PMI-ACP Exam Domain: Value Driven Delivery

1. Value-Driven Delivery Section Introduction

Value-driven delivery This is the theme of this section about maximising value through incremental delivery and through our Agile approaches. A really important example is the topic. So throughout this section we're going to talk about value-driven delivery. And that project exists to create business value. The project manager's goal is to increase value and reduce risk. We want to do that as early as possible. Now, this section has the most questions on the PMI ACP exam, so you really want to pay attention to the content of this section. Now, a theme that goes along with value-driven delivery is the idea of antivalue, and that is risk. That risk is considered anti-value and that risk is anything that threatens the project goals. So is risk identification and risk management. This is an iterative activity that happens throughout the Agile project. So pay attention to risk in this section because you're going to see a lot of information and a lot of questions about risk on your exam. Now in this section we'll also look at how we prioritise requirements and we do that by value. So we'll look at how the team and product owner work together to prioritise those requirements and how we agree upon those requirements. From time to time, we'll also see a term on incremental delivery, where the team regularly deploys working increments and that's'softened to a test environment for evaluation. But it is an opportunity for an early return on investment. So we'll see that in this section we'll also learn about a new term, whip. That whip is a work in progress. So we're going to look at all of the different facets of WIP, its pros and cons, and what WIP can do for us and allow us to manage our projects better. We'll also see some information about Agile constraints and contracts. That means Agile is flexible, but contracts are not flexible. So how do we balance those two? So, there are some special contracts for Agile. In some terms, you'll need to know about contracting in Agile projects. Of course, throughout your project you do testing,and that testing helps prove value, ensures thatmistakes and defects don't escape the project. So we'll spend a lot of time talking about Agile testing. In particular, we'll talk about usability testing and exploratory testing. Two terms to pay attention to in this section. Continuous integration is something that we'll see throughout this section and a little bit in others,that we incorporate new and changed code into a code repository, and that we do frequent integration and small code commits. And then, often, we'll rely on automated tools to integrate that new code. So that's something to pay attention to in this section as well. All right, a lot of information. This is the biggest domain on the PMI ACP exam, so really focus. Let's knock this big one out. I have confidence in you that you can get this done. Let's go.

2. PMI-ACP Domain Overview: Value Driven Delivery

In this section, we're going to talk all about value-driven delivery. So let's look at what you'll experience on your exam when it comes to value-driven delivery. This is 20% of your exam. 20% of the exam is on value-driven delivery. This is a very important domain. So there are roughly 24 exam questions you can expect to see. So, know this topic for the exam and Agile success. Your exam preparation work incrementally, gaining consensus on just-in-time acceptance of criteria Organization, team, and project release processes lowest viable products small batch work review prioritise work refactoring code often. We'll see that coming up. Environmental operational infrastructure optimization and checkpoints frequently balance value and risk. So, risk and reward value and risk reprioritizeto maximise value, prioritise nonfunctional requirements, and review and improve the overall process and product. So what is value-driven delivery? Projects exist not to give people jobs. Projects exist to create business value. So, your goal as the project manager is to increase value while reducing risk. Recall that risk, especially if you're a PMPor you go look in the pin box. That risk is an uncertainty of interconnectionthat can have a positive or negative effect on the project. Well, in Agile, we only look at risk as being negative. So that's why throughout the course you'll see the idea of reducing risk. It's not acknowledging that there may be opportunities, that risk could be an opportunity. We're only thinking about things that threaten the project. So your goal is to increase the value. You could say there's an opportunity to increase value and reduce risk. Value-driven delivery has the highest weight of all of your exam domains, so really no value-driven delivery. So pay attention to that throughout this section and the remainder of the course. A theme for your exam is to deliver value early in the project. So, based on, you know, our prior work, value is delivered first, the project lasts. The longer a project lasts, the more opportunity there is for risk. And then by delivering high-value items early, you're demonstrating an understanding of customer needs that also creates some buy in. It helps people to maintain synergy and to keep excited about your project. So it's a good goal, it's good practise to deliver value early, and it's really how the product is set up,called a product backlog, that we prioritise by value. And we'll talk more about that coming up. Also, in our project, one of our goals is to minimise waste. That waste really reduces value. So we have this idea of popand dikes seven areas of waste: partially done work, extra processes, extra features, switching between tasks, waiting, motion, and defects. So that's a theme that we'll see throughout the section about reducing waste. Alright, good job. Let's hop in here and knock out this section.

3. Value Determination in Agile Projects

In this lecture, we're going to talk about assessing value in Agile projects. Value, we know, is expressed in financial terms. So we'll talk about how do we value what's been created in an Agile project and at what point does that value hold weight or can we predict when something will have value? We're going to start off our talk by first addressing a little exam tip. The formulas and the calculations are talked about in this lecture. It is highly unlikely to see the actualformulas on the PMI ACP exam. You are probably going to see more topical questions. So I don't want to breach my PMI code of conduct, but just based on what the exam objectives are in my experience and what others have told me from their experience with the exam, it is very unlikely. You're going to have a lot, if any, of formulas. So as we go through this, I would encourage you just to be topically familiar with these different terms in these different types of formulas and why an organisation might use these formulas. The first one is a return on investment, or ROI.

