Stories about how we used Real Options, Set-Based Design, the Creative Process to make surprisingly good decisions in bad circumstances

1. Real Options: how and when
(not) to make decisions
Pascal Van Cauwenberghe

2. Consults
Manages projects
Programs
Agile Open
http://agileopen.net
http:/atbru.be
@pascalvc
http://blog.nayima.be
Creates games
Tells tall tales
Organises conferences
http:/xpday.net

3. http://www.cafepress.com/+true-story+mugs

4. Once upon a time...

5. The project (1)
Social website
Video Game
http://www.flickr.com/photos/rohdesign/3307874546
http://www.flickr.com/photos/seandreilinger/2187892869

6. The website
http://www.flickr.com/photos/rohdesign/3307874546

7. The NIOUZE
CELEBRITY NEWS AND GOSSIP
WORLD EXCLUSIVES
New DESIGN !!
L'analyse par les Options Réelles est
une technique qui permet de prendre
des décisions sur les décisions. C'est
cool, c'est meta.
Redesign
de tous les
sites!
Le “vieux” design jaune
sera remplacé par un
design bleu cool, fresh et
clair
Mais quel est l'intéret pour l'équipe au
quotidien ?
Vous prenez plein de décisions
chaque jour comme développeur ou
architecte. Des décisions qui peuvent
couter cher.
Les Options Réelles ne sont pas très
compliquées, cela s'explique en
quelques minutes. Mais en appliquant
les Options Réelles sur les projets
informatiques et sur l'architecture des
logiciels j'ai découvert que plein de
choses que je croyais vraies ou qui
me semblaient intuitivement
correctes étaient fausses.
J'illustre chaque technique avec des
exemples qui viennent de projets
auxquels j'ai participé les dernières
années, ou bien de la vie de tous les
jours.
Découvrez une autre façon de voir les
décisions, des techniques simples
pour gérer des projets ou définir une
architecture de logiciel. Vous
découvrirez peut-être que vous aussi
croyez des choses qui sont fausses.
Au minimum vous entendrez
quelques histoires belges... :-)
Template:
www.presentationmagazine.com

8. Le Redesign
http://www.flickr.com/photos/rohdesign/3307874546

9. The team

10. Estimated sales
#
http://en.wikipedia.org/wiki/File:Sinterklaas_2007.jpg
http://commons.wikimedia.org/wiki/File:Jonathan_G_Meath_portrays_Santa_Claus.jpg
t

11. 1. Cost of Delay
€
t

12. Previous redesigns

13. Creative Process
Generate
options
Test and choose
options
Problem
Customer
Implement
Supplier

14. Creative Process

15. Our Creative Process

16. Don’t try to decide too fast

17. 2. The Creative Process

19. http://www.flickr.com/photos/miagant/5203621384

20. Real Options Team to the
Rescue!
Olav
Chris
Chris
“Give us a day and we’ll tell you when and how to decide”

21. What is the problem?
Cost of Delay: a delay (even one day) can
cost us 50% of sales

22. Real Options
Real Options
Have a value
Have a cost (= the price of the option)
Have a price (“strike price”) when we exercise the option
Have an expiration date/condition
~ “Call Option”
An option is not an obligation
This is a metaphor

23. What are our options?
1. Go in production with the (new) blue design
•
•
Yes but, we risk delay while we wait for the new design
to stabilize
Yes but, meanwhile there will be many changes to the
design
2. Go in production with the (old) yellow design, the
redesign with the (new) blue design
•
•
Yes but, it won’t be consistent with the other sites
Yes but, the blue redesign will cost extra time/money

24. Comparing our options
Option
Value
Blue
Yellow +
Blue
Cost
Price
Expires
Consistent ???
Design
/
???
Reduced
risk of
Delay
Blue
redesign
???
???

25. When do we have to
decide?
We are here!
Yellow + Blue option ???
Produce
DVD+box
Stock
shops
Servers
Blue option ???
March
????
Oct
Nov
Dec

26. Questions for the developers
• Do we have to apply the design from the start?
• “We’ve always done it like this, but we could do it later”
• How much time to apply the Yellow design?
• “Around one month”
• How much time for a complex design?
• “Less than two months”
• Imagine the worst design the designers can create
• Laughs. “Two months. We’ve got experience with that kind
of design.” 

