Economic Framework

Take an economic view.

—SAFe Lean-Agile Principle #1

The Economic Framework is a set of decision rules that align everyone to the financial objectives of the Solution and guide the economic decision-making process. It contains four primary constructs: Lean Budgets, Epic funding and governance, decentralized decision-making, and job sequencing based on the Cost of Delay (CoD).

SAFe Lean-Agile Principle #1: Take an economic view highlights the key role of economics in successful solution development. This chapter describes the primary aspects of taking an economic view, delivering early and often, and understanding other economic trade-off restrictions. In addition, Principle #9: Decentralize decision-making is another cornerstone of SAFe.

These principles come together in this chapter, which describes the economic framework, a set of decision rules aligning everyone to the mission and its financial constraints. That includes budget considerations driven by the program portfolio, as well as trade-offs that affect a particular solution. In this context, portfolio fiduciaries can delegate decision-making authority to others, knowing that the resulting decisions will align with the agreed-to economic guidelines.

Details

The primary purpose of the economic framework is to support effective, fast decision-making within the bounds of the larger economic picture. In turn, that requires three things:

• An understanding of the rules for decision-making

• The current local context

• Relevant decision-making authority

To this end, many of the needed economic decision rules are embedded in various SAFe practices. Figure 1 summarizes where these rules and authorities occur. Each of these areas is described in the sections that follow.

Four sections titled “lean budgets, epic funding and governance, decentralized economic decision-making, and job sequencing based on the cost of delay” are shown. The first section shows the lean budgets cycle points to two rightward arrows that are divided into two. Below which two PI bars, PI 1 and PI 2 are shown. Arrows from value stream, value stream 2, value stream 3, and value stream 4 passes through the bars. It reads fund value streams, not projects and control investment over the course of PIs. The second section show epic owners icon and kanban backlog icon at the top. Below which a flowchart is shown. An arrow from epic (process symbol) points to dollar threshold (decision symbol). An arrow “yes” from the decision points to epics require a lightweight business case and specific funding approval and thresholds established by LPM authority. An arrow “no” from the decision points to the product management of decentralized economic decision-making. The third section shows a downward arrow from solution management with kanban backlog pointing to product management with kanban backlog, which in turn points to product owner along with backlog item. An arrow from the points listed in the second section points to the third section: empowered content authority and local context, fast decision-making. The fourth section reads, WSJF equals CoD over the duration; the cost of delay equals bus value plus time value plus RR/OE; and job size as the first proxy for the duration. It also shows a sketch of a truck with text $$, 3 days.

Figure 1. SAFe constructs for economic decision-making

Lean Budgets

The first decision is a big one, as the Lean-Agile enterprise moves from project-based, cost-center accounting to a more streamlined, leaner budget process, where the funding is allocated to long-lived Value Streams. Thereafter, the cost for each Program Increment (PI) is largely fixed, and the scope is varied as necessary. Each value stream budget can then be adjusted over time at PI boundaries, based on the relative value that each value stream provides to the portfolio. This process is described further in the Lean Budgets chapter.

Epic Funding and Governance

Allocating funds to the value streams (and thereby to the Agile Release Trains [ARTs]) is all well and good. But what happens when there are substantial, crosscutting concerns, such as portfolio epics? Or significant local investment concerns, as represented by solution or program epics? Empowered funding requires the parallel responsibility to communicate the need for any unexpected investments—the primary purpose of the Portfolio Kanban System. Each epic requires a Lean business case and an explicit approval process (see the Epic chapter and the discussion of Lean portfolio governance in the Lean Portfolio Management chapter).

Decentralized Economic Decision-Making

With these budget elements in place, the Enterprise then empowers people—particularly Product and Solution Management—with the relevant context, knowledge, and authority necessary to make content decisions at each level of the Framework. Of course, they don’t act alone, but rather collaborate with the larger stakeholder community to determine the best path. But in the end, the decision is theirs. That is their primary responsibility and authority.

Job Sequencing Based on Cost of Delay

Every significant program has a host of new backlog Features and Capabilities, just waiting to be implemented to increase the effectiveness of the solution. But SAFe is a flow-based system, whose economics are optimized by job-sequencing rather than theoretical job return on investment, or worse, first-come, first-served job selection. Picking the right next job is where the greatest economic benefit lies. This ability is enabled by the Program and Solution Kanban systems and the Program and Solution Backlog holding areas. Jobs are pulled into implementation based on the Weighted Shortest Job First (WSJF) model, using job size as the proxy for the job duration.

Practices Provide the Form; People Make the Decisions

This chapter has described the constructs that provide a comprehensive foundation for effective decision-making based on the economics of the portfolio and value stream. SAFe also defines the roles and responsibilities of those who live in the decision-making chain. Of course, these decisions don’t make themselves. Lean-Agile Leaders continually apply these constructs and educate others in their use. This way, responsible decision-making happens throughout the development organization, bringing the full economic benefits of Lean-Agile development to the enterprise.

LEARN MORE

[1] Reinertsen, Donald G. The Principles of Product Development Flow: Second Generation Lean Product Development. Celeritas Publishing, 2009.