This document summarizes Donald Reinertsen's presentation on Second Generation Lean Product Development (2GLPD). It introduces the seven big ideas of 2GLPD: 1) understand economics, 2) manage queues, 3) exploit variability, 4) enable smaller batches, 5) control work-in-progress and start rates, 6) prioritize based on economics, and 7) accelerate feedback. The presentation provides examples and explanations for how to implement each of these ideas to improve product development performance and economics.
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Reinertsen lk france 2015 11 4-15
1. No part of this presentation may be reproduced
without the written permission of the author.
An Introduction to
Second Generation
Lean Product Development
Lean Kanban France 2015
Paris, France
November 4, 2015
Donald G. Reinertsen
Reinertsen & Associates
600 Via Monte D’Oro
Redondo Beach, CA 90277 U.S.A.
(310)-373-5332
Internet: Don@ReinertsenAssociates.com
Twitter: @dreinertsen
www.ReinertsenAssociates.com
2. 2Copyright 2015, Reinertsen & Associates
Seven Big Ideas of 2GLPD
1. Understand your economics.
2. Manage your queues.
3. Exploit variability.
4. Enable smaller batches.
5. Control WIP and start rates.
6. Prioritize based on economics.
7. Accelerate feedback.
3. 3Copyright 2015, Reinertsen & Associates
1. Understand Your Economics
• In product development all difficult
decisions involve multiple variables.
• Making decisions that affect multiple
variables requires quantification.
• Doing such quantification, to a useful
level of accuracy, is surprisingly easy.
4. 4Copyright 2015, Reinertsen & Associates
Should we operate our testing process
at 80 percent utilization with a 2 week
queue, or at 90 percent utilization with
a 4 week queue?
A Typical Question
5. 5Copyright 2015, Reinertsen & Associates
Making Economic Decisions
Waste
Cycle Time
Variability
Efficiency
Unit Cost
Value-Added
Revenue
Life Cycle
Profits
Economic SpaceProxy Variable Space
Transformations
6. 6Copyright 2015, Reinertsen & Associates
The Modeling Process
Create Baseline Model
Determine Total Profit Impact of Missing a MOP
Calculate Sensitivity Factors
Model
Expense
Overrun
Model
Schedule
Delay
Model
Value
Shortfall
Model
Cost
Overrun
Model
Risk
Change
7. 7Copyright 2015, Reinertsen & Associates
The Model Output
Life-Cycle Profit Impact
-$80,000
-$500,000
-$100,000
-$150,000
-$40,000
1 Percent
Expense
Overrun
1 Percent
Product Cost
Overrun
1 Percent Value
Shortfall 1 Month Delay
1 Percent
Increase in Risk
8. 8Copyright 2015, Reinertsen & Associates
Range of Cost of Delay Estimates
Poor Intuition
Average Intuition
Best Case Intuition
Average Analysis
Quality Analysis
Any Analysis Beats Intuition
200:1
50:1
10:1
2:1
1.2:1
Source: Reinertsen & Associates Clients
9. 9Copyright 2015, Reinertsen & Associates
Managing Weight vs. Product Cost
Engineer Supervisor Program
Manager
Boeing 777 Weight Reduction
Decision Authority
$300
$2,500
$600
Dollars
per Pound
10. 10Copyright 2015, Reinertsen & Associates
2. Manage Your Queues
• Many product developers assume higher
utilization leads to faster development.
• They neither measure nor manage the
invisible queues in their process.
• Consequently, they underestimate the true
cost of overloading their processes.
• Such overloads severely hurt all aspects
of development performance.
11. Traffic at rush hour
illustrates the classic
characteristics of a
queueing system.
PhotoCopyright2000Comstock,Inc.
13. 13Copyright 2015, Reinertsen & Associates
Total Cost
Cost of Delay
Cost of Excess Capacity
Managing Queues
Excess Product Development Resource
Dollars
Minimize Total Cost to
Maximize Profits
14. 14Copyright 2015, Reinertsen & Associates
Longer Cycle Time
Lower Quality
More Variability
Increased Risk
More Overhead
Less Motivation
Queues Create...
Why Queues Matter
Managing Queues is the
key to improving product
development economics.
15. 15Copyright 2015, Reinertsen & Associates
3. Exploit Variability
• In manufacturing it is always desirable to
reduce variability.
• In product development eliminating
variability eliminates innovation.
• We understand the specific conditions
that make variability valuable and manage
our process to create these conditions.
• We need development processes that
function in the presence of variability.
17. 17Copyright 2015, Reinertsen & Associates
Higher Variability Raises This Payoff
Price
Expected
Payoff
Payoff SD=15 Payoff SD=5
Option Price = 2, Strike Price = 50,
Mean Price = 50, Standard Deviation = 5 and 15
Strike
Price
18. 18Copyright 2015, Reinertsen & Associates
Performance
Payoff
Target
Fast Feedback
Enables Exploitation
of Good Outcomes
Fast Feedback
Reduces Loss
from Bad
Outcomes
We Can Change Payoff Functions
Gain
Loss
19. 19Copyright 2015, Reinertsen & Associates
Requirements Resources
Schedule
• Cost
• Performance
Project Control Triangle
Variability Substitution
Possible Constraints
1. Requirements and Resources
2. Schedule and Resources
3. Requirements and Schedule
Variability on one axis can be transformed into variability on another.
