To prioritize items in a scrum team’s product backlog, the product owner needs an estimate of both value and cost for each item. This way, they can identify which items have high ROI and move them to the top of the backlog. Other concerns such as dependencies must be considered, but in general the team should always be working on the product backlog item (PBI) with the highest ROI.
This makes sense. And yet, most organizations don’t have estimates for the value of the items in their scrum teams’ product backlogs. Why this glaring omission? I believe that it is due to several common myths, or misunderstandings, about the nature of business value.
Myth: Business value is money.
Many people mistakenly think that we should/could put a dollar (or currency of choice) value on each product backlog item. It’s not that simple. Money is a one-dimensional concept; it can be represented by a single number. But business value is multi-dimensional.
The business values money in multiple forms: revenue, cost-savings, and profit. The business may also value: increasing market share, breaking into new markets, improving our brand recognition, attracting & retaining great employees, reducing technical debt, understanding emerging technologies and trends, environmental sustainability, giving back to the community. Anything that the business is willing to expend resources to pursue, is something that the business values. So you see, business value can’t be expressed in a single dimension with a single number.
Myth: Business value can be measured and quantified.
Measuring all of the dimensions of value is essentially impossible. It may be possible to measure some of the dimensions. Let’s say we have a PBI for increasing the size of the ‘Buy Now!’ button. We think that changing the size of the button will lead to more sales. We could implement the new button and run an A/B test and measure how many more sales occur. But this is only measuring one dimension of value, not total value. And, it’s a trailing metric. That is, we have to implement the PBI in order to measure the value created. We need leading metrics, or estimates, so that the product owner can make well-informed decisions about what to build.
Myth: Business value is objective.
We would like there to be an absolute, objective truth to what the business value of a PBI is, but there isn’t. We build products for our stakeholders. Value is in the eyes, and opinions, of those stakeholders. Therefore, it is inherently subjective. Different stakeholders will value the same PBI very differently. Oh, and their opinions, and thus the value, changes over time.
So here we are. Business value is multi-dimensional, can’t be measured, is subjective, and changes over time. It sounds totally intractable! No wonder people get stuck. The good news is that business value can be estimated using some simple, yet very effective techniques. Stay tuned for future posts about exactly how to go about this. If you just can’t wait, sign up for one of our Certified Scrum Product Owner (CSPO) or Advanced Certified Scrum Product Owner (A-CSPO) workshops.