27. When do we have to
decide?
We are here!
Yellow + Blue option ???
Produce
DVD+box
Design
and test
(2M)
Servers
Blue option ???
March
Stock
shops
August
Oct
Nov
Dec

28. How will we decide?
•
•
•
•
IF the new blue design is completely stable
AND if the estimate of the blue design < 2 months
THEN we use the blue design
ELSE we use the yellow design AND we’ll plan the
blue redesign once the blue design is stable
• Meeting: August 1st

29. Meanwhile...
• We develop the site in “black & white”
• One team member participates in the followup
meetings of the new design (2 hours every 2 weeks)
and keeps the team informed of the situation

30. The day is not done yet
• A few more questions:
• Developers, what changes when the design
changes?
• Developers show architecture and code
• What if there was less to change?
• Quick architectural “spike”: remove duplication,
separate concerns...
• How much to refactor the site?
• “We can do it in a few days”
• “Afterwards, any redesign costs less than 1 month”

31. When do we have to
decide?
We are here!
Yellow + Blue option ???
Produce
DVD+box
Design
and test
(2M)
Servers
Blue option ???
March
Stock
shops
August
Oct
Nov
Dec

32. When do we have to
decide?
We are here!
Yellow + Blue option ???
Producte
DVD+box
Design
and test
(1M)
Servers
Blue option ???
March
Stock
shops
Sept
Oct
Nov
Dec

33. The benefits of reducing
cycle time
• We can decide another month later
• We have one month more to implement functionality
• The redesign Yellow=>Blue costs 1 extra month, not 2
• New meeting date: September 1st

34. Comparing our options
Option
Value
Cost
Price
Blue
Consistent 1 week of
/
Design
refactoring
+ 2h followup /
2 weeks
01/09/20XX
Yellow +
Blue
Reduced
risk of
Delay
01/09/20XX
1 week of
Blue
refactoring
redesign
+ 2h followup / (1 month)
2 weeks
Expires

35. 3. Real Options
Optimal Decision Process
Decisions
Option
Option
Option
http://commitment-thebook.com/
Implement
Deadline

36. Retrospective
• 1 september: the blue design isn’t stable (no surprise).
We keep using the yellow design.
• Product delivered on time
• “This project was a lot less stressful than usual”
• Functions:
• Design:

37. Real Options
•
•
•
•
•
Have a Value
Have a Cost
Have a Price
Have an Expiration Date/Condition
Are not an obligation
• Only decide when you must or have a good reason
• Meanwhile, look for more information and options

38. And they lived happily ever after

39. Another story?

40. The project (2)
Internet Banking
http://www.flickr.com/photos/seeminglee/8276505285
p.s. La banque n’est pas HSBC
Internet Banking servers
http://en.wikipedia.org/wiki/File:Rack001.jpg

41. Your mission, should you
decide to accept it...
• Online banking goes live on DD/MM/YYYY
• Company X will develop the frontend
• You need to deliver the backend servers on time
•
•
•
•
•
A few small details...
We’re still deciding what server platform to use
We’ve started documenting the DB you have to use
We’ll start documenting the requirements
“But start developing, because we don’t have a lot of
time!”
• Would you accept this mission?

42. The problem
We are here!
Decision
Platform A
Not enough
Implement time
Platform B

43. Our solution
• IF we don’t have enough time to implement either
Platform A OR Platform B
• THEN we implement Platform A AND B
• It’s logical when you think about it…

44. Our solution
We are here!
Decision
Implement Platform A
Implement Platform B
Finish
implementation of
chosen platform

45. Set-based development
APP
3 parallel implementations:
•Platform A
•Platform B
•Development+test platform
API
A
Server
B
Server
Test
Server

46. Retrospective
•
•
•
•
Decision: platform A
Implementation A in production on time
Dev+Test platform continues to be used
Implementation B was wasted
• To be continued...

