Economic Framework

Take an economic view.

—SAFe Lean-Agile Principle #1

Economic Framework Abstract

SAFe’s first Lean-Agile Principle, to take an economic view, highlights the key role that economics play in successful Solution development. That article describes the primary aspects of taking an economic view, delivering early and often, and understanding the other economic trade-off parameters. Principle #9 – Decentralize decision-making is another principle of SAFe.

These principles come together in this article, which describes the Economic Framework, a set of decision rules for a Value Stream or program that aligns everyone to the mission and the financial constraints, including budget considerations driven from the program portfolio, as well as the trade-off parameters that affect a particular Solution. In such a context, portfolio fiduciaries can delegate decision authority to others, knowing that those decisions will be made in accordance with agreed-to economic parameters.

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: 1) an understanding of the rules for decision-making, 2) the current local context, and 3) relevant authority. To this end, many of the needed economic decisions are embedded in various SAFe practices. Figure 1 summarizes where these decision rules and authorities occur.

Figure 5. SAFe constructs for economic decision-making
Figure 1. SAFe constructs for economic decision-making

Each of these areas is described in the sections that follow.

Lean-Agile Budgeting

The first decision is a big one, as the Lean-Agile enterprise moves from project-based, cost-center accounting to a more streamlined budget process, whereby the funding is allocated to long-lived Value Streams. Thereafter, the cost for each Program Increment is largely fixed, and 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 Budgets article.

Epic Funding and Governance

Allocating funds to the value streams (and thereby to the Agile Release Trains) 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 value stream or program epics? The empowerment of funding requires the concomitant responsibility to communicate any investments that are beyond routine. This is the primary purpose of the Portfolio Kanban System and the related portfolio, value stream, and program epics. Each requires a lightweight business case and an explicit approval process.

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, as they work with their larger stakeholder community to determine the best course of action. But in the end, the decision is theirs, as 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 in order to increase the efficacy of the solution. But SAFe is a flow-based system, and flow-based system economics are optimized by job-sequencing rather than by theoretical job ROI, or, worse, first-come, first-served job selection. Picking the right next job is where the greatest economic benefit lies. This is enabled by the Program and Value Stream Kanban systems and the Program and Value Stream Backlog staging areas. Jobs are pulled into implementation based on WSJF, whereas estimate of job size is typically used as a proxy for duration.

Practices Provide the Form; People Make the Decisions

This article describes the built-in SAFe constructs for economic decision-making. Together they provide the 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. However, the decisions don’t make themselves. Lean-Agile Leaders continually apply these constructs, and educate others in their use, so that economically responsible decision-making happens throughout the development organization, thereby 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.

Last update: 27 April 2016