Weighted Lead Time

Duration is a technical term from financial bond mathematics. Its not a great name. Weighted Lead Time (thank you to Dan North) is a more expressive name. Weighted Lead Time does not replace lead time and cycle time as measures, its a compliment. However I will argue why I think its a useful metric at all levels of the organisation.

  1. A CEO level metric that any financial astute investor (Private Equity, Venture Capital) will understand.
  2. Super easy to calculate. The second half of this blog will show you how to do it in Excel.
  3. A metric that makes sense when you look at it from different perspectives. It can be easily broken down and analysed from any perspectives to provide insight.

A CEO Level Metric
Weighted Lead Time (WLT) takes all the cash amounts invested over a period of time and replaces them with a single cash flow at a single point of time. An investor understands that if nothing else is known, an investment that takes a long period to generate a return is more risky than an investment that takes a short period to generate a return. An investor understands that an organisation where the WLT is increasing is becoming more risky (and possibly more risk averse) whereas an organisation where WLT is falling is becoming less risky.

Obviously it is easy to game this metric by failing to improve product metrics which is why it is only one of the metrics that an investor would look at.

The Super Easy Metric
WLT is super easy to calculate. Consider the following story level extract from a tracking system for three teams “red”,”blue” and “green”. The three teams have been involved in three initiatives “XFactor”,”NewMute” and “Xcaliber”.

Time Tracking Extract

Three of the fields are “calculated”, Investment, time and time*Investment.

Investment (I) is the cost of delivering the story. There are many ways to calculate this, such as the percentage of the sprint (calculated using story points or the count of stories). The worst way is to ask all team members to enter their time into a time tracking system as this will lead to all sorts of unnecessary pain and gaming.
The units for this do not matter, Man days, Team Weeks or Dollars or Euros all work.

Time (T) is the number of days from starting the story, and the date the investment delivers a return. Even though software may be released into “production”, that does not count. It is when the value is released that counts.
Instead of the start of the story, it is acceptable to use the start of the sprint when the commitment of investment occurs.

time*Investment (T*I) is Time multiplied by the Investment.

Simply highlight the data and create a pivot table in Excel. Three pivot tables are shown below:

WLT Pivot Tables

In each case the SUM of the Time*Investment and Investment are shown in the body of the pivot table. Weighted Lead Time (WLT) is calculated as the SUM(Time*Investment) / SUM(Investment) in units of days (The investment units cancel out which is why we do not care what they are).
The first pivot table shows the WLT of each initiative and the Grand Total (119 days) shows the WLT for the whole organisation (which is also on the other two).

The pivot below shows the WLT for each team.

The pivot table on the right shows the breakdown of each initiative by team.

The key metric is the WLT per initiative. The WLT per team is useful analysis tool but setting it as a target can lead to behaviour that leads to improving the WLT of the team at the expense of the Initiatives. The team level metric should be the average WLT per initiative for all the initiatives they are involved in.

**WLT from Different Perspectives**
As can be seen from the example above it is easy to see WLT from different perspectives. It can be seen and easily understood from the initiative, team or whole organisation perspective.
Compare that to Lead Time or Cycle Time. The lead time and cycle time for initiatives change as the configuration of the investments change. Lead time and Cycle Time cannot be aggregated to an organisational level value or broken down by team in a simple way.
Lead time and Cycle Time are great metrics but they really assume a manufacturing paradigm where the nature of the work is static.

WLT is not a replacement to Lead time and Cycle time, it is a complement. WLT is super easy to calculate, and a nifty metric that can be used in many contexts and communicated to the investors.

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About theitriskmanager

A IT programme manager specialising in delivering trading and risk management systems in Investment Banks. I achieve this by focusing on risk rather than cost. A focus on costs can lead to increased costs. View all posts by theitriskmanager

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