to ensure the work a team does should benefit the organization in the long run. However, the Scrum Guide doesn't define Value and states that it depends on the individual organization.
Measuring product value includes determining if something on the Product Backlog should be higher in the list or lower down or even removed. It also includes prioritizing work based on the right time and the wrong time.
Scrum is assumed to be defined for software development, but this assumption turned out to be a myth. Several thousands of teams and organizations across the globe busted this myth. There are numerous case studies where Scrum is applied outside software development in industries such as manufacturing, construction, education, film making, home making, schools, marketing etc. Whatever is the nature of the product or service developed, the measurement of Value is inevitable.
We can distinguish various kinds of product Value, such as:
- Commercial Value: Value that translates directly into profit; Return on Investment.
- Customer value: The likelihood that customer will continue to use the product.
- Market value: The number of potential customers, repeat customers etc.
- Efficiency value: Increasing organizational efficiency and decreasing operational costs.
Who measures Value?
A Scrum Team has 3 roles - Product Owner, Scrum Master and Developers. All 3 roles generate Value in their own contexts; however, it is the Product Owner who maximizes the Value from a product or business context.
In Scrum, the Product Owner is responsible for measuring and maximizing the product Value that the Developers delivers during Sprints. In short, the Product Owner's main responsibility is to maximize the Value of the product by making it more successful. Product Owners need to work closely with both the Developers and stakeholders to ensure all the actions are adding to creating, delivering, maintaining or sustaining a successful Product.
Why measuring Value is important in Scrum?
In Scrum, measuring Value is more important than the speed of development. Many organizations measure the success by how quickly the Developers develop products. However, a high speed does not guarantee an increase in the delivered Value. Therefore, Product Owners need to use financial and customer metrics, to measure the overall business value.
Various ways used by a Product Owner to measure Value in the industry
Agile product development, unlike traditional projects, is empirical and is a data driven decision making system. Therefore, unlike traditional project metrics like 50% completion or 80% completion, a Product Backlog Item or a user story in Agile is either done or not done (100% or 0%). Let's take a look at some basic metrics used by a Product Owner to measure Value in Agile product development.
- Product Revenue (in terms of dollars over a period of time)
o New revenue
o Incremental revenue
o Retained revenue
- Return on Investment
- Net Present Value
- Cash Flow
- Cost of development and maintenance of product features
- Significance of new learnings by developing and maintaining the features
o Knowledge gained about the product and about the process
- Amount of risk removed by developing and maintaining the features
o Schedule risk
o Cost risk
o Functionality risk
KPIs that drive Value should be outcome focused. Here are a few other indicators Product Owners should have on their radar.
- Customer KPIs: The Product Owner can measure Customer KPIs by
o Customer satisfaction
o Net promoter score (NPS)
o Number of leads generated
o New customers (customer conversion ratio)
o Customer retention ratio
o Customer usage index
o System response time
- Timelines: The Product Owner can measure Timelines by the number of planned Sprints in a Release, the total amount of planned work (mostly measured by user story points) in a release, the planned budget for a release, actual spend etc.
- Business change indicators: These include Team morale, user adoption, and stakeholder engagement.
Some tips for Product Owners to measure Value
Product Value is a contextual concept, and even the most experienced Product Owners might struggle in measuring Value in the right way. Here are a few tips Product Owners must follow:
- Steer on Value: Instead of focusing solely on absolute effort and user story points, look to maximize the Value delivered to customers and users.
- Measure value early and often: Product Owners release new features or functionalities in every Sprint. It is essential to measure whether or not the Value has been delivered after every Sprint.
- Redefine the meaning of Product Value: Value can change over time. For example, if you are developing a mobile app, the Value in the initial phase could be the number of app downloads. But later, the Value may change to how many users are using the app multiple times a day.
- Involve Scrum Team and Stakeholders in value estimation: A Product Owner should integrate various experiences and perspectives of stakeholders, the Developers, and Scrum Master to estimate the Value of Product Backlog Items. Remember a Product Owner is a highly collaborative role.
Conclusion
Value can be contextual and can vary from organization to organization. Thus, Product Owners need to define proper KPIs for determining an appropriate product value. They should be able to make a case for every Product Backlog Item and translate it into the Value for the organization. And measurement of Value is also empirical like the product development itself. The measurement metrics and measurement system may evolve with regular 'inspect and adapt' opportunities provided by Scrum.
References
- Scrum Guide from www.ScrumGuides.org
- Agile Estimating and Planning by Mike Cohn.
- https://www.scrum.org/resources/blog/10-tips-product-owners-business-value
- https://www.agilealliance.org/resources/sessions/business-value-estimation/
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