The return on investment is the profitability of a project. The return on investment is the value of the project minus the investment in the project. So this is pretty easy to see if an organisation invests, let's say, $150,000 in a software development project and then that piece of software goes on to become worth, once it's in production, $350,000. The return on investment would be 350 minus $150. So it would be a return on investment of $200,000. So obviously, the bigger the return on investment, the better the return. So you want a big return versus a low return. A return on investment is really not the best approach to discovering business value in a project. And there are lots of reasons why. One, it doesn't tell me when I'm getting that return. How long did it take to get that return? What's the inflation rate and the time value of money? And how long did we have to keep investing to support it? And there are many variables, but it's just a quick way to see what the return on investment in the project is. Present value is all about the time value of money. Now, this is a little formula. It's the calculation of the future amount in today's terms, given an assumed interest rate and, in some cases, an inflation rate.

So present value is where we say this project is going to be worth $500,000 and it's going to take five years to create. We have an interest rate, let's say 6%. So the formula is that we would take the$500,000 and we're going to reduce it. So we divide it by one plus the interest rate to the power of five, because it's five years until we're done with that project. So it's a little cumbersome. But again, I really doubt if you're going to see this on your exam. The present value simply means you're taking a future amount and finding out what that's worth in today's dollars. Just the opposite of that, we'll look at in a moment. Then we have net present value. I'm going to release a product, and each time I release a product or multiple releases planned, I get some return on that release. So in year one, the product may be worth $50,000. In year two, the product release then becomes worth $80,000, then $120,000 in year three, and so on. So I get some money every year. There's some value when net present value says what's the present value for each year that you release that product minus the original investment? Basically, you want a higher net present value. So the lower means "not so good." Some people say zero or better is great because you're breaking even. But basically, one or greater means you're having a return and that's good. Now to the internal rate of return: this guy is an idiot.

Frankly, what the internal rate of return does It takes that net present value of the cost of the project, and when the net present value of the project meets or exceeds the net present value of the benefits that you're getting each year, then it's good. So how long until we break even based on the net present value? And then once we meet the cost of the project, beyond that, we're in the black, we're making money in the black, and accounting firm for being profitable. Basically, with the internal rate of return, what you want to see for your exam is that the higher the internal rate of return, the more valuable the project is. Of course, with PMI We have to talk about Earned Value Management.We see this all over the pin box and you will probably have a couple of questions. I am just kind of hinting at these formulas for EVM. If you're not familiar with Earn ValueManagement, I'm going to walk you through it. Now, it's not a tough set of formulas, it's just kind of tedious. I would just be familiar with what these different formulas do and why you need them. I really doubt you're going to see these in your exam other than at a topical level. So the whole point of the EVM is to show performance. What you're doing is you're comparing actual performance against planned performance to see how closely you're trending.

So let's start with the basics of earned value management. So let's say we have a project that has a budget at completion. It's supposed to be worth $100,000. Right now you're 25% complete with the total project. That completion that you have so far has a value assigned to it. And that's earned value. percent complete times budgeted completion is 25,000, and that's earned value. However, to reach this point in the project, you had to spend $27,000. So those are your actual costs. So you spent more than what you're worth. Then we have this idea of planned value. Right now we're supposed to be 50% done with the project, but we're only 25% done. Plan value is what the project should be worth. So we should be worth half our budget. We should be worth $50,000. Our earned value is that we are only worth $25,000 because we're only 25% complete. Well, obviously we have a variance here. We have an acost variance and we have a huge schedule variance. The cost variants you're supposed to be,or rather the cost period for it, For instance, you are 25%complete, but you spent $27,000 to get here. So the difference between earned value and actual cost is your cost variance, 25,000-20, $7,000. You have a $2,000 cost variance. Now the schedule variance isearned value, minus planned value. Your earned value is 25,000 because you're 25% complete. Your planned value is 50,000. So the difference, of course, is that you are $25,000 off on your schedule. Then we have this idea of measuring performance through an index. So we have a cost performance index and a schedule performance index.

The closest totone as possible, the better you're doing with both of these. So we have a CPI of EV divided by AC, earned value divided by actual cost. And so in this case, that is 25,000 divided by 27,000 for point 93. So we're about to go off on our cost. Or you could say for every dollar you invest in the project, you're actually only getting a 93 cent return, or you're losing $0.07 on the dollar. Now the other one is the scheduled performance index, which is earned value divided by planned value. That one's pretty easy, 250 divided by 50,050. Now you want these to be as close to one another as possible. You don't want it to be too far over one, because that probably means your estimates were bloated, and you don't want it to be too far below one, because that means you're not trending very well at all. Then we have this idea of predicting the future. We have an estimate at completion, which is your budget at completion divided by CPI. So we're saying, based on current events, where are we going to end up in this project? So this formula would be $100,000 divided by zero point 93. So your EAC would be $107,526, which means you're $7,000 over if things continue as they are now. So this makes sense, right?