47. And they lived...

48. The NIOUZE
CELEBRITY NEWS AND GOSSIP
WORLD EXCLUSIVES
Company B acquires A
L'analyse par les Options Réelles est
une technique qui permet de prendre
des décisions sur les décisions. C'est
cool, c'est meta.
Redesign
de tous les
sites!
Le “vieux” design jaune
sera remplacé par un
design bleu cool, fresh et
clair
Mais quel est l'intérêt pour l'équipe au
quotidien ?
Vous prenez plein de décisions
chaque jour comme développeur ou
architecte. Des décisions qui peuvent
couter cher.
Les Options Réelles ne sont pas très
compliquées, cela s'explique en
quelques minutes. Mais en appliquant
les Options Réelles sur les projets
informatiques et sur l'architecture des
logiciels j'ai découvert que plein de
choses que je croyais vraies ou qui
me semblaient intuitivement
correctes étaient fausses.
J'illustre chaque technique avec des
exemples qui viennent de projets
auxquels j'ai participé les dernières
années, ou bien de la vie de tous les
jours.
Découvrez une autre façon de voir les
décisions, des techniques simples
pour gérer des projets ou définir une
architecture de logiciel. Vous
découvrirez peut-être que vous aussi
croyez des choses qui sont fausses.
Au minimum vous entendrez
quelques histoires belges... :-)
Template:
www.presentationmagazine.com

49. A little bit later
• Company B sends a letter to the bank
“Great news! We’ve just acquired company A. All
development on platform A has been stopped. We will
stop support very soon.
Please migrate to platform B.”
• Easy!
C
A
B
B

50. And they lived happy

51. 4. Set-based development
Option
A
Option
B
Option
C

52. That’s only logical, captain!

53. It’s just common sense!

55. Predictably Irrational

56. Predictably Irrational
• Sunk Cost Fallacy
• “Never throw good money after bad”
• We can’t estimate absolute values
• But relative estimation is OK
• We over-value the value of what we have and overestimate the cost of change
• We have a faulty Discount Model (today vs tomorrow)
• We have choice anxiety
• We don’t like uncertainty
• “I’d rather have a bad decision than no decision!”

57. How did you survive this long?

58. 5. We’re not rational,
but we can fake it

59. Yes but… Options are
too expensive

60. Another project
• Hard deadline: the EU law changes on 01/01/YYYY
• The current system is not compatible with the new law
• We’re building a replacement system
• What happens if we’re too late (cost of delay)?
• Deadline is getting nearer...

61. The problem
We are here!
NEW system
01/01/XXXX

62. Can we buy a backup option?
• Shouldn’t we look at backup options?
• Option: ask vendor to estimate cost and last moment
to start work to make current system compatible
• My estimate: option costs < 1000€

63. A backup option
We are here!
Decision
NEW system
Update old system ?
Implement
01/01/XXXX

64. NO!
“Failure is not an option”

65. What happened next?
• System is not accepted for production in december
• Company can’t invoice it’s customers
• Every month of delay cost X00.000€
• But we saved a few thousand euros on options!

66. What have we learned?
•
•
•
•
Manage the Creative Process
See difficult decisions as options
Don’t decide. Decide when and how to decide
Sometimes doing everything is the right option
• At least for a while
• First consider value, only then cost
• Tools help me calm down in stressful situations with
irrational people (like me)
• Keep it simple:
• I manage my options with Google Calendar

67. Architectural decisions

68. Everything you learned about
architecture is wrong
“Architecture is all the decisions that have
to be made early because they are
costly to change”
Problem: early in the project you don’t
know enough to make the RIGHT
decision. Anyway, things will change.

69. Principle of the right moment
Easy to change decision: decide early
Hard to change decision:
• Make it easier to change
• Delay decision date

70. Minimum effort principle
Don’t do tomorrow’s work today(YAGNI)
AND
Don’t do anything today that makes
tomorrow’s work more difficult
Aka “The laziness principle”

71. A good architecture…
Creates options for your team; your
organisation and your customer
Creating and maintaining the options is
continuous, daily work in small steps
Otherwise you create legacy systems that
contain fewer and fewer options

72. “Every seemingly bad
situation or decision
hides a good decision.
You just have to look.”

73. Mr Nobody
A boy faced with the consequences of choices...

74. A boy faced with the consequences of choices...
Chooses not to choose
“Mr. Nobody” a movie by Jaco Van Dormael

75. Thank you!
• If you want to know more
pascal@nayima.be
http://blog.nayima.be