20. 20Copyright 2015, Reinertsen & Associates
4. Enable Smaller Batches
• When work products are invisible, batch sizes are
invisible.
• When batch sizes are invisible, product developers
pay little attention to them.
• Many companies institutionalize large batch sizes.
• Batch size reduction is attractive because it is fast,
easy, cheap, granular, leveraged, and reversible.
• It is a great starting point for LPD.
Batch Size Queues Cycle Time
X 0.5 X 0.5 X 0.5
21. 21Copyright 2015, Reinertsen & Associates
Small BatchesLarge Batch
Unreviewed Drawings
Drawing Review Process
200
20
10 Weeks 1 Week
25. 25Copyright 2015, Reinertsen & Associates
Typical Batch Size Problems
• Megaprojects
• Project funding
• Project phases
• Requirements
definition
• Project planning
• Testing
• Capital spending
Drawing release
• Design reviews
• Manufacturing release
• Market research
• Prototyping
• Post Mortems
Batch sizes are often too large when we incorrectly
assume large batches create economies of scale.
Large batches are like rabbits in Australia, only worse.
26. 26Copyright 2015, Reinertsen & Associates
5. Control WIP and Start Rates
• Many developers incorrectly assume that
the sooner they start work, the sooner
they will finish it.
• They are constantly tempted to start too
much work.
• This dilutes resources and causes long
transit times through their processes.
• A long transit time hurts efficiency,
quality, and responsiveness.
27. 27Copyright 2015, Reinertsen & Associates
Little’s Formula
• By constraining WIP in development
processes we can control cycle time.
• This approach, which is known as Lean
Kanban, is currently growing rapidly in
software development.
RateDepartureAverage
QueueinCustomersofNumberAverage
QueueinTimeWaitAverage
q
q
q
q
L
W
L
W
28. 28Copyright 2015, Reinertsen & Associates
1
2
3
4
1
2
3
4
COD Savings of Project 1 and 2 Late Start Advantages
for Project 3 and 4
Control Number of Active Projects
Många barn och lite mat ger tunna smörgåsar.
29. 29Copyright 2015, Reinertsen & Associates
Avoiding Long Planning Horizons
Datum
Search Area
D = Vt
D = Vt
A =V2 t2
Planning Horizon
Error
30. 30Copyright 2015, Reinertsen & Associates
Visual WIP Control Boards
Ready
Queue Coding
Ready
to Test Testing
Test
Complete
A D
E
C
B
WIP Constraint = 10 units
WIP constraints can be local, regional, or global.
31. 31Copyright 2015, Reinertsen & Associates
6. Sequence Work Correctly
• The sequence in which work is processed
is called the queueing discipline.
• By changing the queueing discipline we
can reduce the cost of a queue without
decreasing the size of the queue.
• Since manufacturing has homogeneous
flows it always uses FIFO.
• For the non-homogeneous flows of
product development other approaches
have better economics.
32. 32Copyright 2015, Reinertsen & Associates
The TPS Emergency Room
• We desire to rigorously
imitate the practices of
Toyota.
• All arriving patients will be
processed on a FIFO basis.
• We will set strict limits on
WIP.
33. 33Copyright 2015, Reinertsen & Associates
Cost
of
Delay
Time
2
Cost
of
Delay
Delay Cost
First-In First-Out
Last-In First-Out
Project Duration
Cost of
Delay
1 3 3
2 3 3
3 3 3
Use FIFO for Homogeneous Flow
1
3
2
3
1
34. 34Copyright 2015, Reinertsen & Associates
Cost
of
Delay
Time
Cost
of
Delay
Delay Cost
High Weight First
Low Weight First
1
2
3
Project Duration
Cost of
Delay
Weight =
COD/
Duration
1 1 10 10
2 3 3 1
3 10 1 0.1
1
23
Weighted Shortest Job First (WSJF)
160 7
96 Percent
Reduction!
35. 35Copyright 2015, Reinertsen & Associates
7. Create Faster Feedback
• When queues and batch sizes are large
feedback is slow.
• Slow feedback hurts quality, efficiency,
and cycle time.
• Feedback speed has enormous economic
leverage in product development, but it is
rarely explicitly managed.
36. 36Copyright 2015, Reinertsen & Associates
The Front-Loaded Lottery
• A lottery ticket pays $3000 to the winning
three digit number.
• You can pick the numbers in two ways:
• Pay $3 to select all three digits at once.
• Pay $1 for the first digit, find out if it is
correct, then choose if you wish to pay
$1 for the second digit, and then choose
if you wish to pay $1 for the third digit.
37. 37Copyright 2015, Reinertsen & Associates
100%
Probability
of
Occurrence
Value of Feedback
Cumulative Investment
100%
10%
Savings
= $0.90
$1 $2
10%
0 $3
Savings
= $0.99
1%
Spend
$1.00
38. 38Copyright 2015, Reinertsen & Associates
1. Understand your economics.
2. Make your queues visible and control them.
3. Create a process to exploit variability.
4. Enable smaller batches.
5. Control cycle time by controlling WIP.
6. Sequence work based on economics.
7. Accelerate feedback with smaller batches.
Seven Big Ideas of 2GLPD
39. 39Copyright 2015, Reinertsen & Associates
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