Innovation Accounting helps to quickly evaluate MVPs
The Lean Startup Cycle plays a key role in the Scaled Agile Framework (SAFe) in helping to achieve business agility and reduce waste. Its highly iterative cycle provides the opportunity to quickly evaluate large initiatives and measure viability, but it requires a different form of accounting than what’s been used in the past.
Senior Consultant and SPCT Joe Vallone has just published a new guidance article, Applied Innovation Accounting in SAFe, that describes how traditional accounting metrics are outdated in relation to evaluating large initiatives, including large systems development. The feedback they provide from lagging indicators is not sufficient to inform iterative and incremental development.
By contrast, Innovation Accounting uses leading indicators. That enables us to quickly evaluate the Minimum Viable Product (MVP) and make a critical pivot or persevere decision. We can make faster economic decisions based on objective data. This helps reduce waste in both development time and money.
We asked Joe why Innovation Accounting is so important for SAFe and he said, “Traditional financial metrics were designed to evaluate manufacturing systems with predictable risks and to measure return on investment long after development is complete. They are insufficient for measuring the value of today’s complex solutions—while they are still under development.”
“SAFe Principle #1 is Take an economic view. As described there, we often have to ‘pivot without mercy’ or guilt. In order to do that, we must ignore sunk costs and understand what our leading indicators are telling us, as discussed in SAFe”, he added.
I couldn’t agree more. Read the article to learn more about Innovation Accounting.
and Stay SAFe!