You're losing $7 approximately on the dollar, so you're going to end up about $7,000 over the budget. Then we have an estimate to complete. We take that EAC amount minus our actual cost. So in this example, we said we were 107,000 and some change. We've already spent $27,000. So right now we need $80,000, well, $80,526 in order to complete the project, etc. Then we have the idea of the variance at completion. This one's pretty straightforward. If your budget at completion was$100,000 and your EAC was $107,256, You're going to be upside down on this project by about $7,500. All right, so here is just a quick chart of the EAC in action. So, there are some different formulas for EAC. We have one that we just looked at the budget at completion divided by CPI. So, in this example, it's pretty straightforward. We have a budget completion of $100,000 and an ourCPI of zero, so our estimate at completion will be slightly more than a million dollars. Then there's another one for if trends continue. The future work estimate is no longer valid. So you have to basically reestimate the whole project. And then you can also do some weighted values for the CPI or the SPI. Now, I know I'm kind of breezing over this because you are not going to see this on your exam,but you want to be familiar with Earned Value Management in these different formulas and which formula you might use. So don't spend hours and hours memorising these formulas if you're not familiar with them. I would be just topically familiar with what the formulas do and why.

You might want to know one formula over another. In a given scenario, there's another EVM formula, and that's the two complete Performance Index. This formula is basically how likely you are to finish the project based on current circumstances. So we have budget at completion minus earned value divided by budget at completion minus actual cost. So basically, this is are you going to be able to meet your budget at completion? Then there's another flavour with your estimate at completion. Again, are you going to be able to meet the estimated completion if it's greater than one? It's pretty hard to hit the goal of your EAC or your BAC if it's exactly one. It's the same level of efficiency. You've got to continue working as hard as you can for less than one year, then it's pretty easy to accomplish. You're probably on track to hit your goals, and here's the formula of the two Complete Performance Indexes. In this example, we have our budget of completion of 100,000 minus our earned value of $25,000 divided by 100,000 to get our actual cost. So it's 75,000 divided by 73,001.273. So it's a little bit over one, but it's not tremendous. So I'm going to have to recoup some cost in order to bring that variance of $7,000 down or close to the original budget at completion. Now, if we look at this with the estimate atcompletion where we said it was going to be $107,000over the member of variance, this one's pretty easy to hit. Our TCPI is 93 points less than one. So likely that we will easily meet our completion deadline. a little tougher to hit our original budget at completion. All right, so here's probably the most important formula for Agile in your exam. Instead of using dollars like all these little examples.

We could also use story points. Now we've not really talked about story points yet,but story points are a value given to user stories, and so it's a way of estimating how long it will take to do an activity or what this activity is worth on the priority scale. So a story point is a way of saying this is a value instead of a dollar amount for a given feature. So, for example, we have a planned value of 20 storypoints, but the team only did 18 story points. So we could do an SBI of 18 divided by 20 and get an SBI a .90.So it just shows our efficiency pretty easily. Like I said, you probably aren't going to see a lot of formulas on your exam. If you're kind of concerned about theseearned value management formulas, this is the one that I would pay attention to. But I really doubt if you're going to see many. Maybe a couple, but I really doubt you're going to see any. Okay, here are five VM rules to help you focus on these EVM. Earned value is always first. Variance means something minus something. "Index" means division. Less than one is bad in an index, and negative is bad in a variance. Alright, let's move forward, get some more things about Agile to talk about agile project accounting. Agile accounting defines the economics of agile projects. So project work and smaller chunks of a larger project can be accounted for.

We know that a smaller chunk of work is generally less risky than a large piece of the project. That's why we decompose and focus on user stories or features. It's smaller and less risky. Agile project accounting is the accountability of what was invested in relation to the return on investment. So it's a way of saying what our risk exposure was, what was actually created, and then what's the return on what was created? Key performance indicators (KPIs) are just a way of seeing what is performing well or not so well in the project. So like the rate of progress, how much work is left, what's your likely completion date, and then what's your likely cost remaining? So KPIs are a way of measuring and, oftentimes, these will be in your information. Radiator: We'll talk more about risk coming up in this course, but it's tied to value,so we need to talk about it now. So risk, as you know, is anything that threatens the project goals. Risk is anti-value and risk has to be managed throughout the project. Risk identification is an iterative activity, and then all of your risks are recorded in a risk log. Features that have high risk can be addressed early in project iteration, and then high areas of risk need to be addressed sooner rather than later. And then you adjust your backlog for risk features and try to put that early in the projects so you can attack it, and then you might do a risk burn down chart to track risks as they move down in priority and hopefully elimination. And then, of course, regulatory compliance regulations are always requirements and regulatory compliance is one instance for documentation where that idea has to be documented just because.

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