Prioritizing SaaS Features

I’ve talked about using your Value Proposition(VP) to rank features by dollar value here and using Ideal Days to estimate duration here.  Now let’s combine the two and look at total value based prioritization of features or PBI’s.  In essence what we are doing is giving the highest rank to features that will yield the most value in the least amount of time.(cost)  To calculate cost we will need some measure of cost per hour.  If you have the actual numbers, use them, if not here are some tools you can use.  Work hours in a year: 2080 Annual salary:  $50K=$24/hour  $100K=$48/hour.  Margin for overhead: 20-30%.  With these tools let’s assume that our team makes on average $90K annually.  This gives us $43 an hour.  Adding 25% we get about $54 an hour.  From here we can simply multiply our cost per hour by our Ideal Hours to get total cost per feature.  Subtract our total cost from our value (sales) and we get the profit per feature.   We then prioritize (rank) by profit.

 

Feature Rank % of total Value Estimate (Ideal Hours) Cost Profit
8 1 5% $ 4,902 2 $ 108 $ 4,794
9 1 5% $ 4,902 2 $ 108 $ 4,794
2 1 5% $ 4,902 4 $ 216 $ 4,686
1 1 5% $ 4,902 8 $ 432 $ 4,470
3 1 5% $ 4,902 8 $ 432 $ 4,470
6 1 5% $ 4,902 8 $ 432 $ 4,470
7 1 5% $ 4,902 8 $ 432 $ 4,470
11 1 5% $ 4,902 8 $ 432 $ 4,470
4 1 5% $ 4,902 16 $ 864 $ 4,038
5 1 5% $ 4,902 16 $ 864 $ 4,038
10 1 5% $ 4,902 16 $ 864 $ 4,038
12 1 5% $ 4,902 16 $ 864 $ 4,038
16 2 4% $ 3,922 4 $ 216 $ 3,706
17 2 4% $ 3,922 4 $ 216 $ 3,706
13 2 4% $ 3,922 8 $ 432 $ 3,490
14 2 4% $ 3,922 8 $ 432 $ 3,490
15 2 4% $ 3,922 8 $ 432 $ 3,490
21 3 3% $ 2,941 2 $ 108 $ 2,833
22 3 3% $ 2,941 2 $ 108 $ 2,833
18 3 3% $ 2,941 4 $ 216 $ 2,725
23 3 3% $ 2,941 4 $ 216 $ 2,725
19 3 3% $ 2,941 16 $ 864 $ 2,077
20 3 3% $ 2,941 16 $ 864 $ 2,077
24 4 2% $ 1,961 8 $ 432 $ 1,529
25 4 2% $ 1,961 8 $ 432 $ 1,529
$100,000 204 $ 11,016 $ 88,984

 

As you can see this moves our prioritization around a little bit.  The nice thing about the above is that we can automate it.  In your Agile Management System each feature should accept a VP rank and an duration estimate in Ideal Hours.  You will also want to have a mechanism to enter the Value of the release, $100K in the example above.  Using these inputs your system should be able to auto-prioritize your features for you.  Now that you have cost, you can track EV,PV and AC on your CVE vs. CVP graph.  I don’t like the PMI term “value” in the EV and PV metrics.  Their old names used to be Budgeted Cost of Work Performed(BCWP) and Budgeted Cost of Work Scheduled(BCWS) which I think is more fitting. Either way, don’t confuse the term “value” in these metrics for revenue.  The value they represent is the cost, i.e. the value of the work.  For this example, we will assume that the estimates were correct and AC and EV are equal, that is, there is no cost variance during the release.  The graph would be similar to that of Figure 1.

image

Figure 1 – CVP, CVE, PV, EV & AC

I know there are some hard-core Agile managers out there who believe that we should not concern ourselves with revenue estimates.  Some think that simply managing costs while we continue to iterate is enough.  If you are of this mindset, let me ask some questions.  How do you know when your costs are nearing your sales?  How do you determine if your project will be profitable?  If given multiple projects to work on, how do you choose the most important one?

I would also like to remind you that I have not taken risk into account yet, which will again change the priority of the features.  I will try to cover this in future posts.

As always, I would love to hear your thoughts on this.

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